Interview with Tony Sage, Non-Executive Chairman of European Lithium (ASX: EUR, FRA: PF8, VSE: ELI)
Can European Lithium plug in to the European EV and battery revolution? They talk about how they think they can attract EU debt funding and a strategic equity partner. Will that partner be prepared to pay more for buying local / greener? Tony talks to us about the realities of how junior miners attempt to get funding and why he believes European Lithium is in a unique position in Central Europe. We are interested in understanding the terms and conditions to their recent €10M convertible note funding facility. If you are a shareholder, do you like terms?
We get his take on the Lithium pricing cycle and timing for recovery. Their Feasibility numbers need the price of Lithium to rise significantly to be economic. Do you agree with him?
We are also fascinated by the fact that European Lithium sits on the ASX (ASX:EUR), Frankfurt Exchange (PF8), Vienna Stock Exchange (ELI) and NEX UK (EUR). Find out which exchanges work for them and why.
- Overview of the Company
- The Background Story of European Lithium
- New Shareholders: Who Are They Targeting?
- Lithium Market and Geopolitics
- Standing Out: Can They Get Financing in Today’s Market?
- Cash Position
- What Are The Board Preparing For? What Are The Main Concerns Going Forward?
Click here to watch the interview.
Matthew Gordon: Why don’t you kick off with a 1 minute history of the business.
Tony Sage: mine was developed by the Austrian government back in the 1980s. They were looking for uranium but they found Lithium. Unlike any Western company, they actually went out and built the mine straight away without doing all of the work that is required before you start building a mine. What they did is they followed the Lithium from the ceiling of the opening and just followed it all the way down. It’s a beautiful structure inside the mine. But unfortunately, when we took over in 2012, there wasn’t data to prove how they found it. So what we’ve done in the 6 years that we’ve owned it, is mine it So we mined 1,500t. And we also drilled. So that proved, as all Western companies need, is a JORC compliant resource. So we know we’ve got 11Mt of ore there. That that will last 22 years as a mine life. And we completed in that time frame a PFS. So a Pre-Feasibility Study has been completed. It was completed by one of the leading engineering groups in the world, DRA. So that’s basically the premise of our story.
Matthew Gordon: How this has come about? You’re involved with Cape Lambert. Cape Lambert is a shareholder in this project.
Tony Sage: It’s a very interesting background. It started off with a cocktail party. One of my colleagues met The Count of that district in Austria, near Wolfsburg. And they got talking and he’s introduced himself. He was in mining. And The Count said, ‘I’ve got a mine on my property’. That’s where it started. So in 2012, we had a look at it, and invested in his property. We paid him a lot of money for access. And then over time, he enjoyed what we were doing, and he became a shareholder of the company. I didn’t have the funds myself personally. So I used my investment vehicle, Cape Lambert Resources, and we invested some money in. And since then, we’ve got other investors in. In 2012, Lithium wasn’t flavour of the month but in 2016, it became flavour of the month. We kept it private for 4 years. And then we listed it on the Australian Stock Exchange back in 2016-17. At the time Lithium was exploding around the world. But in Australia, there were 41 separate ASX listed Lithium companies at the time. And a lot of those were in Australia, some of those were in Africa, and obviously some in South America. So we were being drowned out by all of the Australian ones. So if you’re an Australian investor, and you say I want to operate a mine in Austria, I would just say you’re crazy. Mining doesn’t happen in Europe. So listing in Australia was an error of judgment. But we got the money when we listed, and we were able to progress the project. But then in 2017, we listed it in Frankfurt, Hamburg, Munich, Stuttgart and Berlin. And from that moment on, it exploded. The investor base moved from 100% Australian shareholders to now 55% shareholding base in Europe. And most of those European shareholders are German or Austrian. There’s a splattering in UK, France, Switzerland. So we realised we hit on something extremely good. If you look at a lot of the social media, our company is clicked a lot more than some of the bigger companies in Europe because of 1. EV, 2. it’s a unique story that a mine is going to be actually reopened 20 years later in a little country called Austria.
