Interview with Juan Pablo Vargas de la Vega, Managing Director of Galan Lithium (ASX: GLN)
Galan Lithium is an ASX listed, Australian based, international mining company developing lithium brine projects within South America’s Lithium Triangle on the Hombre Muerto Salar in Argentina. We wanted to catch up with the company to discuss the recent PEA at Hombre Muerto and to discuss the recent raise.
With close to $15M in the bank, the company plans to initiate a Feasibility Study at Hombre Muerto, dependent on the results of the brine samples. This will cost AUD$8M and take around 12 months to complete. Once the FS has been delivered, they will look for funding to cover the project Capex and head into production.
Galan Lithium's three projects:
Hombre Muerto West is a 14km by 1-5km wide section of the west coast of Hombre Muerto Salar. Hombre Muerto is proven to host the highest grade and lowest impurity levels within Argentina and is home to Livent Corporation’s El Fenix operation and Galaxy Resources and POSCO’s Sal de Vida projects. Geophysics and drilling at Hombre Muerto have demonstrated the significant potential of a deep basin.
Candelas is a 15km long by 3-5km wide valley filled channel which project geophysics and drilling have indicated the potential to host a substantial volume of brine and over which a maiden resource estimated 685kt LCE (Oct 2019).
The Greenbushes South Lithium Project - Galan Lithium has an Exploration License application covering a total area of approximately 43km2 which is approximately 15kms to the south of the Greenbushes mine.
Matthew Gordon: How have you been?
JP Vargas de la Vega: We have been busy; funding was one of the key questions you asked about last time. We managed to get it over the line and now have close to AUD$15M in the bank. We delivered a PEA/Scoping Study, not far off from being a Pre-Feasibility Study with compelling economics - AUD$1Bn’s worth of NPV, and also with very conservative Lithium prices at the time. It has been busy, but it’s all positive from our end. We have also sent Brine to the labs. We are expecting results within this quarter. That will drive our strategy going forward. I'm quite busy in Australia, Chile and in Argentina, it's been desperate times-desperate measures, and we are still on top of it and in a much better position than we were.
Matthew Gordon: Last year was pretty tough, apart from the last 2-months of the year when the Lithium prices started moving. You must have been relieved to get to the end of the year?
JP Vargas de la Vega: Indeed. We were quite creative, and I'm really pleased with my team in Argentina and Chile. These guys are in the middle of Covid, something that we are not facing as much here in Australia, but these guys were able to do what needed to be done, follow all the safety advice from the local authorities. And yes, we delivered quite a bit.
Matthew Gordon: You have Hombre Muerto with a PEA. You've also got a couple of other projects. Tell us about those first of all.
JP Vargas de la Vega: Technically, we have 3 projects: we have Hombre Muerto West, where we delivered the Scoping Study/PEA. We have Candelas, which is20-25km to the southeast of Hombre Muerto West. This is in within the same salt flat of Hombre Muerto. In Hombre Muerto West we are neighbouring Livent. and Candelas, which is the other project that we have, we are neighbouring Galaxy. Recently we have done a joint venture with Lithium Australia, and we have 80% of Green Bushes’ South project in Western Australia. The highlight of that project is we are 3km south from the Green Bushes mine.
Matthew Gordon: Lithium Australian: why would they get rid of that? They are AUD$130M-140M market cap company. Green Bushes is a big buzzword here because of the IGO deal. You are near them; the naming is good: Green Bushes South is quite clever. Why would they offload that to you?
JP Vargas de la Vega: If you look at their portfolio, they have quite a lot on their plate. They have plenty to divest in and get exposure anyway. They focus a lot on technologies and patents, they are less of an explorer and I think it makes sense for them to let a company like ours do the legwork for exploring.
Matthew Gordon: What are the terms of that deal? You've got 80% earning potential?
JP Vargas de la Vega: We already have 80%, and that's the starting point. The deal was equity only, so there was no cash involved. They are free carriers until Pre-Feasibility and then whatever happens after that, it could get a little dilutive to retain and Participate with that 20%.
Matthew Gordon: Tell us about the equity. At what level did you do that and what did it cost you?
JP Vargas de la Vega: The equity? It was in the vicinity of AUD$350,000-400,000.
Matthew Gordon: What are you doing with that project? You've raised a bit of money recently, you have AUD$15M in the bank. How much time, effort and money will you be spending on that project in 2021?
