Ann: Galaxy to sell SDV northern tenements to POSCO for US$280M, page-385

Hi @Sharpey

Well done. It was helpful.
I think you’ve done the best job of collating LPD/GXY info
in a clear and concise way
but I do think you are making a few too many jumps in your explanation of how it works.


I think there are some issues in the LPD model you have proposed and how you have extrapolated them into a specific profit margin that I think need some more looking at the assumptions behind them.

I’d just like to deal with the numbers you’ve put out.
Nice and simple.
You are joining some dots and all I’d like to have a go at showing you another way of joining them and a few places where they really can’t be joined the way you're assuming.
Not simply anyway.
I would expect you will probably disagree.
I don’t really feel I have a horse in this race
and also happy to concede that I’m not any kind of scholar of LPD, only of GXY fundamentals.

My over-arching view with LPD is I’ll believe it when I see it.
For the moment, the over the top multi-bag ramps put me off.


Bear with me a little as I just retrace some of your steps.
The PDF you linked to said that LPD was able to recover some lepidolite from Mt Cattlin tailings.
There was also some tests done on material taken from the DMS that graded at 2.7% lithium.

You’d have to agree that neither of these prove the actual quantity of available feedstock material at Mt Cattlin
meaning there is no data yet on the available lepidolite for the L-Max process,
only that it verifies that there was sufficient quantity to do some testing and that it worked out.

It is a fine thing that 90% recovery carbonate can be created by appropriate feedstock,
but it may be a stretch to make too many further assumptions quite yet.

The lithium grade in the DMS itself is interesting and a bit surprising
because it is actually higher than the actual ore body which hovers around areas of 1.2-1.4% generally.
It is also a higher than the standard lithium concentration of unprocessed lepidolite which will often be sub 1% in its raw unprocessed form.

That says something.

It implies that the material already has a high quantity of partially concentrated spodumene
that has mostly come from the crushers and dumped as dust.
This dust needs to be removed prior to transport.
A lot of it will end up in the tailings as mud.
The number one reason for our mica classifier circuits was to satisfy the no mica requirement for Esperance port.
Mica dust is unfriendly to human lungs.

The LPD document agrees that this is a spodumene resource and that their tests prove that lepidolite can still be found and extracted.
That’s fine too.
No surprises that there would be some lepidolite contamination in this geology - but there is no information about separation, how or whether specific material was selected or the quantity.
Grades of the tailings were not mentioned.

You mention a desirable 4.5% lithium lepidolite feedstock that LPD would ideally purchase from Galaxy at $600/ton.
That is not going to happened that way. Not unless there are massive changes at Mt Cattlin.
That product is not actually available. Anywhere.
Lepidolite won’t be found naturally in the Ravensthorpe ground like that.
Nor will it be the product or that grade be sitting in the tailings.
LPD may be able to separate lepidolite with acids and chemical, but Galaxy doesn’t/can’t.
Not at the moment.
This is the issue.
Lepidolite waste in the tailings or DMS is most likely to be unprocessed ore.
It won’t be concentrated and likely to be sub 1% grade. It will be treated like waste rock and dumped - along with waste rock.
No neat piles of high grade lepidolite to be found. It's a pile of mud.

I'm pretty sure ven Mr Talbot will tell you that Mt Cattlin is tuned to process spodumene. It does not produce any quantity of concentrated lepidolite.

It may be possible to make some adjustments to circuits - but everything I know about mining circuits says that you tune them to be more and more precise, not swiss army knives.
Seems quite improbable.

The document you linked shows a lab process for L-Max checking out - but not a business case being made.
Quantity is crucial. Costs are another issue.
I know punters say there are no costs for L-Max.
I find that hard to believe.
Credits are handy but everything costs and time costs the most and some credits prove to be more trouble and expense than they're worth, no matter what they look like on paper.
Credits that may not return full value is not the real problem, though.
The worst thing is when an unexplored or ignored issue becomes the deal-breaker.

That is -
Exactly how does LPD get its feedstock?

Perhaps you have other process info and numbers to make the case stronger- but they have not been presented anywhere that I have seen.
I haven’t read everything available but its decidedly unspecific in what you have presented.
Not all that lithium percentage in the DMS is recoverable by LPD
and I’ll do my best to explain what I mean.

There is a lot of LPD talk about making money from “mica" and “waste".
The problem I see is about what “mica” is
and what “waste” is
and what the contents of that tailings actually include.

