With drilling permits now approved, I think it’s a good time to provide an overview of Galan Lithium for new investors, as well as provide some new insights for existing holders.
Fair warning, this is a long post so grab a comfy chair, make a cup of coffee and settle in for a read. This post provides an overview of the following:
- Galan Lithium – Hombre Muerto projects overview
- 2018 – Major Events in Salar del Hombre Muerto
- Why there’s probably lithium at Candelas
- Why nobody else snagged Candelas before JP?
- If there is lithium at Candelas, how big is the resource likely to be?
- What is a reasonable, conservative market cap if lithium is confirmed.
- Summary - putting all the pieces together.
- Links and references
The usual disclaimer – everything in this post is 100% speculative. My own opinions based on my own research and analysis. Anyone making financial decisions based on this information does so at their own risk. Follow it up with your own research.
I'd love to hear others' comparisons on the calculations at the bottom.
Galan Lithium – Hombre Muerto projects overview
For those new to Galan Lithium (ASX:GLN, formerly Dempsey Minerals ASX: DMI), this is how we look relative to the major players on Hombre Muerto:
View attachment 1393671
Galan’s flagship project is called Candelas and covers an area known as the Los Patos Delta – a long narrow valley running South-North from the volcano Cerro Galan to Salar del Hombre Muerto. The valley is formed by the river Rio de Los Patos, which originates from Cerro Galan and is the primary fresh water source for Hombre Muerto. The fresh waters of the Los Patos are rich in lithium (among other minerals) and are believe to be the primary feed source of lithium into the salar.
2018 – Major Events in Salar del Hombre Muerto:
There has been some serious activity in our neck of the woods this year. This is a chronological summary of some of the major events concerning us and the other Hombre Muerto plays this year. Even as I’m writing this I’m quite amazed. When you put all these events in order it starts to tell a much bigger story:
- 6 Feb 18: ASX listed shell company Dempsey Minerals (DMI) signs option agreement to acquire private equity company Blue Sky Lithium, which holds exploration tenements in Salar del Hombre Muerto, Catamarca Province, Argentina (pending due diligence).
- 27 Feb 18: Morgan Stanley releases a research report claiming the lithium price will plunge 45% by 2021 due to market oversupply.
- 12 Mar 18: Morgan Stanley begins buying large volumes of shares in Galaxy Resources.
- 17 Apr 18: DMI completes due diligence on the Blue Sky Lithium acquisition. Deal proceeds.
- 29 May 18: Galaxy Resources sells the northern tenements of its Sal de Vida project to POSCO for US$280M. The northern tenements (let’s call it Sal de Vida North) cover an area of around 9,700 Ha and contains 1.58 Mt of measured and indicated JORC compliant resources (2.54 Mt total resources).
- 5 Jun 18: Sentinel 2 satellite imagery shows first signs of what appear to be drill sites in the Los Patos channel (on Galaxy tenements), approximately 5.5 kms north of Candelas
- 6 Jun 18: DMI releases initial geophysical survey results for Candelas, confirming extensive depths of high-conductivity brine to depths of up to 600m covering the full 10km length and 4km width of Candelas. Brine zones range in thickness from 150m to 400m. Several of the brine zones remained open at depth and at the eastern and western extents of the survey.
- 15 Jun 18: DMI releases initial CSAMT survey of Candelas, further defining the shape and depth of the resource.
- 30 Jun 18: Galaxy Resources quarterly report shows update FS economics based on the revised JORC following the sale of Sal de Vida North: Project NPV of US$1.48B. 4.09Mt M&I JORC resource (incl 1.14Mt JORC reserve). 25 kTpa lithium carbonate. 40y mine life. Capital cost of US$441M (excl optional potash facility). The report briefly noted that a production well was to be drilled in the southern tenements in Q3.
- 12 Jul 18: Morgan Stanley, after continued buying since Feb, are announced as a Substantial Shareholder in Galaxy Resources.
- 23 July 18: Additional landholdings acquired in Candelas, and expanded geophysics surveys announced. Expanded geophysics to cover the eastern tenements as well as further investigate the extents of brine zones at Candelas.
- 14 Aug 18: Dempsey Minerals (ASX
MI) renames itself Galan Lithium (ASX:GLN) in homage to Cerro Galan – the volcano that is the primary lithium feed source for Hombre Muerto.
- 3 Sep 18: Sentinel 2 satellite imagery shows signs of a second drill site in the Los Patos channel (on Galaxy tenements), approximately 3.5 kms north of Candelas.
