Re Lithium The market still likes/loves big projects that have the potential to be at the low end of the cost curve. The market price for Azure is impressive for its stage of development and that Azure at A$1.7b only owns 60% of the project. There is still interest in the right projects but concern exists when they involve high strip ratios, expensive capex, thin lithium seams, modest size resources or high C1 costs. Those concerns weren't really there during the boom but have re-emerged. What does E25 have at Lake Johnston? Nobody knows but some of the signs at TG6/Charger are favourable. Both TG6 and Charger have large lithium anomalies that have yet to have the source identified. TG6 is finding that Spod is the highly dominant lithium mineralisation. TG6 is finding that the pegmatites are mineralised right the way across, not just a zone within the pegmatite. TG6 is finding they have stacked mineralised system of pegmatites. TG6 has confirmed mineralisation over an extended strike length. Rio Tinto has considered there's potential to do a farm-in with Charger. Both TG6 and Charger have found very robust grades. These are all excellent attributes in relation to the Lake Johnston region and on tenements that border E25's with E25 having similar geology. Both TG6/Charger are still looking for the company maker of either robust widths near surface or huge widths at any depth.
With the speed of demand growth, the current down cycle is unlikely to last particularly long. Demand growth is growing at about two to three Pilgangorra's (PLS's project in the Pilbara) each year. Goldman Sach's latest forecast had 2026 demand approximately double 2023 meaning every single in-production resource in 2023 needs to be replicated in the next 3 years to meet supply demand. Demand growth should quickly consume the supply that is coming online, particularly since lithium projects have a huge and extensive history of delays and implementation issues.
IMO the future isn't in E25 actually building a lithium project - they are expensive, difficult and need expertise E25 doesn't have. Its in E25 doing the prep work so they receive an offer for their tenement that they can't refuse.
As context, despite the recent declines, the price point of Spodumene is massively higher than Manganese. SC6 Spodumene has just dropped under US$1,000/t. 32% Mn ore at US$4.22/dmtu is at US$135/t. That is why while both PLS and E25 have expansion plans to circa 1Mtpa production rates, PLS is around 200x higher MC at over A$10b. Success in the lithium game can give a huge boost to the share price.
Re Butcherbird The problems started with the decision to go with a low capex route. This would probably have worked if it wasn't for clay issues. From what I understand the butcherbird ore is basically 20%ish ore (and can be up to 40% ore) interspersed with layers of clay. The JORC presents this as 10% ore with a low strip ratio needing lots of beneficiation. Arguably its >20% ore in thin seams. There's a higher strip ratio but you are collecting the clay overburden with the ore. The mining separation of ore/waste clay is incomplete. The log washer is ok at removing some clay but not at the quantities being presented. The optical scanner hits issues if the ore isn't perfectly washed. Butcherbird was commissioned with cheap(ish) equipment but no the right equipment causing throughput to be lower than planned cascading to costs being higher than planned which has become a problem with Manganese at cyclical lows.
The expansion proposal to have equipment geared to managing clay and less sensitive to how well the ore is washed is sensible. With the kit proposed butcherbird has the potential to hit the throughput and mine gate cost point proposed. You will basically then have a very cheap mining operation. A fairly low cost processing operation and a high logistics cost of getting ore from Butcherbird to Port headland. Management would have the tools they actually need to deliver.
When investor interest return to Manganese (potentially in conjunction with HPMSM) it remains a fact that E25 has a big deposit meaning they can supply significant volumes to current and future HPMSM plants. Potential exists to expand that deposit further (if needed).
HPMSM This is an expensive project that ideally would be being undertaken from an entity with a lot stronger financial position than E25 has. Unless the 3rd customer being worked on has very high manganese batteries planned (which is possible), the offtake volumes being noted indicate a 3rd big fish is being targeted. The market seems to be overlooking quite how significant it is that E25 has already achieved two tier 1 offtakes. Typically its only companies many times the size of E25 that would have multiple tier 1 OEM's as customers. With the fall in E25's share price there's a distinct chance that E25 will need to JV or otherwise sell part of the HPMSM project to get the finance. The HPMSM project has the potential to look fantastic when represented as a company in which E25 has a significant if not controlling interest. I'd much rather E25 have half of a project going somewhere fast than all of a project stalling for lack of finance.
From the HPMSM financials it would appear that the processing and reagents are the largest costs and while critical, the Manganese ore is not the biggest cost. This potentially lends itself to a long-term fixed price agreement at a price point where Butcherbird makes good money and takes it out of the commodity cycle.
E25 Price at posting:
27.0¢ Sentiment: Buy Disclosure: Held
(20min delay)