The basics.
Mica is a family of silicate minerals. Not all have lithium.
Spodumene is the highest grade lithium bearing mica.
Lepidolite is another, most often a third less concentration if you were to compare decent spodumene to decent lepidolite.
A Chinese spodumene processor will be looking at 8t of spodumene for a ton of carbonate.
A lepidolite processor will often need as much as 12t or higher. Chinese lepidolite is famously low grade ( did I hear 16t was required at some plants?). It is why their processor sector has moved over (sprinted away as fast as possible?) to target high grade Australian spodumene.
I’m not aware of anywhere in the world other than China that currently specifically mines lepidolite and the reason would be that when prices hit $4500/ton for carbonate - there wouldn’t have been much chance in hell of making a profit from a mining operation.

LPD L-Max tech is focused on lepidolite. Makes sense. Its in the name.
In the documents on the LPD site - and you have to dig a bit - it does specifically say that the process does not work on spodumene.

The Ravensthorpe area does have lepidolite. I believe one of the nearby tenements owned by LIT is exclusively a lepidolite tenement. Mt Cattlin is predominantly a spodumene/tantalum deposit.

Problem with the LPD website and all posters on the LPD forum is that the marketing blurb tends to use mica and lepidolite a bit loosely and interchangeably.
It refers to mica as the feedstock when it is more accurate to define it as lepidolite and a couple of other rarer micas (was it zinnwaldite - again going on memory). I had never heard of the other mica that they can utilise.

It also refers to this idea that L-Max makes money from “waste”.
I think both these things in combination have made for a very clever marketing campaign but are not entirely true.

Most hard rock pegmatites will tend to be either spodumene or lepidolite.
You can get both in the same area but they tend to be one or the other - and some regions, like the James Bay area are known for very low concentrations of lepidolite.
If you are the mine boss at Mt Cattlin then you have already blasted and bypassed lepidolite pegmatites as a matter of course to get to the kind of rock that the concentrator is designed to process - spodumene.

A spodumene concentrator will not want to target a pegmatite of lepidolite and Galaxy would have had zero reason to ever blast and crush a lepidolite pegmatite and chuck it down the conveyors.
The concentrator is simply not tuned to that ore body and the classifier will probably end up rejecting everything as it reaches the final stages, leaving it in the tailings with all the other waste rock.

When asked about the mica on the PLS tenements (LIT mapped them) - one of the mining bosses is reported as saying “yeah. we know about those areas. We’ll mine around them”.
Finding lepidolite instead of spodumene has already been the kiss of death for some hard rock explorers.
The reason is the grades are lower and therefore all costs are higher.

I know that the LPD process is a chemical one - so more similar to a brine operation in some ways - but I haven’t seen anything to show that testing hasn’t been based, so far, on anything more than highly targeted tests.
ie yes. We can get some lepidolite from the tailings. Not that the tailings themselves are the ideal feedstock.

The simple truth is that there are 407kt of tailings and the majority of mica in there is obviously spodumene.
The majority of the rest is probably mud.
There will not be a cleanly separate lepidolite feedstock and LPD may need to take the lot.
As is. That's a lot of stuff. Twice the annual shipments from Mt Cattlin. Of mud.

Which brings us nearly to the term “waste”.
I know you’re targeting lepidolite. The problem is nobody else is
and the reason for it being “waste” is it would be wasting our time to do so.
It is no more useful to a spodumene mine than any other rubble and rock.
Those pegmatites will be avoided. They are the “waste" of the mining operation, but not the waste of the concentrator
simply because high grade lepidolite pegmatites would be specifically avoided.
Its arrival in a conveyor is a mistake.

What ends up in the tailings dam will contain lithium. It will contain a bunch of different micas and rubble and dust and crap but any mica will be primarily spodumene mica, not lepidolite mica.

I’m not even sure its possible to separate. There are a pair of mica classifiers in action - but I’m not sure that is even technically possible. I’m not Mr Mica but I am reasonably logical.
Tailings = dust, mud and rock.
Galaxy would have said "knock yourself out if you think you can get carbonate from this mess”.

The 407k pile will be the starting point.
This is the problem for transport or sorting down the track.

