Lepidico (ASX:LPD) Presentation, FNN Investor Event, May 2022

Lepidico Limited (ASX:LPD) Managing Director Joe Walsh provides an overview of the company, discussing its business model, timeline, value offering, technologies, ESG credentials, finances and outlook.

Lepidico is an ASX listed lithium development company. We’re developing a vertically integrated business from mine, which is in Namibia, and we’re also going to be developing a small concentrator there, exporting that concentrate to the chemical conversion plant, which we’re building in Abu Dhabi. We’re headquartered in Perth, in Western Australia, and that’s also where we have our technical capability. And then we have a satellite corporate office here in Toronto. We’re well funded. We’ve got over $7 million of cash in the treasury, and we’ve just got more options of the listed options, which were in the money, have been exercised to bolster the treasury in the last month or so. And market cap between $200 million to $250 million.

This slide here gives you a sense for the journey that we’ve been on over the course of the last eight or nine years. So the concept behind Lepidico really came about with a process technology back in 2013. That concept was developed into the process that today is known as L-MAX and a provisional patent was lodged in 2014.

The company effectively listed in 2016, when additional capital was required to develop the technology further and then major milestones of development subsequent to that have been the acquisition of Desert Lion Energy, which in 2019, that bought these assets in Namibia into the portfolio. We subsequently, in 2020 completed a definitive feasibility study on that vertically integrated Phase 1 project. We are now well advanced on front end engineering and design, which is being undertaken by Lycopodium for both the chemical plant in Abu Dhabi and the upstream concentrator in Namibia. And we’re targeting making a final investment decision for this project in the third quarter of this year and entering production in 2024.

You can see here, the process for the material that we’re going to be mining, it’s straightforward, open pit mining. That ore will report through into a concentrator that employs conventional flotation. Mica minerals float readily, and the waste from that facility will be benign tailings, which will be co-disposed with mine waste. The concentrate then gets shipped to the chemical plant, which uses industry standard equipment, operates at atmospheric pressure and produces a range of different products. It’s not just lithium hydroxide, we’re producing here. We produce other high value chemicals of caesium and rubidium plus three bulk byproducts. What we’re effectively doing is deconstituting that mineral and we expect to have no solid process waste out of that facility. So it’s a very green 21st century process that we have here.

Focusing in on the technologies and their environmental and social credentials with respect to the project, L-MAX is the main technology that allows us to convert a lithium mica concentrate into a lithium sulfate intermediate. This has now received patent protection in the countries that you see here. There are a couple of others that are outstanding. The reagents that are used are really ubiquitous in the industry, sulfuric acid, lime, limestone, all affordable bulk reagents. The maximum temperature that we employ here is 120 degrees Celsius. So compared to spodumene processing, which employs roasting and calcining at very high temperatures, we are much less energy intensive. And we see our technology as scalable. Phase 1 is all about managing risk. This first project is going to produce around 5,000 tons a year of lithium hydroxide. We’re already turning our minds to Phase 2, and we see a project there that could be three or four times bigger, so up to around 20,000 tons a year, LC of output.

The other technology that I want to talk about here is the LOH-Max process. And this effectively plugs in the back end of L-MAX and it converts that lithium sulfate intermediate, directly into lithium hydroxide. This came about in 2018, when we were looking for a process that didn’t produce sodium sulfate, because we saw that conventional process as being a potential fatal flaw if the market for sodium sulfate dries up, as we think it may well do over the course of this decade. So, the LOH-Max process uses aluminum hydroxide rather than a sodium compound, and as a result, there’s no sodium hydroxide produced. Benchmarking this against conventional processing leads to a significant capital cost saving, an operating cost saving and improved metallurgical recoveries, about a four percentage point improvement in metallurgical recoveries. So we do see a licensing opportunity with LOH-Max, not just associated with treating micas, but in conventional treatment of spodumene as well.

And it’s important to note, we’ve already sold a license package to Cornish Lithium, which is for all of these technologies. And they’re currently working on their project in Cornwall in the UK, which is a predominantly zinnwaldite polylithionite project. So it’s a broadening out the application of these technologies within the lithium mica suite.

Focusing specifically in on environmentals, we completed a greenhouse gas emissions report, which was undertaken by leading industry consultant, GHD. They opine that our Phase 1 project will have greenhouse gas emissions which are about 25% lower than a typical vertically integrated spodumene project. We do however know where the majority of our emissions are. They’re actually in the natural gas that we use to generate process heat. And the boiler that we’re going to employ for the Phase 1 chemical plant will be hydrogen enabled. And at the industrial park that we’re building on in Abu Dhabi, there is a current initiative to build substantial green hydrogen capability. So by 2026, we would envisage that we could be switching over onto hydrogen, and that would drop our greenhouse gas emissions by nearly two-thirds to be best in industry at around three tons per ton.

We use relatively small amounts of water. So we have low water intensity and being a hard rock mining operation, our land use footprint is modest as well. So all in all, we have extremely good environmental credentials. We’ve got great social credentials in Namibia. It is a sparsely populated area that we’re working in and there’s a real need for employment. And our project will employ around 115 people locally. And importantly also there’s no requirement for a TSF as we’re co-disposing the tailings with mine waste.

So from a social perspective, I mentioned those jobs. Perhaps more important than that, there’s about a seven time multiplier with regard to secondary job creation in the region. And it’s a relatively sparsely populated region. So we’re talking about 5,000 people. So creation of around 800 jobs in that area is going to be very meaningful. We’ve got great community support as a result of that, and we also have excellent support from the Ministry of Mines and Energy. And just recently we’ve made announcements of a number of appointments of general managers, and I’m very pleased to announce that in Namibia, we have an all Namibian leadership team. We’ve managed to recruit some excellent talent there, and we’ve already onboarded the first of those general managers, GM, sustainability and country affairs.

