Iggy Tan ... industry source controls the lithium business. WHILE lithium’s common use as a mood stabilising drug is not the primary driver of Galaxy Resources’ emerging Mt Cattlin lithium project – think batteries, electric vehicles and the green revolution – it’s fair to say the company’s managing director Iggy Tan will be in a far more relaxed frame of mind when a 30% stake in the venture is sold in the next month or so, paving the way for development.
Pegged to cost $A130 million or so, the project is forecast by Galaxy on current estimates to be capable of yielding an average of $A60 million (net cash) per annum for its 15-year mine life.
The sale of a 30% interest in the planned mine near Ravensthorpe in Western Australia and a lithium carbonate plant development in China is seen as providing Galaxy with the funds needed for the equity contribution towards the capital cost.
“We’ll sell 30% up front, for which we’ll (receive) an amount of cash,” Tan told HighGrade. “The joint venture partner has to fund 30% of the $A130 million and we have to fund 70%. If you use 60:40 [debt:equity], then hopefully some of the money that we generate from the sale of the project will then be our equity component, and then we’ll maybe be looking for debt of about $A50 million. Galaxy shares should remain pretty well undiluted from this stage.”
According to Tan, the strategy of diluting interest in the project was preferable to blowing out the capital structure of the company – though with the important proviso that the company retained control of the project.
In essence, the Mt Cattlin venture will comprise a one million tonnes per annum spodumene mine and beneficiating plant in WA producing 137,000t of material grading 6% spodumene that will be exported to a lithium carbonate plant in Jiangsu Province, China – the Jiangsu lithium carbonate plant within the Zhangjiagang Free Trade Zone. The aim is to be producing 17,000t of battery grade lithium carbonate, with first production targeted in 2011.
Galaxy's aim is to be producing 17,000t of battery grade lithium carbonate, with first production targeted in 2011. On paper at least the case for Mt Cattlin looks strong.
“[There is] usage of 100,000t of lithium carbonate per annum (and) growing 5-7% year on year,” Tan said. “Industry forecast demand to increase to 300,000tpa by 2020. Production capacity is likely to be caught short due to the capital and time frame to expand existing operations and greenfield operations. The price high was $US6500 – 7000/t last year. Expect upward pressure on price.”
He said there were some projects in Canada – but at a very early stage – while current brine producers in South America will lift production.
“The industry source controls the business,” Tan said. “Currently China uses about 25,000t of lithium carbonate of which only about 6000t is made internally … the rest has to come in via either spodumene or lithium carbonate from South America.
“Brines are cheaper (in terms of operating costs), but have high capital cost and long lead times to develop – evaporation of 12-18 months before production – and are tied with fertiliser demand.
“There will be supply (come on), but the key is how much growth is expected. And if we’ve got offtake arrangements, it’s all booked for extra planned capacity so we are not left in the market trying to place that. So it becomes a strategic supply.”
Tan believes the planned operation features standard operational and processing risks.
“There’s always risk in start-ups, always risks in processing plants,” he acknowledged. “But the crushing and beneficiation (via heavy media/gravity separation) is very simple. The other end there is a chemical process … there’s obviously risk in that but the process is established in China where there are many lithium carbonate plants operating using the same sulphuric acid process.”
According to his bio, Tan has over 22 years of experience in the mining and chemical industry, with a background in both marketing and business development and managerial roles with SCM Chemicals and Sons of Gwalia amongst others. Tan managed the Lithium Mineral and Lithium Carbonate plants at Sons of Gwalia’s Greenbushes operations in 1995, with Greenbushes the largest hard rock source of lithium in the world. Mt Cattlin, said to be the second largest, was previously held by Sons of Gwalia.
Last month Galaxy welcomed another former Sons of Gwalia lithium executive onboard when Michael Tamilin – ex general manager marketing for Sons of Gwalia from 1995-2006 – was appointed Galaxy’s general manager in China.
Galaxy raised $A6.65 million in new equity in May (priced at 35c per share), with the company this week capitalised at about $A55 million based on a share price of 72c.
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