Matthew Gordon: I do want to say over the management since experience and so forth, but you talk about shareholders and the split between Europe and ASX. Obviously, it’s a European asset. So you’d hope that people would be interested in Europe, but just looking at your share price. Lithium companies across the world have been absolutely hammered. In fact, what is the Lithium price at the moment?
Tony Sage: We’re going to produce is Lithium hydroxide, at its peak was $22,500 per tonne. And you’re looking probably at $15,000 – $16,000 a tonne now. So it’s dropped a lot in the last 12 months. The actual raw Lithium price, got to just over a $1,000 a tonne. It’s probably trading at $450 to $500 a tonne now. Hydroxide has gone down about 35% over the last 4 months.
Matthew Gordon: Most of the numbers I’ve seen from you is using $16,000 a tonne. So obviously that’s taking a bit of a hit. I’ve read various things from JP Morgan that suggest that it’s going to go lower. What do you think?
Tony Sage: We look at benchmark. We look at Roskill, but we also look at the broader world. China has just announced, it wants to build 1M electric buses. Now you just think about the amount of Lithium required for 1M electric buses. The slide started when one of the biggest producers out of Chile said that they were going to double production, because they had an agreement with the Chilean government to increase their production. It didn’t happen. But that was the initial scare. From that date that was announced the Lithium price actually fell about 15% on the day. Lithium stocks all around the world just went down 10%, 15%, 20% because they thought all this production was coming off. However, 1. that production is not coming on. 2. you’ve got countries like China, who are now announcing that they’re going to be a 1M electric buses. Now, there’s not enough Lithium around today to produce those 1M buses in the timeframe they want. The price will go up.
Matthew Gordon: You’re projecting that. I think like most supply demand stories, there’s two sides to it. We accept that the demand is probably going up because of the whole EV story. But likewise, as soon as the demand goes up, new entrants come into market or production, which is sitting idle at the moment or on a very low level, goes up. JP Morgan would suggest that there’s going to be double the amount of production out of South America alone into the marketplace. So that is going to affect pricing. It’s a question of where it settles. Production is not going to stay as is. It would be insane to think that. I think people will be attracted to come into the Lithium market again. It’s a question of can they do it economically. And we’ve spoken to a lot of Lithium businesses. You’re right, in the ASX lithium is a dirty word at the moment because people’s shares are underwater. It’s a question of when does the price start to move again? You’re going to get through this cycle into the next cycle. Can you get financed at current levels?
Tony Sage: I think we can. I wouldn’t be pushing ahead, spending already $12M-$13M on the Pre-Feasibility Study (PFS). Spending another $10M on the definitive or bankable, unless I was very confident. We’ve been in discussions with project financiers, quite large ones, European-based. What you’ve got to understand is the broader geopolitical situation. You’ve seen it now with Rare Earths. China has said to the world, we’re not going to export any more Rare Earths. At the moment China produce over 80% of the Cobalt required for EVs and 85% of the Lithium for EVs. Now, if they’re going to build 1M electric buses. And of course, with cars and obviously battery storage… how many batteries do you think they’ll be exporting in 10 years time? So the EU has made Lithium and Cobalt critical minerals. There’s only a few players in Europe that can produce in Europe. 25% of the world’s Lithium ends up in Europe. They produce none at the moment for electric batteries.
Matthew Gordon: Let me understand the terminology. You say critical minerals need to be produced from within Europe. Or have they got the ability to buy out in the wider market?
Tony Sage: Well, OK, let’s go into Hydroxide and Carbonate production. All comes from China. They’ve built one plant here in Western Australia. Who owns it? The Chinese. At some point like they have done with Rare Earths, they could say for their own critical needs, that they can’t export any more Lithium Hydroxide or Cobalt Hydroxide, or Cobalt Carbonate or Lithium Carbonate. At some point, it might not happen, but the security countries like America and Europe as a whole need to have is some production in their own backyard. Ours isn’t going to anywhere near create the supply that is needed by BMW, Volkswagen.
