Anthony Tse, Managing Director and CEO of Galaxy Lithium, was interviewed exclusively by PANORAMA MINERO. The executive of the Australian mining company addressed different topics of interest regarding the current and future of the lithium market, the quality of the brines, the progress in the Sal de Vida project and the agreement with POSCO. Likewise, it offered its perception of Argentina as a destination for mining investments, as well as the relationship with the Government of the province of Catamarca
Galaxy & POSCO Agreement – Sale of Northern Tenements
“At the Sal de Vida Project we have 7.232 MT of lithium carbonate equivalent (“LCE“) in total resources – of which approximately 5.670 MT LCE are in Measured and Indicated categories-, as well as 1.1 MT of LCE in reserves[1]. All of the reserves for the Project are concentrated in the southern part of the salar”.
“POSCO were interested in a cooperation where they could adopt their own proprietary technology and as Galaxy preferred to focus on conventional processing technology to develop our Sal de Vida Project, we ended up entering into a transaction to sell some properties in the northern part of the Salar del Hombre Muerto. The properties that we sold to POSCO had a total estimated 1.58 MT LCE of Measured and Indicated resource, but the transaction essentially left the Project with 4.09 MT LCE of Measured and Indicated resource as well as 100% of the 1.1 MT LCE of reserves untouched”.
“Essentially we sold some tenements, but the core of Sal de Vida Project was unaffected, with its current estimated reserves Sal de Vida has a project life of 40 years. Our plan is to build the Project over the next 3-3.5 years, targeting first production by 2022 and eventually producing 25,000 tpa of battery grade lithium carbonate after full ramp up”.
“The US$280 million from the POSCO transaction will be fully applied to the funding requirements of the Project, which currently has an estimated US$474 million in capital expenditure plus working capital. Galaxy is currently undertaking a process with its financial advisors JP Morgan, to evaluate strategic options, with the objective of bringing in a minority joint venture partner to fund the balance of the capital requirements.”
Opinion about so many companies in the lithium market
“Galaxy acquired Sal de Vida in 2012, but the Project itself is 9-10 years old. What a lot of other companies under-appreciate is that there is a lot of work and investment that has to go into the development of a project – it is not as simple as acquiring some land and finding some lithium to conclude that you have a project. Projects require a lot of resources and funding for development work, in order to really fully understand the geology, hydrogeology and local environment, as well as designing the project parameters – all of which take tens of millions of dollars and time to really encapsulate into a project plan or a DFS. The other aspect is the scale of the project – our view is that +20 years of LOM (Life of Mine) is a minimum requirement for projects of this type.”
“In Argentina, as well as many other countries where similar resources exist, is that the quality and chemistry of the brine varies from salar to salar, and so therefore do the grades and impurities profile of the projects located there. Projects that are located in the Puna region will find that conditions for access roads, infrastructure, utilities, water and environment can vary significantly depending on the specific location. Much of these challenges required detailed studies and evaluation in order to complete a comprehensive development plan – as such, our view is that many projects out there are not that advanced as significant amounts of work still have to be completed in these aspects.”
“Sal de Vida is now at a stage now where we will aim to complete funding of the project by the end of this year, with a 3-year construction period to commence in 2019. The current estimated CAPEX is US$474 million and with working capital, the total investment required will be over US$500 million. Another challenge that needs to be overcome in developing a project is having sufficient financial resources – it is much more difficult to develop a project of such scale if the marketing valuation of a company is smaller than the capital required for the project. In the case of Sal de Vida, we are a A$1.1 billion company by market capitalization, with a healthy level of cash and no debt on the balance sheet, strong cash flow generation, as well as significant funds incoming from the POSCO transaction. The Project is at a very mature and advanced stage today, with a substantial amount of environmental and impact assessment work already done, as well as having a very well defined resource -in Argentina there are really not that many projects that if funding was available, you could begin construction tomorrow. The Project has recently completed a formal revision to its feasibility study, which Galaxy worked on previously with Techint, a local engineering and construction company.”
“In building a project, there is a lot of work to do and steps to go through before going into construction, and then there is the need for capital as well. We think lithium resources in Argentina actually have a lot of strong potential, but I feel that many of our peer projects will still require many years of investment before being able to go into construction”.
Quality of brines
“The Sal de Vida Project is located on the Salar del Hombre Muerto, which is the same salar where FMC Lithium has been operating for the last 20 years. The chemistry is very well known and importantly, not only is the lithium of very good grade, but the level of impurities especially magnesium is very low. We also have a high potassium/lithium ratio, so that results in a production credit from potash as a by-product, which will help reduce operating costs”.
“I do not see that many projects that can start construction in the coming 1-2 years, mainly because any mining project –not only lithium- takes time to construct, taking several years to build. The market will be very strong from the demand side, but the projects need to be sufficiently advanced, the capital needs to be there and also the management team and expertise required to build and operate the project”.
“Galaxy has spent a lot of time building the team in the organization. Many of our team members have had experience operating similar projects before; some of them previously working with SQM, FMC, and Rockwoord-Albemarle.”
