Conversations on other threads about the POSCO cash settlement, bringing POSLX or other processing technologies to the J/V and expected imminent announcements are, in my opinion, starting to diverge significantly from statements we have been given.
Here is part of the conference call, edited for clarity, with some important points that I believe may help shareholders to shape their expectations with regard to the SDV joint venture process.
I have highlighted points that I believe to be most significant.
I deleted instances of “kind of”, “actually”,”obviously”, “potentially” from the transcript, and split paragraphs for clarity.
2018 ½ yearly Conference Call transcript excerpt cleanup edit. SDV timeline.
"Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [7]
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Okay, great. And just on Sal de Vida, and what's the expected revised timing around getting to a decision point given that you've now got those bids in? And I guess an extension of that, what happens in the event that you deem those bids unacceptable? Are you confident that you could develop the project without a strategic partner on board?
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Anthony Peter Tse, Galaxy Resources Limited - CEO, MD & Executive Director [8]
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Okay. So in terms of the process, Nick, one of the key criteria, apart from the transaction structure and valuation and everything else, in terms of the level of due diligence, one of the major milestones that many of the investors would like to see complete is the full and final settlement of the POSCO transaction.
And as Alan referred to earlier, we've already completed the registrations in Catamarca. I was in Argentina in the first week or so of this year, just following up on the Salta registrations that we need to complete. And those registrations and documentation is in good order.
But the Argentine departments in Salta, the Mining Court specifically, is on break until the first of February. And so from what we understand there is a little bit of a backlog in terms of applications that need to be processed in Salta, and we're working with the authorities to see what we can do to get that expedited.
But as Alan mentioned, there's $257 million sitting in the balance sheet, and that is an integral part of the evaluation as those investors consider the transaction.
Secondly, I think we're confident that we have among the group of people who've submitted proposals as well as the ones who have yet to submit and just working through their due diligence as well, it's taking a little bit longer than expected.
But I think irrespective, I think we also have today, as Alan mentioned before, a balance sheet, which is in a much, much stronger position than the company's ever been. I remembered when we first -- this current management team, first took over the management of the company, we had probably close to $250 million of net debt, and today with net cash plus we have no debt on the balance sheet.
So I think given that a substantial portion of the capital required for Sal de Vida has been covered by the POSCO funds in the unlikely event that we -- either we're not satisfied -- and , we're still -- I don't think we're there -- definitely by any means there yet. We have the optionality to consider the other forms of financing.
But at the moment, we're still very much working on continuing those discussions with the counterparties.
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Reg Spencer, Canaccord Genuity Limited, Research Division - Mining Analyst [22]
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Okay. And last one is just on Sal de Vida. I'm just going to follow up on Nick's question. Just want to, I guess get a better feel for how we should think about the development time line or an expected FID date on Sal de Vida. I know the situation [seemed like fluid] given that you are still in the midst of discussions and you're still evaluating proposals. But if we had to look at this from a modeling perspective, this slight delay on when an FID was originally meant to be made, should we be thinking about a 6-month delay in the first production, 12-month, anything along those lines?
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Anthony Peter Tse, Galaxy Resources Limited - CEO, MD & Executive Director [23]
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Yes, Reg, I think in terms of our original time line, we were aiming for the first half of this year. I think we're still inclined to think that we can achieve the necessary steps to get us into a similar place within this calendar year.
A couple of things that I want to point out, firstly is notwithstanding the fact that the strategic process is taking up a little bit more time than expected, we are very much committed and have a high level of conviction to develop the project. I mean, we've recently made an announcement to bring on board a very senior and seasoned project director, a gentleman called Mike Nelson. And he himself, at the moment, has already stationed himself in country. He's going to be spending most of his time there. We're very much ramping up our operations there as well as the organization structure. We've recently signed up a new, quite large office space, about 600 square meters in Catamarca City. And so apart from the strategic process, we are very much looking to ramp up activity.
We've completed a fair portion of the [earth work] for the test ponds and everything else. So very much still trying to undertake the operational initiatives that we had originally planned.