- 23 Sep 18: Sentinel 2 satellite imagery shows extensive activity (what appears to be multiple drill sites accessed via a single access road) appearing right on the border between Galaxy and Candelas tenements. By the Sep 28 these sites appear to be well established.
- 30 Sep 18: Galaxy Resources quarterly report indicated a second exploration well SVWW18_25 (not production well as mentioned above) was drilling in the southern tenements in Q3 to a depth of 301m. Assays and analysis to be completed in Q4. Also noted that a second contractor has been engaged to drill a further two holes in in the southern tenements in Q4, with results from the four wells to be used to expand the existing resource.
- 4 Oct 18: Expanded geophysics confirm brine zones extend beneath the ignimbrite covering the east and west sides of the Los Patos delta, substantially increasing the size of the project.
- 11 Oct 18: FMC Corporation spins off its lithium operations (including the Fenix lithium operation in Hombre Muerto), listing as Livent Corportion (NYSE: LTHM) with a market cap of around US2.4B. The share price has since fluctuated but held steady against a severe downturn on the NYSE.
- 20 Nov 18: POSCO commits US$450M to develop Sal de Vida North, including a lithium phosphate plant at Hombre Muerto and a 25kTpa lithium hydroxide plant near Salta.
- 13 Dec 18: Galan receives approval for exploration drilling at Candelas
You can see the sentinel imagery of the drill sites first appearing in Sal de Vida here:
View attachment 1393691
View attachment 1393683
View attachment 1393681
View attachment 1393687
View attachment 1393689
View attachment 1393685
Why there’s probably lithium at Candelas
There is extensive academic research available on Salar del Hombre Muerto and the volcano Cerro Galan, covering everything from geology, volcanology, hydrogeology and the presence of metals and minerals (including lithium). I have provided links below to my earlier research posts, but in summary the high likelihood of lithium bearing brines being present at Candelas is due to the following factors:
- The Los Patos delta appears to actually be a deep, wide salar that was covered by a volcanic eruption around 2.5 million years ago. The volcanic rock resulting from this particular eruption is called Cerro Galan Ignimbrite (CGI). The full extent of the CGI eruption can be seen in yellow in the figure below. Studies on CGI including drill core samples show the northern flows of the magma over Candelas had flowed over a wide, flat area (evidenced by the shallow, uniform layer of CGI in the area) rather than a narrow valley. The CGI layer was subsequently worn away by the winds and the waters of the Los Patos, forming the Los Patos Delta on top of the old salar (effective exposing to old salar and then depositing alluvials on top of it). Theories on the geology were (and are still) speculative, but geophysical surveys carried out by Galan seem to support this theory. The second graphic below shows the extents of the CGI magma flow across Candelas and the eastern parts of Sal de Vida.
View attachment 1393669
View attachment 1393677
- Candelas sits within a paleo channel – a long valley running south-north from Cerro Galan all the way to the north-east corner of POSCO’s Sal de Vida North. Early drilling by Lithium One on the Sal de Vida project shows the western ridge of the paleo channel continues beneath the surface of the salar. The channel is very deep (>800m in parts) and appears to be hydrogeologically continuous between the Sal de Vida and Candelas projects. The ridges flanking the paleo channel are Precambrian (the oldest of old rocks) and form a basin, so in theory lithium brines present below the ridge line in Sal de Vida should be similar to those in Candelas – they are in the same basin. The graphic below provides a summary.
View attachment 1393673
- Geophysical surveys (CSAMT and gravity) performed by Galan show high conductivity brines at much greater depths than initially expected. The basement of the channel seems to slope southward back towards Cerro Galan (rather than north towards Hombre Muerto as expected, since that is the way the river flows). The southern-most geophysics lines show the brine zone extending down to around 800m and still open at depth.
The cross-section below shows the surface, basement and lithium-bearing brine zones along a 32km south-north trajectory covering Candelas and Sal de Vida.
View attachment 1393675
My theory to explain these results is that the Los Patos delta is a very old, deep salar that started forming in the south (close to the foot of Cerro Galan prior to the CGI eruption and the formation of the caldera) and then grew northwards over several millennia of evaporation, slowly filling the Los Patos delta. This original salar would have received water inflow from both the north and south until it completely filled the paleo channel and spilled over into Hombre Muerto.
Further evidence to support this is the presence of evaporites at depth in cores drills by Lithium One, see below.
View attachment 1393693
- Galaxy Resources would seem to agree there’s something worth exploring in the Los Patos delta. Although they have appeared to ignore their south-east tenements, as stated in the timeline above they have recently commenced an aggressive drilling program very close to their boundary with Candelas. The drill locations and approximate depths are shown in red in the cross section sketch above.