JP Vargas de la Vega: 2021 – high-level budget - probably 90% Argentina/10% Australia. Our main focus remains Argentina and will we need to approach Australia in a systematic way. We still need to finalize all the mappings, geochem, geophysics, etc, before thinking of drilling a new hole. There's a lot of data as well on Green Bushes mine, so we want to really understand this properly. We're not in a rush, but Australia will not demand much of our funds and time. Our focus is Argentina.
Matthew Gordon: You said you've been given a lot of data. Do you know what you've got there? I get that it's an option and you'll park it up for now, but do you know roughly what you're looking at?
JP Vargas de la Vega: We're looking at the pigment types present at the Green Bushes mine. Everyone knows it's a world-class asset with the highest-grade Lithium in the world. We are trying to see we can find even a small fraction of what they have, and that will be good enough for us. The Green Bushes mine has been operating for more than 100-years. It was a Tin mine and now it is a Lithium mine. We are digesting and a lot of the data, trying to understand previous events so by the time we finally have a big picture of what we have, we can start calibrating that model to what potentially we could have.
Matthew Gordon: We should park it up for now, but there's some optionality there for the future. With the 2 South America projects, 1 is sitting next door to Livent, so the nearology component will get people excited. What do you know about that project?
JP Vargas de la Vega: The Livent project has been operating for more than 25-years. The revolution for the Lithium-ion batteries started at Hombre Muerto. The Lithium for Sony Handycams batteries came from Hombre Muerto West. Everything started there, and more recently, Livent sells most of the Lithium that they have there to Panasonic, and Panasonic sells batteries to Tesla.
In terms of production, they produce around 20,000t of Lithium carbonate equivalent a year, so that's the footprint. They have announced they want to expand production, and it's a known asset. For us, this is fantastic because we have close to 2.3Mt of indicated under the Australian JORC code, sitting in our ground. Our study has shown that we can potentially come up with a similar footprint in terms of production for 40+ years.
Matthew Gordon: How much more money will you be spending at Candelas in 2021?
JP Vargas de la Vega: Candelas, for the time being, has been parked, the reason being is that we want to focus our efforts on Hombre Muerto West. There is optionality on many levels with Candelas: if we need further water, we can extract water and process it with reverse osmosis in the ground. We have 700,000t of Lithium carbonate equivalent at Candelas. That could be a satellite down the track to what we have, but we want to nail Hombre Muerto West first before we move onto Candelas, unless Matt comes with a big shake and says we want to develop those both at the same time.
Matthew Gordon: You've done a PEA - some pretty good numbers in there. Can you talk us through that?
JP Vargas de la Vega: Yes, AUD$1Bn NPV. Operating costs at around $3,500/t, which is 1 of the lowest operating costs of all the products coming online. It is very similar to what Livent has been reporting as actual cost of production on a yearly basis. It is lower than the operational cost of Orocobre. When we look at the largest Lithium project that is coming online in Argentina, which comes from Lithium Australia, they are projecting to produce around 40,000t of Lithium carbon equivalent in the project, and the cost is slightly higher than ours. Now when we come with half the production, the scale of the economics doesn’t apply to us yet so we believe that we already have a competitive advantage and we can reduce our cost. The reason why we have this low cost is premised on the fact that Hombre is a high-grade asset with low impurities. Moving to capex: the capex is rounded to AUD$340M with AUD$100M in contingency. It's around 30% contingency. This work was done and globalized with Wally Chile, and the guys are very conservative because this is our first step. 30% contingency is quite high, but I do understand the reasoning behind it. With a current capex of $340, if you remove the contingency, nevertheless, the capital intensity of our project is still very competitive to our peers in the region. The economics are quite compelling and strong and give us the confidence that the next steps do will bring a lot more optimization.
Matthew Gordon: Talk to me about the team and what you've put in place there, because this technical component is critical, not just in terms of the extraction, but what you then do further down the line to insert yourself into the marketplace. Can you start with the team and what they're doing for you?
JP Vargas de la Vega: In the team in Argentina, we have 2 geologists who are a key part in terms of getting this resource estimation done. They are local Catamarca guys, and they are also shareholders of Galan. That's a key thing that has made a difference; the commitment from them has been fantastic. In Chile, I have Boris Cara, who is in charge of the Study. He has Argentine experience of managing Lithium projects, previously with Orocobre. He is an engineer. He is a Chilean-Australian, and it's good to have a guy who knows the markets and understands Argentina who can deliver the studies. He was dealing directly with Wally internally, as he lives in Santiago. With all the engineering that was done, he always knew exactly what to do. We have a very small team, and we get all the support on top of that from our board member, Daniel Jiminez. He was the senior vice president of commercial for SQM for 10+ years. He worked for 28-years for SQM. Pretty much that's our team. We don't have that many more people. We have ad hoc people who work part-time.
