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Millennial Lithium (ML) - A Lithium Junior That Can Get Financed?

August 20 2020, 02:01 GMT+01:00

Millenial Lithium

  • TSX-V: ML
  • Shares Outstanding: 83M
  • Share price C$1.42 (20.07.2020)
  • Market Cap: C$118M

Lithium has been a tough investment in recent years. Oversupply driven by Argentinian and Australian over-production has left the market in a state of depression. Very little capital is being allocated to new lithium projects, and lithium juniors are struggling immensely to flourish. However, whilst the outlook for lithium supply looks concerning, the picture for lithium demand looks much rosier.

If you are thinking about investing in the battery thematic, you need to understand the macro investments drivers and who is who at the zoo. Lithium-ion batteries look to hold the key to our future transportive solutions, and for this to happen, we will need a lot of lithium, nickel, copper, cobalt (maybe), graphite, etc.

Matthew Gordon talks to Farhad Abasov, August 2020


So what about the lithium space in general? There is a lot of it about. It is abundant. The hard bit is producing it economically. Multiple forecasts suggest that a massive supply-demand deficit is coming. However, due to recent oversupply and stockpiling, there is little capital flowing into the lithium developers currently. In addition, many lithium projects are on care & maintenance waiting for the lithium price to recover. Plus, investors are much more interested in soaring and attractive commodities like gold and silver than one that has a long-term horizon. Therein lies the opportunity, especially for those claiming to be contrarians. The hard bit is picking the right project to back.

Lithium is a little like uranium in terms of its market dynamics. It is a small, nuanced metal and market, but with some analysts projecting EV penetration to be 25% by 2030, it has credentials to grow much larger. In 2019, lithium chemical sales were c. 300,000T at approximately $10,000/t: $3Bn in revenue. However, some projections expect lithium to grow by 15-20% per year, with demand reaching 2Mt pa by 2030, though Abasov feels a conservative "safe" figure of 1Mt lithium demand by 2025 is more reasonable. 2Mt would require 1.7Mt of new production, and clearly this isn't going to come out of thin air. New projects need to be brought online to have any hope of plugging the supply gap. With automotive giants like Volkswagen claiming that lithium is the “irreplaceable element for our electric future," investors might buy into these projections with more confidence.

In terms of where lithium comes from right now, c. 65% of lithium chemicals are processed in China, which includes 80% of highest-purity, highest-value, battery-quality lithium hydroxide. As far as the raw resource, much of it comes from hard rock spodumene deposits in Australia. China also gets some of its lithium imports from lithium carbonate chemical exports from Chile and Argentina. It is clear there is a total lack of diversity when it comes to lithium projects, and national governments could start to see lithium as a strategic commodity. On the ESG side of things, having to ship all of one's lithium from thousands of miles away is far from ideal for a company's carbon footprint. The need for more lithium projects is clear, but there is also an overt need for the diversification of their region.

In 3-5 years, Abasov expects lithium to really pop. COVID-19 has created a short term reduction in EV demand because consumers simply can't afford such vehicles right now, but this has done little to terminate the long-term value proposition of lithium. Car sales fell by 70-80% in some countries H1/20, but confident lithium investors will be sticking to their convictions as governments are now incentivising and subsidising automotive purchases.

Aggressive EV subsidies are now being actively discussed, particularly in Europe. In July, the Chinese government announced that it would extend its reinstated EV subsidies package until 2022. European vehicle manufacturers have spent billions on EV production infrastructure, and national governments, especially in Europe, China and North America, are working hard to install EV infrastructure, such as charging points at most gas stations, across the country. It is claimed they may have spent as much as $500Bn on this. The Chinese government will be installing a whopping 78,000 new charging/supercharging stations for EVs over the next few years. A lot of the psychological barriers for prospective EV consumers could be broken down by this degree of investment in infrastructure.

We last spoke to Farhad Abasov, CEO of Lithium Developer, Millennial Lithium (TSX-V: ML), a month-or-so ago. It is one of the most advanced lithium brine projects, and the company had just cleared its final hurdle, an Environmental Impact Assessment (EIA), ahead of pursuing financing. Abasov says they have funding groups in the dataroom currently.

Let's quickly remind you what Millennial Lithium is offering investors exposure to. The company owns one of the most advanced lithium projects in the world: the flagship Pastos Grandes lithium brine project in Salta Province, Argentina: the ‘Lithium Triangle.’ If you want to better understand the difference between brine and hard rock, click here. Pastos Grandes sits impressively in the lowest cost quartile for production, and the feasibility study for the project exhibits some equally stellar numbers.

  1. Proven Lithium Carbonate Equivalent (LCE) reserves of 179,000t.
  2. Probable LCE Reserves of 764,000t.
  3. Robust economics for a 24,000t/y battery-grade LCE operation.
  4. An entirely reasonable CAPEX of US$442M.
  5. An OPEX of US$3,388/t of LCE.
  6. An NPV of US$1,030M.
  7. An IRR of 24.2%.
  8. A substantial c. 100,000t pa potash byproduct (4 potash: 1 lithium), which produces an additional US$25M in revenue.

All in all, this is a solid lithium project and is one of the few new lithium plays that may be able to get financed in the current environment (says Abasov). It is being delivered by a management team that has made money for investors before. Since the approval of the EIA, the company has been more actively pursuing financing discussions and there is clear interest, especially from some new investors. The company will look to construct a deal featuring strategic investment, investment from off-take groups, debt and other equity investors. There are only a "handful of projects worldwide that have been permitted to this level," and this will likely look a very attractive bet for EV bulls. Expect "one of the major investors to come in" by the end of the year, followed by the conclusion of Millennial Lithium's offtake agreement. The rest of the financing should also be finalised by the end of 2020, COVID restrictions allowing.

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So, can Millennial Lithium profit off all this bubbling potential and secure appropriate financing ahead of the lithium bull run?

What did you make of Farhad Abasov and Millennial Lithium? Comment below and we will respond.

Company Website: https://www.millenniallithium.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

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Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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