Matthew Gordon: So again just so I understand. Are you talking about production or are you’re talking about processing?
Tony Sage: I’m talking about production of Lithium Hydroxide or Carbonate in Europe.
Matthew Gordon: Right. Because it’s a fairly abundant resource, isn’t it? That’s the problem.
Tony Sage: It is. But mining it economically is the key point. So it is abundant everywhere. So, for example, we just take Pilbara Minerals, for example, 4 weeks ago, they were in big trouble. They got rescued by the Chinese because the price has fallen down, because they’re in a remote location. We’re in Wolfsburg, right near the railway line, 40km from Graz, where Samsung have a battery factory. We’re in an industrial area in Europe where we can export to any country in Europe by train for very little compared to having it from Australia or South America, shipping it to China to get produced in China. All China does buy it for $450- $900 a tonne, and sell it as Hydroxide at $16,000 a tonne to battery makers in Europe. The EU have recognized that. They’ve recognized that with Rare Earths. They were scared by the Rare Earths announcement by China on 2020 no more export. So they’re madly, as with the Americans now, trying to find Rare Earths. But it’s the same problem that will be with Lithium Hydroxide and Carbonate. Forget the raw stuff. I mean, there isn’t a plant in Chile that produces Hydroxide or Carbonate. They ship the raw product to China to get the Hydroxide.
Matthew Gordon: Are you’re saying that Europe is coming up these protectionist policies to be able to produce and process their own Lithium in their own backyard?
Tony Sage: Encouraging policies, encouragement for European mines to be able to produce Hydroxide, Carbonate for the European market.
Matthew Gordon: An encouragement! We’ll talk about the funding program launched by the German ministry, which you mention, in a minute. But if I’m Gigafactory producing batteries, I’m going to go to the cheapest supplier, aren’t I? I’m going to go to the South Americans. So how do you stack up against that?
Tony Sage: Well, 1. the freight cost. We’re not paying $22 – $25 a ton to ship it from there to Europe. 2. if you look at and read our Pre-Feasibility Study (PFS), our cost structure is very good. The number is $6,500 -$7,000 a tonne, whereas 12 months ago we could have got $22,000 for it. Now we can get $15,000. It’s still a very big margin of profit, excluding financing costs, for our shareholders. So we believe we can produce for the European market a safe green, very green supply of Lithium Hydroxide to the European market without any problem with geopolitics. If the suppliers, for example, as we saw 7 months ago, the Argentinian government slapped a tax of 10%-12% on every export, including Lithium. So if you’re a Lithium producer in Argentina, you’ve just dropped 12% of your profit.
Matthew Gordon: Yes, but they’re also producing at $3,000, so they got some margin. Lowest quartile producers.
Tony Sage: Well, in Chile they are, Argentina not so. But in Chile. Yes. Chile is very un-environmentally friendly.
Matthew Gordon: Meaning what?
Tony Sage: Well, they’re producing this from brines, which takes up a lot of water. And which is causing all the grief with the local population. And they don’t want any of those mines to be increased, because if you’ve seen a brines production facility, it’s pretty ugly to the environment. So environmental, ours is all underground. So we can get a big green tick and we’re producing Hydroxide for EVs or other environmentally friendly industries. So I think we get 1. a big green tick 2. the German car manufacturers for example, I think one got into a bit of trouble investing in a Cobalt mine in DRC.
Matthew Gordon: That’s a well-trodden path with regards to Cobalt and DRC and child labour and so forth. Let’s stay away from that. Let get into this. So what I want to understand is how does your project get financed today? I know you did a raise earlier in the year. What are the terms of that. $10M was mentioned. But it was a bit more complicated than that, wasn’t it?
Tony Sage: So it’s a financing facility that we can draw down on. It’s complicated because it depends on the share price at the time. They get a 10% discount to the market. Say we are trading at $0.10. They get it at $0.09. And they don’t do it all at once. So we’ve got the facility there. They can do it when they feel like. So, we’ve only drawn down on that facility $2M and so we got $8 million left.