Matthew Gordon: Are you already having those sorts of conversations now that you've done your PEA to be able to insert yourself into the market?
JP Vargas de la Vega: Daniel, as you can tell, is a commercial person, and he's going to look for the best solution to get the best value for what we're doing. He's busy, he has a lot on his plate, but we just want to get it right. The market has turned, and we have seen that the interest from other parties is there. We have not talked to anyone yet, but I think the potential partners are waiting for more maturity in what we're doing, but it doesn't mean they're not paying attention to what we're doing. We have had a few conversations here and there but nothing that will take us to the next step. From Daniel's feedback, he keeps telling me not to worry because it's going to happen.
Matthew Gordon: You say he's busy; he's a non-executive director. But he feels that he will come back in and will be adding value. Is that what you are saying?
JP Vargas de la Vega: I'm saying that Daniel has been approached by several entity commercials and he's got connections worldwide to Lithium, so they do know about Galan, and he is busy screening how far these companies want to go with us and when something serious happens he’ll let us know.
Matthew Gordon: Coming back to the technical component: you say that these are good grades with low impurity, it's fairly conventional - is that what you're trying to convey?
JP Vargas de la Vega: Yes. We have a very simple approach to what we want to do and we are using solar ponds. We're not reinventing the wheel. We are using things that we know work. If you look closely at what Galaxy are doing, they've done a lot of work, probably more work than us, and their conclusion is solar evaporation ponds. That's the feedback that we have had from Daniel because he knows the industry and has been there for a long time, so we respect his opinion. As a managing director, I want to ensure that the money we have is well spent, but we don't want to risk it. We are not against new technologies, but we don't want to be the first to use them because there's a lot of risk involved. Having said that, we are in discussion with 2-3 companies that we believe are worthwhile to keep talking further with, but it's not about a direct Lithium extraction solution. This is more like a hybrid solution; so somewhere in between. We are still using ponds, but the key is to increase our recovery. The thesis, if this works, will be fantastic and if it doesn’t, we're already in the first quartile of the industry anyway. We’re in a very strong position.
Matthew Gordon: Brine and tailings ponds are very conventional processes. I mentioned hybrid DLE extraction because that saves you time, and time is money. What precisely are you talking about there?
JP Vargas de la Vega: We'll save some money by enhancing our brine, but the time component is not that bad, what we increase is our production yield. This is the key thing for the early not the hybrid solution, that helps us to increase our recovery. Our current recovery sits in the high 60s. This hybrid technology - using ponds - we are not walking away from ponds; this could potentially increase our production rate. As an example, if we think of 20,000t under conventional, we could potentially come out with 23,000t-25,000t as a result, but with the same capital expenditure and the same footprint. That's the current focus, we are analysing this, and it is still early days, but we like what we are seeing because this technology uses low energy consumption and low water consumption. Remember that in the middle of the Andes, access to water and power is not readily available. From what we see from other companies that have engaged in direct Lithium extraction is that the power requirements is significant.
Another key thing that we like about this technology is reinjection: that's a key thing that's being discussed. Reinjection is important. We are keeping the aquifers so reinjection may bring a bigger problem, and this is something that needs to be tested and reinjection may bring some contaminants down the aquifers, so we are not doing anymore and we see this as potentially a better solution.
Matthew Gordon: Your feedback into the market – how is that going, if it works and if the economics are there. You say that you've done this PEA to PFS level in some components. What do you mean by that? That can give a lot of comfort around the economics and to the market. Why can you make that claim?
JP Vargas de la Vega: Because I look at the companies behind the engineering. Wally Parsons did the work, and they were quite thorough. Through the feedback from our team as well, they are happy with the quality of the work that's been done, that's why we believe that we’re not far off.
Matthew Gordon: When do you expect to deliver the PFS?
JP Vargas de la Vega: The key inflection point for us is the lab testing that we are doing in Chile in Antofagasta. This has been delayed as the lab that we use in there shut down at the University. Now the lab that we were delivering our samples to also stopped receiving samples from January, so we need to send everything to Santiago, 1,800km south of Antofagasta. The round-trip to send the samples, get the samples processed, etc takes a long time. Once we get this solution tested, we have sent approximately, since the last time we spoke, another 17,000 extra Brine to Chile. We're doing several tests compared to what we did before, so we have different trains of testing that we are analysing. That will give us the solution at both legs. Are we going to PFS, or do we feel confident that we can go into a Feasibility Study? Those results will decide the decision that we're going to make.
