An update on Argosy's lithium deposit

Jerko Zuvela is the Managing Director of Argosy Minerals in Perth. I spoke to Jerko a year ago: they were a lithium producer or a lithium hopeful in Argentina.

They have got a deposit in northern Argentina and at that point a year ago, they’d just lost an offtake agreement and the shares were down and things were a bit rough. 

Since then everything was okay, tonnes of buyers have emerged and they’ve got some competition for offtake agreements and the share price is reasonably stable, it hasn’t gone through the roof, that’s for sure.

They’re progressing it, they’ve now got 77.5% ownership of the deposit and they’ve just had a meeting with the president of Argentina so things are moving along and I thought it was worth checking in. 

Here is Jerko Zuvela, the Managing Director of Argosy Minerals.

Jerko, you’ve just got back from Argentina where I think you met the President, is that right?

That’s right, yes.  We met President Macri a couple of weeks ago now to discuss our project and go through what we’ve achieved in the short space of time that we’ve been working in Argentina and obviously advising him of our plans to keep developing our project and obviously look for federal government support to do that.

Did he make any commitments to you during the meeting?

Besides having his support and the government’s support to continue on our merry ways, obviously we weren’t really looking for anything more than that which was obviously just more substantiation that we’re going on the right path.  It wasn’t only President Macri at the meeting, it was a federal mining secretary as well, Carolina Sanchez, and she was very much fully aware of what we’ve been doing on our project, very familiar with our project partners and the experience and expertise in lithium processing.  They were very much aware of what we’ve been doing and hopefully what we’re looking to do.  Besides that they were very supportive.

I suppose I was just wondering whether you were actually looking for something specific from them.

No, nothing specific.  We’re pretty good with how things are going at the project, we’re working very well behind the scenes to keep the project progressing and developing so we’re feeling pretty strong and pretty good about how the project is moving forward and while I was in Argentina a couple of weeks ago we had our preferred off take partner as well be on site, so they conducted a site visit and inspected our stage one plant and seen the product that we’ve been producing so yeah everything is going pretty well.

When I last spoke to you a year ago you had agreement in principle to acquire 77.5% of the project but I think in the meantime that has been confirmed so you now own that 77.5%, don’t you?

That’s right.  Our subsidiary company in Argentina, Puna Mining, owns the tenements 100% of which we own Puna Mining 77.5% at this stage.

You have the ability to go to 90% through spending money, is that right?

Not so much spending money but the development of the commercial stage of the project.  Once we have achieved that we’ll go to 90% of the project ownership of Puna Mining.

The other thing that was going on a year ago was a Chinese off take agreement just had fallen through.  Now, you mentioned that you had a preferred offtake partner now, tell us what the situation is with offtake.  When you say you’ve got a preferred are there a few people queuing up for your lithium carbonate and you get to choose, or what?

Pretty much.  Following that a year ago we have obviously been working with other parties, we’ve been to South Korea and we’ve been through China as well and dealing with some Japanese entities who have come to visit the site a couple of times.  We’ve been working with all those cathode producers and lithium sort of product parties to understand who needs what and obviously there’s been a lot of talk this year about supply/demand equation and oversupply and so forth.  But we’re seeing dealing direct with those end users and end customers is that there’s unlimited sort of demand in terms of parties who want as much product as they can get their hands on. 

We’re not at a stage where we’re at commercial operations as yet but even our sort of smaller quantities that we’re talking about there’s plenty of interest out of those three countries to work with us and obviously on the proviso and what we’ve mentioned in the market several times, we’re looking for a strategic partner similar to Orocobre with Toyota, similar to the other lithium companies with larger partners that come from South Korea, Japan and China as well, Ganfeng.  POSCO have been in the news with acquisitions and investments that they’ve made in lithium companies such as Galaxy and Pilbara Minerals and so forth.  We’re very much working along those lines of the offtake party that is keen to work with us, hopefully that leads into strategic investment to develop the stage three commercial phase of the project.

Okay, let’s talk about what the development will take.  Firstly, can you just tell us what your cash position is at the moment, how much you’ve got in the bank and what you’re expecting to have to raise.

As per our public disclosures, our quarterly at the end of June which was our last released public cash balance was about 8.1 million dollars.  We’re currently conducting and looking to complete very shortly a preliminary economic assessment that will outline the costs, the capex and the opex of the stage three commercial phase operations of the project.  We haven’t been able to release the capex or the opex as yet unfortunately due to ASX disclosure requirements but we’re very shortly looking to complete that work and release the capex and the opex for the commercial stage of the project which based on the preliminary data that we’re seeing is looking very positive.

Can you give us a sense or a ballpark of what you think it’s going to cost?

I think stage three based on other companies’ PEAs and so forth we’re looking at around probably… again, it’s all dependent upon scale of the project, production rates and so forth but you’re looking at between approximately US 150 million to build a commercial stage plant and ponds and working capital and so forth that’s fully required to get in to finish that operation.

How much of that do you think you can fund with debt and how much with equity?

