Ann: Galaxy to sell SDV northern tenements to POSCO for US$280M, page-370

Hola Galaxians,

Long-time lurker, first time poster. Just popping over because of Maxi's tag, but since I'm here, congrats on the SDV deal. That adds far more value to Galaxy than the market is currently pricing it. If I had spare cash lying around I definitely would be buying right now.

As for @svencandy's question, @Thesi has given you an excellent breakdown. You can see why Tianqi, Neometals and SQM/Kidman are building these integrated projects in WA. It's all about capturing the entire margin at scale as one operation, rather than having all the costs split out across the chain.

Now, as for how this directly relates to LPD delivering value to GXY, it depends on what kind of deal is struck between GXY and LPD. We've gone back and forth over this territory quite a bit on the LPD forums for the last 6 months, and there's two schools of thought about how it will unfold.

1) LPD buys the mica tailings from GXY's Mt Cattlin operation
2) GXY pays LPD a tolling fee to turn GXY's mica tailings into battery grade lithium carbonate on their behalf

The important point to note in both of these situations are that LPD is processing Mt Cattlin's tailings. This is stuff that GXY are presently paying to dump somewhere. It has a value of $0. Arguably, it has a negative value, as there is a cost involved with dumping it, but let's just assume a value of $0.

Critically, this means that if a deal is signed between the two companies, Mt Cattlin has suddenly increased the section of its lithium resource that it can sell, which means the reserves have jumped up. That's a nice little boost straight to the bottom line.

Exploring option 1:

LPD's PFS for the Phase 1 plant assumed buying 4.5% mica concentrate for $350/t. This was done by taking a 6% spodumene price of $500/t and ratcheting down for the lower lithium content at 4.5%. Assuming a similar method, with the spodumene price around $800US, and you're potentially looking at $600/t for LPD to buy the tailings off GXY on that simplistic measure. LPD uses 10,000t of 4.5% concentrate to make 1,000t of battery grade lithium carbonate.

So, for every 1,000t of carbonate that LPD want to make from Mt Cattlin's tailings, it is potentially worth $6m ($600 x 10,000) to GXY from something that is presently worth $0.

Now, as an LPD shareholder, I'd hope the price wouldn't be quite that high, as GXY get the cost savings of not having to handle the waste etc, but even if the price was $450/t, it is still $4.5m for GXY per 1,000t LPD want to produce.

From my estimates, LPD may need to find another 25,000-30,000t a year from 2021 to feed the P1 plant once it is debottlenecked and producing another 2500-3000t a year above what is originally planned, so that could be another $11.2m to $18m for GXY, all up.

Now, your question related to how much does processing it increase the value. Well, LPD might be buying the mica from GXY at $600/t, and then the rest of the processing costs work out at about $1500/t, once the by-product credits (sodium silica, potash, potentially cesium and rubidium), are taken into account.

Then LPD sells it for whatever the battery grade carbonate price is, presently around $16,000/t based on SQM's March quarterly earnings. So that's a margin of $14,500 on 3,000t = $43.5m in profit.

So GXY takes something presently worth $0, and gets somewhere between $11m and $18m for it, then LPD takes that and makes around $40m from it. So you're seeing an uplift to GXY of $11m to $18m, and a total uplift in the value of the material by $40m. The triple rule then, in my very rough calcs, still holds.

Which brings us neatly to option 2:

Given this immense value being created from waste, we may see GXY stump up the cash to help LPD build the Phase 1 plant, in return for retaining ownership of the refined lithium coming out at the end. LPD would likely keep the by-products, and charge something like $4,000/t to toll refine the lithium.

In this case GXY would end up capturing roughly $12,000/t of value for 3,000t of carbonate, so $36m of the value from waste previously worth $0. Massive uplift in value. Far more than 3x.

As an LPD holder, I'm far more in favour of option 1, but who knows what is going on behind the scenes. The funding options for Phase 1 are still all up in the air.

James Bay is also a potential development in this area as well, but that's too early to tell. We know Mt Cattlin has this stuff piling up, and we know LPD can use it (http://www.lepidico.com/wp-content/...-High-Recoveries-from-Mt-Cattlin-Tailings.pdf)

Anyway, I hope that is helpful.

Cheers