We have strong engineering, and the next part is the chemistry. Lithium Brine is about chemistry and we want to get it right. That is the key component. We expect the results within this quarter, then we will announce what we will be doing next year.
Matthew Gordon: How much will it cost you, whether it’s a PFS or a Feasibility Study?
JP Vargas de la Vega: All together it will be around AUD$88M.
Matthew Gordon: AUD$8M, so a big chunk of this will be going on a study - Feasibility or Pre-Feasibility Study
JP Vargas de la Vega: Or both. And it will take us another 12-months to complete.
Matthew Gordon: How do you insert yourself into the marketplace given the potential volatility of a lot of product coming to market?
JP Vargas de la Vega: For us, our location is great: lots of infrastructure, on a salt flat, next to a producer. The last company that got into Hombre Muerto paid AUD$280M, and we have proven that our chemistry is equal or better to what they have. We are probably a little bit behind our peers in terms of a study, but then you have the risk of a sulphide that hasn’t produced and operate before today.
One of the things that I'm doing in parallel is to engage financial institutions to let them know who we are and what we are doing. They don’t all understand us, but this is early days, and I imagine that in another 12-months we will have the results, and the funding is the next leg. I want to ensure that all the financial institutions are familiar with what we have and where we are going. This is a warm-up exercise; no one's going to give you money straight away because they think that you have something good, but I just want to trust in the management, in what we're doing and how we're doing it before getting into production, which is our key thing that we want to get into as soon as possible. There's a lot of conversations happening, just as an introductory theme, but this is ongoing, and I've already engaged on many levels with different financial institutions. At the end of the day, not all of them will be coming to fruition, but they seem interested and like the idea of what we're doing. Argentina has its own issues, but despite all of that, our neighbours will see the strength of the project and that could give us more leverage when the time comes for them to allocate the money for execution.
Matthew Gordon: Can you remind people what you will be producing and selling into market, then I'll ask the question: are you tempted to move further downstream into producing a by-product, or a margin product? Hydroxide seems very popular at the moment, battery-grade Lithium is what people are talking about. Are you happy with where you are?
JP Vargas de la Vega: I have a question mark on hydroxide, the reason being is because if you have seen the data coming from China, LFP batteries use Lithium carbonate high purity, that is the preferred material to go into the batteries. And yes, it doesn't give you the same range as a Lithium-ion battery, but it's a lot cheaper to produce. That's the main thing. Secondly - safety. Don't forget that. Safety is a big component. Lithium batteries are far less likely to catch fire, and at this stage, Lithium carbonate is a flexible product that has many markets where we can place it. We can place it pretty much anywhere in the world, and when things turn sour, we can produce Lithium Carbonate at technical grade and sell it anyway. We have the flexibility to have a high-grade product that gives us a long operating cost. The key thing for Galan is to get the funding, see in the capex and once you're in, you are there for life.
Matthew Gordon: Keep it simple, get into production. You see – mining is easy.
JP Vargas de la Vega: The chemistry is always the most difficult part, and on that note, if I can look at a solution that is less complex than producing Lithium carbonate, that's something that we are also evaluating, because why Australia was so quick to turn around and produce more Lithium is because in Australia, Lithium carbonate doesn't get produced, nor hydroxide yet. The large companies are still struggling to get that out. They are, however, very good at producing Lithium Concentrate. If we can mimic that down the track, that's something we're evaluating because I can get to market in half the time, and it will take me half to a third of the capex requirements to get it online. All of these things are brewing in the background.
We're a small company, if I can avoid being another company with another Lithium carbonate solution that we take 4-5 years to get there, I need to put my hand up for AUD$500,000, even though we might be $300M, it becomes really difficult. We see what Galaxy has done in the PEA: it has taken them a long time independently. My theory on that is because the capex component has been too high, that's why they’re coming to a simpler solution. I'm learning and seeing what other people are doing. I'm looking at what Australia is doing and what it is good at, so if I can apply the same principle, why not?
Matthew Gordon: That's a great place to finish. That's where I wanted to get to right from the beginning: you're clear about where you sit, how you come at it and where your role is. I appreciate your time. We should speak more regularly. It looks like things are really starting to motor. Stay in touch.
To find out more, go to Galan Lithium's Website.
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.