Matthew Gordon: And you can drawdown in $1M tranches upon conversion of all the notes from previous rounds. That’s the way it works?
Tony Sage: So when they finished when they finished selling those to recoup their money, we can then draw down the next one.
Matthew Gordon: Got it. So it’s a real stagger. It’s not $10M per se. It’s a facility, as you said.
Tony Sage: It’s a facility and it can last 3 years.
Matthew Gordon: So let’s come back to financing, because that’s where the fascinates me. At $15,000-$16,000, you’ve shown your what the economics are here for you. But if I’m a banker, I’m discounting today’s price by up to 40%. So it becomes a question of, can you persuade people that your thesis about price going up is true? And if you can, that’s great. If you can’t, then what are your options in terms of getting this thing finance? Once your DFS is complete?
Tony Sage: Well, 1. the DFS will say whether we’re robust enough. So if the DFS comes out saying this is a very marginal project, I wouldn’t go to any bank with this. That’s one scenario. We’re expecting the opposite because the Pre-Feasibility Study (PFS) was very robust. So I’ll have a very robust DFS. So I go to the bank and I will say, ‘this DFS proves there’s a 40% margin in this. How much can you project finance this?’. They will say, ‘this much’. We will seek some EU funding, whether it’s a soft loan, whether it’s a…
Matthew Gordon: Tell us about that? You talk about the German ministry putting a battery production funding program together of €1Bn. That’s quite a lot of money. But how much of that would be applicable to you? How much of that €1Bn would be set aside for mining?
Tony Sage: Unknown. If we, for example, link up with a battery manufacturer, as a joint application for use of these funds, it might be a larger number. As a miner, by ourselves, I don’t think we would be able to do it. We’d have to link up with maybe an end user. I’m just throwing out names. An automotive maker in Germany or a battery maker in Germany. We can partner up and then apply for that. But separate to that there’s EU funding. It’s called Horizon 2020, and under that, there is a direct application for us as a critical mineral for Europe. We may be able to get a soft loan. So that soft loan might be €50M at a very attractive interest rate, which is probably almost zero repayable over X amount of years. So at the same time, say the number is $400M that we’re looking for. We would do $70M of that in direct equity, and the rest in project finance and or funding from a source like Horizon 2020, or from the €1Bn fund from the German government.
Matthew Gordon: How does someone like Horizon 2020 assess your project and the economics of a project like this.
Tony Sage: The credibility of being the… the PFS is done and the DFS is coming. We would have to present a case to them that 1. it’s very good for Europe. 2. it will create jobs in Europe. 3. it is green. We’re not going to hurt the environment by doing what we’re doing. The three key criteria in Horizon 2020. We take every one of those boxes.
Matthew Gordon: It’s interesting that none of those criteria are about the economics.
Tony Sage: No. Again, it’s about creating jobs. If you look at virtually any government around the world, it’s not really about economics. It’s about creating jobs. This is a fiscal investment by the EU into something that’s going to create jobs and solve the problem, albeit in a small way of producing a critical product for the European industry, rather than being reliant on China.
Matthew Gordon: So potentially that type of money is quite important, because it’s… I’m not saying dumb money but it’s money which is a different set of values or needs from institutional money, who does care about the economics, because they’re buying shares in your business, presumably on the equity side, and want some guarantees that you’re going to be able to mine economically and pay back the debt. So have those conversations been had? How do you know that Horizon 2020 is interest in investing in something like you?
Tony Sage: Well, because we’ve applied, and we’ve talked to the right people at the right agency. And we will await the outcome of the DFS. They’ve got a stringent programme as well. We’ve got to have a document that shows that we will be economic. We will create jobs in a low job area, especially for youth near Wolfsburg in Austria, where we are. So that would create long-term 300-400 jobs, short-term 1,500 during the construction phase. So we are going to create jobs in that. And if you go to the local government in that area, we’ve got two sets of competing mayors who want us to build the plant on their side of the fence. So we’ve got so much support from the local government. We’ve got so much support from the Austrian government. So now it’s one step higher, which is the EU in total. And they’ve got so many other factors to look at geopolitics, which we’ve talked we’ve touched on environment, which we’ve touched on. And most important jobs.