Moving specifically to the project here at Karibib, it’s fully permitted. We’ve got a mining license which covers 68 square kilometers and all of the mineral resources that we have are within that ML area. We’ve also got a water extraction permit for about twice the amount of water that we actually need for Phase 1, and we will be recycling about 85% of the water that we consume. The concentrator that we’re building, it will produce around 60,000 tons a year of con that will be going to export. Most importantly, though, we have got fabulous existing infrastructure here. There’s a main highway just to the north of us. All infrastructure is already developed. The only item of infrastructure we really need is a 27 kilometre power line spur to the local switch yard, just outside of Karibib, which has capacity.

Also, we’ve just started earlier this year, really gearing up into our new exploration program with the objective of converting some of the resources you see here into reserves, to extend the project mine life, the Phase 1 mine life. We’ve currently got just under 7 million tons, which gives us 14 years in ore reserve. Our target is to get that up to 20 and also develop the resource phase for Phase 2. By the end of this year, our target is to have a Phase 2 resource that supports a Phase 2 project of similar size at least to Phase 1. And by the end of next year, the target is that 20,000 ton a year project that we’re ideally going to be developing a resource base for. And importantly, these open pit mines at Karibib, they’re mine redevelopments. So it’s a brownfield context and all of the mineralisation is exposed right at surface, so the strip ratios are very low.

You can see here on this geological map, that yellow ellipse is really a corridor of lithium pegmatites, lithium bearing pegmatites. We’ve also identified a number of targets, within that, which are blind. They’re undercover. And we just started to drill those. So we’ve currently now got two rigs on site, and we expect over the course of the next few weeks to be getting our first assays back. Like everyone, we are suffering from getting assays turned around in a timely manner. But those assays from earlier on in the year should start to come through and then we should see them rolling through over the balance of the year.

So here you can see a schematic of the concentrator overlaid on the site where we’re looking at building it at Karibib. It’s right next to the Rubicon pit. Lycopodium was appointed with EPCM contract for this concentrator in May last year. They are now close to completion. Well, they’ve just completed the feed for the project and should be getting that control estimate finalised very shortly. We are then looking at starting stage 2 works in the next short while. And site work should be starting before the end of the September quarter, with the objective of commissioning the concentrator towards the end of next year.

Here you see the chemical plant. This is located within a very large industrial park called KIZAD, the Khalifa Industrial Zone, which is a free zone. So there’s no corporate tax, no import and export duties. The container terminal in which the concentrate will be imported is located just 17 kilometres from this lot. The feed front end engineering and design work here is running a bit behind the concentrator. It’s on track for completion in July. And the objective then is to make a final investment decision in the third quarter of this year, pull a full funding package together to be able to achieve that. And then we’ll be looking at commissioning the chemical plant, starting to commission it in early 2024. At KIZAD here, we’ve entered into a 25 year land lease agreement. Infrastructure is fantastic and it’s shared infrastructure across the whole of the industrial park. And as I mentioned earlier, we do expect to be able to get access to green hydrogen, probably around 2025, 2026.

So this slide gives a summary of the fundamentals for the project from the definitive feasibility study that was published in May, 2020. CapEx of around US$140 million, some attractive investment fundamentals with an internal rate of return of 31% and $220 million of NPV at an 8% discount rate. Importantly, that uses a really out of date lithium price forecast, from benchmark mineral intelligence of around $13,000 a ton long term. We’re in the process of updating all of these figures from first principles, and the work that we’ve done today suggests that there should be a healthy improvement in the overall investment proposition here and these investment fundamentals. The cash costs will still be competitive after byproduct credits. And even if you ignore the byproducts, we still should have a competitive cost structure vis-a-vis a typical vertically integrated spodumene project. And of note here, we obviously also produce SOP fertiliser, caesium sulfate, and caesium is a critical mineral along with rubidium and lithium of the US government’s critical minerals.

So rounding out with finance and offtake, in the latter part of 2020, we entered into a mandate letter with the US government’s International Development Finance Corporation to provide funding to the Namibian part of our project. They’re now very well advanced on due diligence. All of the environmental and social due diligence has been completed. The technical due diligence has also been completed. There’s just a final check and balance there that is going to be undertaken on the demonstration plant trial, which we’ve also just completed. So we’re just waiting for assays and results to be able to compile results from that demonstration plant trial, to be able to have that due diligence by Behre Dolbear Australia, and that will really close out all of the technical work for the debt funding. We’re also well in advance now with commercial lenders. The lead time for DFIs is obviously significantly longer, but the commercial lenders are going to be benefiting from all of the due diligence work that’s effectively been done for DFC.

So I think we’re going to have a very high quality lender club for this project. We’re also well advanced with a process that’s being run by Jeffries, the US investment bank, identifying and possible strategic investment and involvement in the project. And so we’re looking at these threads really being pulled together over the course of the next couple of months, to be able to finalise a full funding package and make that final investment decision in the third quarter of this year.

We signed in December last year, a binding offtake arrangement with the chemical trading company, Traxys. They’ve arguably got more experience trading lithium chemicals than anyone else. They started doing that back in 2009. And we’re now in the process of putting back to back arrangements in place with lithium consumers. And we expect our production will be going into the electric vehicle supply chain. We’re also well advanced with caesium offtake, and I was recently in Abu Dhabi, and we’re seeing very good interest in the local markets within the UAE for our bulk byproducts there. And we’ve announced in the last quarterly that we’ve actually got under MOU, interest for more than 150% of our annual production of SOP for example. Thank you very much, Tim.