For historical purposes, here are a few links to early posts, mostly discussion the geology, potential depths and extents of the resource underneath the Cerro Galan Ignimbrite:
22 Jun 18. A fairly good summary of the geology of Candelas based on a lot of research on the history of volcanic activity from Cerro Galan.
https://hotcopper.com.au/threads/wh...4261656/page-10?post_id=33891822#.XBXGXWgzaUk
8 Jun 18 (post release of geophysics). The penny started to drop about the geology of Candelas.
https://hotcopper.com.au/threads/ch...006321/page-216?post_id=33591076#.XBXFYmgzaUk
4 Jun 18 (prior to release of geophysics). It’s clear from these posts that we weren’t expecting anywhere near the depth we found. It’s good to be wrong every now and then.
https://hotcopper.com.au/threads/ch...post=true&direction=previous#.XBXGymgzaUk
https://hotcopper.com.au/threads/ch...006321/page-213?post_id=33475465#.XBXFamgzaUk
25 May 18 Overview of fundamentals (geology, directors etc)
https://hotcopper.com.au/threads/ch...006321/page-195?post_id=33310009#.XBby02gzZI0
Also, looking slightly ahead of our initial drill programs, some thoughts on the potential use of the femaroles to provide membrane-based brine concentration (instead of evaporation ponds), which would also produce fresh water for use in downstream processing.
https://hotcopper.com.au/threads/ch...006321/page-245?post_id=34589124#.XBXavWgzaUk
Why nobody else snagged Candelas before JP?
It’s a fair question. It’s impossible to know for sure but the logical explanation is that everyone else missed it.
One of the most widely referenced geological models of the area, by Vinante and Alonso in 2006, is show below. Cross section B shows the Los Patos delta as “alluvial” and hence the delta has always been considered “off the salar proper”. Generally it has been written off as a river channel carved in volcanic rock containing nothing but shallow alluvials and the river feeding Hombre Muerto, with no evaporites and hence no high concentrations of lithium.
The geological process for concentrating lithium in the salar is that lithium-bearing waters enter the salar in fresh water from the river. Alluvials are deposited along the length of the river and they become a sort of sand filter so the water moving downstream becomes ‘clearer’, with only the dissolved minerals like calcium, magnesium, lithium etc getting through. When the filtered water evaporates these suspended minerals are left behind and forms the halite that you see in the western part of the salar. Due to the higher filtering effect, lithium concentrations in the halite are typically higher, hence in the West you see surface samples of ~1000ppm lithium (and presumably higher as you drill down). The downside to halite is it sets harder - like gypsum - so the porosity is lower and you get the brine in pockets, making it more difficult and costly to pump out.
Logically then it follows that in the eastern parts of Hombre Muerto the brine is largely held in courser alluvials and the lithiumconcentrations are lower – more in the range of 700-800ppm as shown in the Sal de Vida eastern drill samples.
Notwithstanding everything above, with the geophysics results from Candelas showing extensive depth in the delta increasing towards the south, the Vintante model may be shown to be incorrect and it’s possible that more evapourites could be found at depth in the south.
View attachment 1393667
View attachment 1393665
If there is lithium at Candelas, how big is the resource likely to be?
Obviously with no drill results of our own yet, and calculation is going to be based on some broad assumptions.
I have based my volume estimates on the latest CSAMT survey results, found here:
https://wcsecure.weblink.com.au/pdf/GLN/02030534.pdf
The basic formula for calculating the size of the resource is as follows:
Tonnes LCE = volume of the brine-hosting sediment x drainable porosity x concentration of lithium x 5.3
Volume of brine-hosting sediment (estimated from CSAMT lines):
Length = 16.5km
Width = varies from 2.8km to 6km. Average width approx. 4.5km
Thickness = varies significantly. I calculated an average of around 290m.
Volume = 21.5 B m3
Drainable porosity: This is a guess without drill samples. The table below shows that values assigned to various hydrogeological ground types. Given the upper areas a likely to contain higher percentages of alluvials an average value of around 0.08-0.1 seems likely. 0.08 used for calculation.
View attachment 1393679
Lithium concentration: Conservatively assume an average of 400ppm (Galaxy in the adjacent project had a 500ppm cutoff, so a 400ppm average is considered very conservative).
Therefore volume of LCE = 21.5B x 0.08 * 0.0005 * 5.3 = 4.56 MT
This is a very broad approximation based purely on the volume of high-conductivity brine present. Much of this volume is likely to be lost in the process of proving a JORC resource. I don’t have the expertise to comment on how much is likely to be lost be I would presume a factor of 50% conversion to a measured and indicated resource would be conservative.