Matthew Gordon: Most important for them. But I’m talking about shareholders wanting to come in and invest.
Tony Sage: But if we get that money. That’s a big chunk of shareholders who will go, ‘wow, that’s great’. That’s $50M, $70M. How are you going to get the other… $300M. $70M of that is going to come directly as direct equity. So that’s roughly 25% of it. We’ve done the numbers with banks. What they’re looking at for the project finance side, and they can project finance probably 60% of the project.
Matthew Gordon: So let me get this straight. I want to get the numbers right. You say $400M required. You’re getting potentially, let’s just say for a second argument, $50M of debt from Horizon 2020 on a 70/30 debt / equity split.
Tony Sage: Half of that.
Matthew Gordon: So I’m just trying to think as a retail /high net worth /family office investor looking at your company going, ‘I think this is a great story. I’m going to invest. How do I feel about Horizon 2020 coming in?’. I guess if they’re putting $50 million towards the debt. Great. But it’s still costing the company, whatever nominal rates that these people are charging…near zero. You’re suggesting. That’s great news. Do I look at that as some kind of endorsement of the project? I guess not. It’s about job creation, and is it green etc. So I’d need to some see who else would be involved with this, is what I’d be thinking. You talk about advanced stage discussions with some of the off-take agreements as a means of… would that be pre-funding in terms of the off-take? Who are some of the names involved with this who would give me some comfort around the validity of the project?
Tony Sage: We’ve signed NDA’s with these companies. But rest assured that a large German automakers and builders of batteries themselves is another company. And let’s go for one other one, which was in the industry of producing electronic tools. Now, the reason I don’t pre-sell the off-take now is, once this DFS is done and people see how robust the project is, you’ve got other suppliers around the world that will say here’s a foothold into Europe. So if we’ve already sold our off-take pre the DFS, we won’t be a takeover target.
Matthew Gordon: Ok.
Tony Sage: If I don’t and the DFS comes out, here we are. There’s a small player in Europe is only going to produce 11,000t of Hydroxide per annum. They are in Europe. They’ve got all these contacts. Wouldn’t it be great to have in our portfolio? So if we’d already sold the off-take is very much more difficult to have that story. I’d like to be in a position where we’re completely transparent. We’ve got no-offtake partner now. We don’t want one now. And we will wait until the DFS is done and we can sign 4 agreements today, if I wanted to. And a couple of those are outside of Europe, but I don’t want to sign one now for that reason.
Matthew Gordon: And I appreciate the insight into the strategy and the thinking. That’s well-noted. So, if I look at the project now, $16,000, which is what you’ve done the numbers on, and let’s say it’s roughly give or take that on any given day at the moment, you’ve got a 25% IRR, which is reasonable. But you’re right on the margin in terms of price in the market at the moment. So you’re looking for this price appreciation to drive not only the IRR, but the NPV of this project up. Are there institutions that you’re talking to or begun conversations with, in anticipation of what the DFS is going to tell you?
Tony Sage: Yes, we’ve got a couple of institutions already in the stock. They bought through the last equity raising we did. So they’re sitting back. I’m going to be completely honest now. Virtually everyone, the two major banks, European banks, and two off-takers want to wait for the DFS. The Chinese obviously don’t care about the DFS. They’ve seen the PFS. But we don’t want to send concentrate from Austria to China for $400-$600 a tonne, and it comes back in to Europe at $16,000-$17,000 a tonne. So we can take easy money now and breeze through the next 6 months, or we can hold tough like we have. Be true to what we want to be able to do, which is finish the DFS. And then go to the two major banks that we’ve talked to and say, ‘right, this is it now. You’ve asked us to be our clients. Can you raise X amount of dollars on the IRR based on this final report from DRA’.