If DSO spodumene is a bad and temporary solution to a hard rock feedstock deficit issue then, despite lab testings saying that - yes - carbonate can be made. The reality will require a LPD DFS specifically studying Mt Cattlin.
What quantity of that tailings dam is lepidolite, given that its not specifically targeted and the good grade spodumene has already been extracted by the concentrator?
One thing for sure - LPD can’t buy 20kt of clean high grade lepidolite from Mt Cattlin. Its not the product of the plant.
It may have to start with that 407kt of mud.

Now I hear that the plan is to ship it to LPD’s first plant proposed for Canada?
Is that right?
Costs.
Start with 30c a km per ton trucking rate rule of thumb in Australia. Ravensthorpe is 180km from port. Say $50/ton.
Then shipping to Canada - guesstimate another $50/ton.
It may be more.
I’m more familiar with Chinese figures and Canada is further.
Let’s say transport inside Canada is free (it won’t be) and the total is still aprox $100/ton for raw tailings.

So transport 407kt of tailings from Ravensthorpe to Canada would be $40m approx (on the very generous side).
I think its very unlikely that 2.7% of the tailings is lepidolite, given the fact that the processor is targeting spodumene pegamatites but let’s say that
2.7% grade product would mean contained lithium was approx 10kt (assuming pretty much 100% recovery).
Say you get $15,000 per ton of carbonate = $150m - $40m transport.
Let’s just work with these rough figures and I can see how you get to a $110m profit figure that you are using.
I can see the appeal. I don't know plant capacity - or how long it would take to process that amount of material.
But the maths is way too optimistic and I bet all costs are factored on clean feedstock.
Not mud.

Now that is the good scenario - with 2.7% contained lepidolite.
What if the lepidolite content is only 1%? (much more likely)
What if the lepidolite content is only 0.05%?
What if you get a month and you have shifted 60kt from Esperance to Canada and there is barely any lepidolite in there at all?
These are the risks that a small company may need massive cash contingencies to cover.

This is the thing. (excuse the rough figures).
100 tons cost $10,000 to transport (minimum)
There is a 90% recovery and I can see why you are excited by 2.7% graded tailings.
So - 2.7 tons of carbonate ($15k/t for carbonate sales = or approx $40k for 2.7 tons of carbonate - a little less for recovery).

But the much more likely situation is that tailing style feedstock grade is much lower -
if the grade is 1% - (which is much more likely)
That is ton of carbonate that has a $10,000 transport cost before getting started on
Canadian transport or processing costs.
That is a huge input cost for 1 ton that could sell at $15,000.

The feedstock and costs have to be very low to give this a margin.
If cost of ( tailings + processing costs + canadian trucking ) = more than $50/ton then there is zero profit for anyone.

90% recovery in lab conditions.
But how much at industrial scale from Mt Cattlin mud?
GXY is unlikely to want to risk paying for tolling given these numbers.
Surely? Its way too risky if the grades are so low or not dependable.

We have to call it what it actually is - DSO lepidolite.

What happens when Mt Cattlin’s circuits’ recovery rate improves to 75%, or higher?
More targeted mining? Better grading spodumene pegmatite areas revealed by new drilling?
Things get worse. Less lepidolite.

Even if there were no LPD processing costs then its a very high volume operation without much room for error.
If my model is more accurate then there is no room for profit or payments for anyone.
The process may need to be cost negative because my model may even end up being generous.
Raw unprocessed lepidolite ore is likely to sub 1% - so any lepidolite in the tailings is likely to be as well.

The closer the percentage of lithium in those tailings gets to 1%
the closer the whole DSO deal comes to not being viable at all.

I think the problem has been that an LPD holder has a great temptation to see the marketing and judge that feedstock was not a problem.
It actually is the biggest problem.
It is not as simple as Money For Nothing with zero costs and that everyone will multi-bag etc etc.

The problem is exactly that it is waste.
Its not separated. Its dumped with dozens of other minerals
and LPD may have the problems of carting it all away to sift and look for the needle in the haystack.
Did you say Galaxy has a tailings issue? How bout LPD?
Where to dump 99 tons out of 100.
Thats a big operation in itself.

Yes. There would be be a business at 2% and higher tailings grades if it was all destined for 90% recovery L-Max
or if a processor can be co-located - but we hear that co-location is not going to happen for some reason (cost of acid, licensing or something?).

I reckon co-location is the only way to go.