International perception of Argentina as a mining destination
“Today, we are actually a lithium producer with the concentrate production from our Mt. Cattlin mine in Western Australia, and in terms of LCE production, we are currently ranked No.5 globally after SQM, Albemarle, Tianqi-Ganfeng, etc., and as such Galaxy has a very good understanding of the overall global market. As we also have a presence and a team in Argentina, we are also keeping abreast and are well aware of the recent developments on the political and macro situation in the country, which from the outside, does not look too positive.”
“From Galaxy’s perspective, having operated in this country for many years, and on this particular trip having spent three weeks in Argentina – I have to say that despite of all the external noise about the country, the challenges the government is facing to manage the economy during the next couple of years, I remain very positive in the longer term outlook. We think about Sal de Vida as a 40 year LOM project and if we look at the history in Argentina, there is a challenging cycle that seems to occur about every ten years, so no doubt we will see the country go through more cycles but that we will also see the country turn around for the better for periods during the life of the Project. Given this view, Galaxy has psychologically made the commitment to go ahead and complete the funding, as well as advance works on the engineering, civil works, ponds, pilot plant etc. Recently the government introduced some export duties of AR$3-$4 per US dollar – we think such measures will be temporary, as part of the government’s efforts to stabilize the recent economic situation. These new duties are expected to be in place for the next two years, and as Sal de Vida won’t be in production until 2022, we do not expect that these export duties would have any impact on the Project’s cash flows once it is in production.”
“When I arrived in Argentina several weeks ago, I was already very positive on the project and the overall outlook. As I mentioned earlier, we have been here since 2012, and so we are very familiar with the situation and are prepared to take a long term view, while we also recognize a challenging situation that the government has to manage. I have to say that now coming to the end of my trip, I am even more positive than when I arrived. This is the right time to invest in the industry: the demand growth is only just starting in lithium, and I expect it will accelerate through 2025 and 2030. Not only do we have strong growth from the EV (electric vehicles) sector, but I fully expect the mass energy storage also to grow significantly. The demand for lithium is very strong, and as of today, there are not many projects that have been fully funded to production. Looking at the amount of lithium to be required by 2025, it ranges between 0.8-1 MT LCE per year. That is an incremental 600-800K tonnes LCE per annum increase from where we were last year, so at an average capital intensity of say US$15,000/tonne LCE production, the sector is going to need an incremental US$9-12 billion of capital to bring on sufficient supply to even just meet demand by 2025. Compare that with less than US$2 billion of capital raised each year for the past couple of years, coupled with the fact that this capital needs to be raised not by 2025, but by 2020, in order for those projects funded to be built in time to be producing into the market by 2025, because projects take time to be built. Given the current volatility in the financial markets, many smaller companies will encounter difficulties getting access to financing. So overall, I see that demand is only getting strong and stronger, and yet supply will be slow to respond, resulting in the price of lithium remaining relatively strong. As a result, we expect that when Sal de Vida gets into production, the level of cash flow generation will be very healthy.”
Project development and market overview – impact on lithium demand and supply
“The demand side is now very much being driven by consumers and the growth is showing signs of accelerating. China, like many countries around the world, are facing issues of pollution and poor air quality in their major cities. That is one of the main reasons behind the growth in demand of EVs, which has been due to a combination of a push from local government to adopt cleaner transportation and increasing demands from the consumer population for a clearer environment – I see this trend expanding rapidly through many parts of the world. I don’t think we have to worry about the demand side – the challenge for the industry is to respond with the corresponding growth on the supply side. As we have discussed already, there is a limited amount of capital available and insufficient projects that are mature enough to be built.”
“I also am very positive overall on the lithium sector in Argentina, where we not only have high quality projects either in production or in construction to be producing in a few years time, but because of the recently restructured royalty agreements in Chile, we can now also see the potential for Argentina to become the lowest cost lithium producer in the world. With planned expansions from FMC and Orocobre, and new production from Lithium Americas and Galaxy Sal de Vida, Argentina not only has the opportunity to become one the largest lithium producing countries in the world, but also one of the most cost competitive.”
Australia & Hard Rock Lithium
“Galaxy has a pegmatite project in Australia, known as the Mt Cattlin Project. We are one of the few producers in that country. Produce lithium carbonate or lithium hydroxide from pegmatites is a higher cost than producing from brines, although hard rock lithium projects do require a slightly shorter time frame to bring into production. The overall capital intensity of producing lithium chemicals is higher, once you factor in the capital investment to build both the hard rock lithium mine and also the chemical conversion plant required to produce lithium carbonate and/or hydroxide. Currently, almost all of the spodumene that is produced in Australia goes to China where it is converted into lithium chemicals. If you look at the Galaxy portfolio, we have a hard rock asset which can supply into the market today generating very strong cash flows and it being profitable in the near term, but in the long term we want to develop Sal de Vida because it is a very large and long-life project, with the potential to double capacity should we want to, and very competitive in terms of production cost.”
Relation with Catamarca Government and needs related to infrastructure
“We have a very strong and interactive relationship with the Government of Catamarca, who has been very supportive of our Sal de Vida Project. We will basing the headquarters of our operations in Catamarca city and also expect to be building other locations in the Province to stage support logistics, as well as the camp and operations at the Salar del Hombre Muerto. We have been very encouraged by the level of positive support to build the project there, and all of the local stakeholders have been very helpful to us.”