Yes, and that’s why we’ve been working with these strategic partners potentially because obviously as we’ve seen with other companies the debt side of things is very important obviously to minimise dilution.  Generally I think looking at some other companies, it’s around a 40/60, 40% debt and 60% equity type ratio, maybe 50/50.  Seeing what Orocobre has done is probably the lead for what we can look to aim for as well what they’ve done with Toyota over the past sort of three to five years.  Earlier this year they did a large equity raising with them as well.  We’re aiming for that sort of industry norm of 40% or so as debt funding if everything goes well.

We probably should mention why you keep talking about Orocobre, it’s because they’re about 100km away from you up in the north of Argentina, aren’t they?

Yeah, very much what we sort of compare ourselves to, they’re over a billion dollar market cap company, they own their project about 67%, 66.5%, they have full ownership of their project so they produce lithium carbonate, based on their annual financials that they released a couple of weeks ago they’re producing about 12,000 or 13,000 tonnes per annum.  We’re aiming for that sort of ball park of between 10,000 and 15,000 tonnes per annum.  We’re aiming for that sort of ballpark of between 10,000 and 15,000 tonnes per annum I guess so very similar, costs will hopefully be similar as well so that’s sort of something that our shareholders and new investors can gauge and do a comparison on and see hopefully where we can get to over the next couple of years.

What about the amount of lithium in your deposit there, is it roughly the same as Orocobre or more or less?

No, they’ve got a much larger project than ours and again this will obviously all come out in our PO but we released the JORC resource a few months ago of about 208,000 tonnes of lithium, of contained lithium carbonate.  Based on that we’re looking at some production scenarios within PEA to have a 10 to 15 year mine life based on the current resources that we have developed and produced from our JORC resource report.

How does that compare with Orocobre’s resource?

Theirs is much larger and I’m sure their mine life is a lot bigger, probably two, three or four times the size of the mine life that we’re talking about.

So that probably means your market cap won’t end up being a billion dollars like theirs, does it?

It doesn’t mean you can’t keep extending your mine life, it’s just more drilling, more works, more properties and so forth, building the tenement portfolio to have a mine life that is accordingly I guess.  Obviously when you do your discount and cash flow models you probably just time it out for 10, 12 to 15 years.  After that you probably don’t have a lot of value that far out so if we can show in our PEA that sort of 10 to 15 year mine life and show the value that can be attributed there we’d like to think that that’s definitely possible.

I suppose a lot will depend on what sort of price you get from the offtake agreement when you complete an equity raising with them, whoever that might be.  I presume that’s what you’ll do, you’ll have an equity deal with them and an offtake agreement that you can take to the bank.

Yeah, obviously offtake is the most important at the moment because that’s what sort of allows investors and funders to put money in knowing that you’ve got a saleable product and you’ve got a contract to secure at a set price.  Obviously that’s more for the stage three commercial phase of the operations, the initial offtake contract will be only for a small quantum based on our stage one phase of the project so that’s not really big but it’s really introducing that party into the company and showing that we can hopefully work together as strategic partners and continue developing the project but definitely having those guys on board adds confidence and gives you the ability to go and raise those funds that you need to develop the commercial stage of the project.

I think you mentioned before something to the effect that the demand for the stuff is unlimited.  Give us a sense of what you reckon the market is like?  Is it unlimited, is there just like sort of an ever expanding demand now particularly from China for lithium carbonate?

Not just lithium carbonate, obviously hard rock guys here in Australia produce a spodumene concentrate, some of those guys have moved into operations and exporting that product.  Some other companies are producing lithium hydroxide as well.  All those lithium sort of chemical products it might not be unlimited in terms of unlimited but in terms of what is able to produced at the moment I think what is produced definitely will get consumed and purchased by these end users.  At the moment the market of lithium carbonate equivalent products, so combining all those lithium chemical products, you’re looking at about 225,000 tonnes per annum is consumed at the moment and they’re talking over the next sort of five to seven years moving up towards a million tonnes per annum.  It’s obviously not unlimited but in terms of what the market can produce I think the market and companies in the market are going to struggle to be able to reach that million tonnes per annum over the next seven years without some serious investment and obviously we’d love to be one of the companies that are importing into that sort of million tonnes per annum of product over the next seven years.

It depends on how other companies operate but it’s very difficult to be able to produce that million tonnes over the next seven years without sort of major investment and that’s where projects need to show their economics, show their fundamentals and really be able to be investible to be able to produce at that rate in over the coming years.

When do you think you’ll be in production?

Again it’s all based on finance, as soon as you get the finance you can start developing your project so we’re obviously putting things in place now to be able to do that as quickly as possible.  As I said we’re working with some strategic parties to consider and understand what that investment might be, how best to progress that project, whether it’s all in or whether we can perhaps do it in sort of a modular staged fashion to move into commercial operations which we’re considering at the moment.  So there’s quite a few options on the table and obviously we’ll do what’s best to progress the project as quickly as possible and what’s best for the shareholders.

Good on you.  Thanks, Jerko, thank you for talking to us.

Fantastic, thanks very much, Alan.

That was Jerko Zuvela, the Managing Director of Argosy Minerals.