Hence my estimate is we will have a resource in the order of 2.2 MT LCE.
What is a reasonable market cap if lithium is confirmed.
We're at such an early stage that target prices are of limited value and likely to be miles off. There are several recognised ways to value a mining project. The main ones are:
- P/E ratio
- NPV
- Peer comparison
Without any indication at this stage on timeframes to production, production volumes or even the commodity to be produced (carbonate or hydroxide) P/E ratio and NPV are not overly helpful.
Hence I'll go with the obvious peer comparison. The two best data points are the Sal de Vida North tenements sold to POSCO, and the updated feasibility study for Galaxy’s remaining Sal de Vida project. These values are:
- POSCO: 1.58 MT of measured and indicated resource, sold for AUD $390M.
- Galaxy: 4.09 MT measured and indicated, project NPV of AUD $2.06B.
Given that the Galaxy NPV considers production volumes and capital costs it would be more prudent at this stage to use POSCO as a comparison.
Based on a 2.2 MT measured and indicated JORC compliant resource, a reasonable enterprise value would be somewhere in the order of AUD $540M.
A timeframe for achieving this milestone is probably looking into 2020, given our maiden JORC might focus on a smaller area. This number will also be largely affected by market sentiment, which has been poor this year.
Summary - putting all the pieces together:
- Banks and traders like Morgan Stanley claiming there will be a lithium oversupply have been shown to be manipulating the market, to create the best possible entry point for themselves.
- Galaxy started drilling in their southern tenements in June, roughly 1 week before Galan announced the results of our initial geophysical surveys at Candelas. Is that a coincidence? Unlikely – a more likely scenario is they caught wind of the depths being found by our geophysics – much more depth than they ever expected for this region of Hombre Muerto. With the time elapsed since Galaxy’s first drill hole in the southern tenements (6 months) they would surely have received the lab results for the first hole. They have kept a lid on the results, but immediately accelerated the pace of the drill program by engaging an additional drill contractor. Since the first hole the drill program has extended literally to right down to the border with Candelas. Galaxy have stated in their quarterlies that this program is designed to extend its JORC resource. Methinks they found something big.
- POSCO are spending in excess of AUD$1B in two years to purchase and develop a parcel of land (The Sal de Vida northern tenements) that is similar in size and scale to Candelas.
I will say this part one more time to let this one sink in…
POSCO are spending in excess of
ONE BILLION Aussie dollars to purchase and develop a parcel of land that is
SIMILAR IN SIZE AND SCALE TO CANDELAS.
- Based on some very rough calculations, once we prove a JORC we could easily be sitting on a resource in the order of 2.2 MT, equating to a enterprise value (based on the POSCO sale) of around AUD $540M.
- Galan Lithium’s market cap is still a tiny $25M.
Galan is a tiny company surrounded by behemoths. And IMO beneath Candelas lies a sleeping giant. We now have permits and funding to drill. Time to wake him up.
2019 will be our year. GLTAH.
Links and references
Some of the more useful papers and websites:
- Measured, Indicated and Inferred Lithium and Potassium Resource, Sal de Vida Project. Montgomery & Assoc (on behalf of Lithium One). March 2012
- Evapofacies del Salar Hombre Muerto, Puna argentina: distribucion y genesis - Vinante, D. y Alonso, RN. 2006
- Stable isotope constraints on the transport of water to the Andes between 22‡ and 26‡S during the last glacial cycle – L.V. Godfrey et al. 2003
- The role of climate in the accumulation of lithium-rich brine in the Central Andes – L.V. Godfrey et al. 2013
- High-temperature emplacement of the Cerro Galán and Toconquis Group ignimbrites (Puna plateau, NW Argentina) determined by TRM analyses – Chiara Lesti et al. 2011
- The flow dynamics of an extremely large volume pyroclastic flow, the 2.08-Ma Cerro Galán Ignimbrite, NW Argentina, and comparison with other flow types – Ray A.F. Cas et al. 2011
- A re-appraisal of the stratigraphy and volcanology of the Cerro Galán volcanic system, NW Argentina – Chris B. Folkes et al. 2011
- The Cerro Galan Ignimbrite – P.W. Francis et al. 1983.
- Sentinel Hub for the latest satellite imagery:
https://apps.sentinel-hub.com/sentinel-playground/?source=S2&lat=-25.433392184048675&lng=-66.91326141357422&zoom=14&preset=1-NATURAL-COLOR&layers=B01,B02,B03&maxcc=100&gain=1.0&gamma=1.0&time=2017-12-01|2018-06-20&atmFilter=&showDates=false
(20min delay)