The current lithium economics suit processed spodumene and perhaps DSO spodumene at high grade and volume.
But shipping tailings?
Again, you have to remember Mt Cattlin is not a lepidolite processor or mine.
Somebody has to put the lepidolite in the tailings to get it out.
Are the economics in favour of Galaxy building another concentrator for lepidolite?
I don’t see it happening. Not when there is a brine plant and hydroxide plant planned first.

LPD need to locate a plant near every hard rock mine to avoid transport costs
but it may have the same problem.
Unless its a lepidolite mine you're still dealing with separating feedstock that may not be that easily recoverable or in predictable quantities. It will depend on the progress of the mine
and the recovery rates of the processor.

I think that what LPD needs is their own targeted lepidolite mining operation - targeting the highest grade lepidolite feedstock it can get.
Co-locate your processor and you’re in business. Stick one right beside a lepidolite mine and build a concentrator for the feedstock. No transport. No feedstock hassle.

(btw: this is probably what will happen in the end. It costs money to build a concentrator but it will make for a good dependable operation that has a better chance of aligning with lab results.)

Instead - when it comes to investment proportions there are no numbers available on what Galaxy has in terms of lepidolite reserves or whether there is an economic case for building a second concentrator that targets lepidolite.
Welsho was at pains to point out why a WA processor was not on the cards.
Now apparently its an option.
I don't know.

Perhaps that is why the whole arrangement is in limbo at this point.
LPD is not the CSIRO and testing may take a long time to confirm the business case for large capex expenditure. By anyone.

As to the whole Talbot/Bacchus thing as some confirmation of Galaxy’s intentions.

I don’t see the choice of Mr Talbot as being particularly relevant.
It had to be someone and Talbot is senior enough to be acceptable but junior enough to still raise the question -
Why Mr Talbot - and why not Mr Bacchus?
I’m pretty sure that as soon as the board position came up then Bacchus was front and centre of every LPD owner’s mind.
He would have been a much bigger catch for the board.
We would have heard the champagne corks popping from here.
It would have been so logical to have selected him because of his operational knowledge and prior involvement and I think it bears some consideration as to why he is not the Galaxy appointed director. I can’t see that AT wouldn't have offered him the role? Can you?

Many companies taking large positions in others will often appoint one of their own directors to the board as a sign of respect.
So why would he turn it down? Too busy? Seems really odd.
I would suggest there is one simple reason
and that when he defended LPD from LIT he was rewarded for his legal work with a large position in LPD.
One day he would like to cash that position in.
I think Bacchus did buy shares in LPD with his own money - but he was also paid in shares for his legal services very handsomely.
Perhaps its all just business. He is looking to exit when the time is right, without restriction by "selling windows".

Remember too that directors also gain free shares.
If he was a LPD super bull, wouldn’t he want as much as he could get?
I think its the most plausible explanation.

Why did I post any of this?
I’m simply answering a question that was put to me by an LPD holder recently called @w00lfy.
Its not my style to post in forums where I don’t hold, so I didn’t.
He asked what my concerns were about lepidolite.
Now we have a few rampers here I thought I'd balance it out.

It am not up on all LPD documents or announcements but its worth considering that some of my questions and assumptions
may be entirely wrong but that they may also be some of the same that instos' quants and analysts may have. ie There are obvious stumbling blocks to a smooth operation.
It is also probably why LPD was sold back down. Not there yet.
There are still legitimate questions but posts like yours @Sharpey help people a lot more than ramping multi-bag style.

I think its way too early to present a finished case as to what Galaxy is doing with its percentage ownership in LPD.
Or to project LPD profit margins.
Strategically, GXY seems to have given itself a take-over blocking percentage but it does not imply anything else.
It may have already prevented what it sought to achieve
or its a place-holder for some future strategy or tech development.
or its wait and see.
or it was simply "trade the trade" and seek to take profit when it suits.

Galaxy has a lot on its plate. I think its unlikely to fund a LPD capex prior to SDV and JB with hydroxide plant.
That could be at least a couple of years away and perhaps LPD can use that time to firm up the test results or commence construction of the Canadian plant on its own.

Galaxy hasn’t been shy about sharing road-maps to things that don’t seem easy to get to -
ie James Bay plus co-located processor.
So why wouldn’t it simply broadcast plans with LPD, if management had a clear strategy of involvement?

AT answered at the AGM that the LPD holding was “part of an R&D strategy”.
We’ll see what happens.
As always.

Cheers
AC