In terms of the other point that I'd like to make is what Alan was referring to earlier in terms of through some of those discussions that we've had with our potential partners, , there was a level of interest to evaluate to what extent we can eke out more efficiencies, both financially and operationally on the process.
And so that's why we're now also spending a bit more time looking at adding some of the more unconventional stages and processing steps into our overall flow sheet. That will be a good use of time from the team during this period when we're still looking to close the strategic process.
Coming back to the overall time line, I think we had originally budgeted something, which was along the lines of about 3 years. Now 3 years plus if you -- as you would appreciate, Reg, you know every single brine project takes a fair amount of time to ramp up, normally 2 to 3 years to get them to a steady state. I mean, that is a 5-, 6-year process.
And even though over a 5-year process, you think about it in months. That's 60 months. So if we end up taking an extra 6 months to end up -- we -- finding the right partner -- but also not only the right partner but the right structure as well for the transaction.
I mean, we firmly believe that Sal de Vida is very much a world-class asset. It's one of the best undeveloped assets in the world from within the lithium space. And we really do want to get it right both from the partnership structure as well as the process. And so we think that this world-class asset is going to be our flagship going forward.
And so that's why in the whole scheme of things, if we end up taking an extra 3 to 6 months or whatever it is to get that recipe right in terms of the partnership and the development plan for the project going forward, I think that's where we want to be.
Okay. And sorry to harp on about Sal de Vida, but if you're looking at using new technology to improve the efficiency of the process, that's not going to be a 3-month task, that's going to be a 6- to 12-month task before you could potentially highlight the potential benefits of using new technology. So is there any other major stumbling block then? Because it seems like most of the people who would have been bidding would know that POSCO's going to settle, but going down and trying to find a new technology route seems like a -- sort of another fork in the road. Like could you comment about that.
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Anthony Peter Tse, Galaxy Resources Limited - CEO, MD & Executive Director [29]
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Yes, Warren, a couple of things. We have to -- we've started work probably since late Q3, early Q4 on looking at some of those alternate processes. And as Alan mentioned before, it's not going to be from a complete blank sheet of paper.
Some of these processing steps have actually been applied in other flow sheets before, not entirely absent within the lithium space, there has been some application of those processing steps within the lithium industry.
And so I think we're partway down there. Obviously, we do need to complete the validation work on that.
In terms of the POSCO transaction and the sentiment from strategic investors, I mean, I think you'd appreciate that currently given in this market, getting -- whether a project has $250 million closed, completed and settled, or whether it doesn't is -- I wouldn't say it's a funding block but it's a key milestone that investors would actually want to see completed.
And we've been -- we're happy that Catamarca has settled but Salta has taken quite a lot longer than we had previously anticipated. But if you look at the capital funding objective that we were looking at with the strategic process, we've always been looking at having the strategic partner come in and cover the balance of the capital requirements for the project.
And from their perspective, if they share that particular objective, it's also important for them to see, yes, knowing or having confidence in the POSCO transaction in the settlement versus seeing a settlement is always going to be, at least from the investor's side, 2 different states of mind. And I think based on our conversations with them, they would really want to see that settled as well."
In summary, my take on these points would be:
. Salta mining court will take whatever it takes, hopefully in February but no guarantee. The money WILL come, but until it does it is contributing to a delay in the J/V process.
. There are multiple bidders involved but not all bids yet received because of, at least in part, the above.
. It is expected and preferred that SDV will be financed by a JV
. In the unlikely event that none of the proposals sufficiently reflect the value of SDV as the world class asset that it is, GXY is well placed to proceed with more traditional forms of funding.
. The process is obviously delayed, but an additional 6 months or so is a small price to pay when the value of the asset and the overall timescale are considered.
. The unconventional processes do not seem to be radically different tech for downstream, rather different steps and processes in the flow stream, some of which have been used in the Li space before. (I'm thinking it's more about the brine treatment itself rather than conversion)
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