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Great post, very well thought out.I think the PFS into the...

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Red Baron

4,125 Posts.

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23/04/23

10:21

Post #: 67414607
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Originally posted by Sjlasx: ↑

I have posted elsewhere tonight but will rehash a little to answer your request and add some
further thoughts.

Ultimately I believe a Hydroxide plant will be built at the NAL site. In the meantime:

I believe it is in the best interests of SYQ, SYA and PLL to release a PFS for a carbonate plant at NAL. At PFS level they have a lot of flexibility to make assumptions about the prior works and as a result, as SYA's CFO has indicated, the market can expect to see a PFS to complete the "half finished" Carbonate plant at a cost retail holders of both SYA and PLL will appreciate.

The PFS will publicly demonstrate that SYQ is working towards fullfilling it's promises. Shareholders expect it but more importantly so does the Canadian Government / Quebec.

I expect that at DFS level it will be difficult to proceed with the previous decade old engineering plan and much of what is assumed to be utilised in a PFS will not be available when more detailed engineering at a DFS level is complete. Much has changed in the industry since the existing plant commenced construction. It could very well be that ultimately a Carbonate converter is similar in cost to Hydroxide. I am not sure of the specifics kf what has been half finished but there are obvious high ticket common items for both end products.

It is likely that a DFS will be completed based on a Carbonate salt product at NAL but there is a possibilty that it will either be delayed or scratched and replaced with studies for a Hydroxide plant.

To produce Carbonate from Spodumene at this point in time would effectively make SYQ a global outlier in a geographical location that is best served by a Hydroxide product. If SYQ were to complete the existing plant I do not see that happening ny late 2026.

This is a fascinating and extremely compex situation, which incidentally is why I am posting again. SYQ made commitments to Quebec and by extension the Canadian government to build a converter in a relatively short period of time as part of the acquisition of NAL.

IMO SYAs greatest long term prospects are based around it's northern hub. To get approvals and just as importantly State financial support there, they will need to keep the government on side and backing out of the converter commitment would negatively impact relations.

Keep in mind when you see those graphs that show time to mine for lithium extending past 15 years we're talking James Bay (Lithium One drilled it out in 2008/09 and GXY announced commencement of a DFS in 2011 wjich was abandoned), and Moblan (under control of Perilya - 60% - had a defined MRE in 2008, revised in 2011, and has only now been updated again by SYA this past week). While the market economics absolutely had a major influence on the delays, those familiar with the enviro approval process for GXY/AKE at James Bay and SYA/SYQ at Authier over the years would understand just how difficult the system in Canada is, particularly without government support. It is not an easy jurisdiction to get approvals.

SYA has a very large proportion of retail investors and they need to bear that in mind. At this point in time holders want a converter built as fast as possible to reduce the length of time that PLL gets the lion's share of profits due to PLL's LOM offtake that is only impacted if SYQ completes a converter or the parties agree to a major change. Holders are also expecting a very low Capex route salt production that can only realistically be announced by way of a PFS to complete the existing work. Shareholders would be up in arms to miss out on a very positive PFS which by all indications is coming soon and will reward their expectations.

What I don't think PLL holders truly appreciate having read recent threads is that it is important for PLL that SYQ proceeds with a converter, be it Carbonate or Hydroxide Lithium salts.

PLL has had well documented local opposition to projects in the US and they are likely expecting continued financial support from the US Government. Potentially they will be wanting the Government to get intervene and force approval of the Galston County NC project. If PLL renegs on their commitments at the SYQ JV to Quebec then they will lose a great deal of credibility with local communities in the US as well as the government. That could be a very costly mistake.

The way I see it playing out is that SYQ will have to manage a delicate balance to keep SYA holders happy and not put Quebec in a situation where it loses face. This situation where SYA is stacked with retail holders and PLL has an offtake that sticks out like a sore thumb adds complexity to a decision regarding Carbonate or Hydroxide as the end product.

I believe the way to approach this is to release a very good looking PFS for the Carbonate plant, announce a DFS to follow and then pivot once cashflow is being achieved for SYQ. That will numb the hit from the news to retail shareholders. It will also allow for cashflow to build for a longer period of time to help fund the SYQ converter and make SYA's other development commitments more manageable from a financial pov.

While a Hydroxide converter may cost something in the region of a billion dollars and potential add amother 12-18 months on top of any potential delays to completing the on site carbonate plant, I believe in the long run it is in the best interests of both JV partners.

Quebec is obviously very eager to get their industry kickstarted again and a PFS for completion of the existing half finished converter is certainly best for their optics at this point in time. The narrative needs to continue that the Canadian Lithium industry is on the "fast track".

Once SYQ has cash flowing and Canada as a whole has more projects closer to completion in the pipeline I believe they would support a change to Hydroxide even if it means SYQ is looking at 2028 or later for commisioning. Quebec has a long history of being involved in Lithium development and has had it's fingers burnt several times (see Nemaska), so a transition from the Carbonate plan to Hydroxide would create concern but ultimately I believe would be embraced by the Government as being the right product for the region and a bigger investment from SYQ to announce as confirmation that industry is backing their plans. Just a matter of timing. Right now everything needs to appear on track and without unnecessary uncertainty.

For SYA it may sting to have to put up with a longer period of time that PLL recieves product from their offftake but I think it is a bitter pill that management need to take because in my view it will be a much better decision for their shareholders to build a Hydroxide converter.

It makes sense for SYA, for PLL, and for Quebec. Don't forget Quebec is thinking bery long term.

TLDR - I expect a pivot to Hydroxide and that is in the best interests of SYA, PLL and Quebec. I expect SYQ to complete a converter. Timed right Quebec could call it a big win that suits their long term strategy much more than a Carbonate converter. SYQ would be an outlier to produce Carbonate from Spodumene Concentrate. It is all a matter of timing for the various parties involved. While Carbonate has been mentioned as the pathway for SYQ since the acquisition, I believe that all involved recocgnise it would be a shortsighted move. I am also very sceptical as to how much of that dated previous construction will need replacing and the market won't find a complete answer to that without a DFS.

Expand

Great post, very well thought out.

I think the PFS into the Carbonate plant will be quite positive, they've already said capex around US$300m.

But as you say, under the higher scrutiny of a DFS that old technology might make it unworkable.
I don't think I've ever seen a DFS come up with better figures than the PFS (assuming same metrics)

What will be revealing about the PFS is what partially built means. They talk of the crystalliser being the most expensive component, from my limited knowledge of hydroxide/carbonate convertors, I'd assume that would be more of a back end item. Is the front end mostly built?

As I said with my limited knowledge of Spodumene conversion, the front end for Carbonate and Hydroxide are very similar. Both require initial roasting at very high temperatures, from there the process varies.

Maybe this PFS will also look at using the existing plant to make Hydroxide, if the calciner is in situ, that is at least some reduction in cost.

I know SYQ wants to push this along, this is a very capital intensive project - they want to make sure they get it right because you'd expect it to be operational for around 30 years. If the partly built Carbonate plant is "old technology" IMO SYQ would be better off doing a PFS then DFS into a Hydroxide plant, in fact I think it would be negligent not to look at that option anyway.

With PLL's upcoming expenditure on Atlantic, Tennessee + Carolina, I think both SYA and PLL won't be in a financial position to commit to construction for quite a few years anyway, so best to use that time to complete studies into the best option for downstream.

PLL Price at posting: 79.5¢ Sentiment: Buy Disclosure: Held
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