Matthew Gordon: Those are an investment banks as opposed to debt providers. And the current investors are going to be very different from the types investors you’re looking for going forward, aren’t they?
Tony Sage: Absolutely. Yes. Completely different. At the moment, we’ve got, in Australia, we call them mums and dads; in Europe they are called family houses. So we’ve got a lot of family house investors in Europe based in Austria and Germany. We’ve got a little bit of investment, now that we’re listed in London on the NEX. And a few are coming through that. The reason we did that is to broaden our investments spread of investors from Europe, and a lot of family houses in London, and a lot of municipalities can’t invest unless you’ve got some sort of listing in London. So we chose the NEX because it was the quickest to get on. And since we were on, it doesn’t trade very well, because most of the family houses buy on the Frankfurt Exchange where we trade millions and millions a day.
Matthew Gordon: It’s cheap and quick on NEX, but doesn’t necessarily trade or give you the volume of liquidity you need. So how much cash are you sitting on?
Tony Sage: $1.7M in the bank right now. Our next drawdown is $1M, which should come through by the end of October, halfway through November. And that will continue. So in another 3 or 4 weeks, we can draw down another $1M or so on.
Matthew Gordon: So they let you know how they’re doing with regards to selling down the shares.
Tony Sage: Well, we see it because they have to come through us to convert their shares. We’ve obviously got the share register, so we know when they are selling it. So we’re okay for now. Would we want a different funding, partner? Maybe. So, there’s lots of different options on the table. We’re not going to say we’re stuck with this one, but this one will suit us for the time being until we finish the DFS.
Matthew Gordon: You mentioned part of your strategy is, you don’t necessarily want to take off-take partners on board yet, until you get clarity on the DFS, because then you’ll understand what your options are. You’re a small Lithium player. You’re in Europe. That’s a USP for you or your positioning it as such anyway. What are you doing? Some companies choose to hunker down until there is price discovery. The price gets back up. Or some people like charge on at 100 miles an hour. Some people JV. What’s going on with the board’s thinking. What are the things keeping you awake at night Tony?
Tony Sage: Well, the biggest one right now, believe it or not, is geopolitical. Because everything affects everything in this world. Trump’s fight with Xi Jinping, everyone should be worried about, the whole world should be worried about.
Matthew Gordon: We are. That’s why Gold has gone up.
Tony Sage: Yeah, $1,500. I’ve been reading reports over $3,000 an ounce by mid-next year. But if I’m thinking purely of business, that is my number one concern. China already has proven with this Rare Earth announcement that it will try and hold the rest of the world to ransom if it doesn’t get its way. Trump is belligerent on the other hand, and he wants his way. So, that negotiation is very important for a lot of things in commodity prices around the world. So that’s one thing that keeps me awake at night. I think part of the reason that the US now says, ‘I want to buy Greenland’, because I know there’s a whole lot of Rare Earths in Greenland. So that one maybe a parody or a joke from him. But he’s quite serious about getting investment in Greenland. And I think now with the Prime Minister going to visit Trump. He’s come out and said, ‘we want to really be involved in Lithium, Cobalt, Rare earths’, anywhere in the world with any Australian company. So geopolitically I think there will be a resolution coming up, whether it’s in Trump’s favour, China’s favour. Who knows? But that will settle a lot of the nervousness. You’ll see Gold maybe come down a little bit. But I think everyone then will think, right China’s ready to go again. We just saw the spurt in iron ore prices, for example. It went from $60 a tonne back to $125. Because they’ve got rid of their stockpiles and they needed it very quickly. If there is some sort of resolution, China will need to fiscally spend money again and that will increase the Iron Ore price. But that goes on to other things. If they’re building 1M buses, they still need Iron Ore. But they still need Lithium. I look at the whole of the world and think about things that can happen, cannot happen. For the board, we’ve got a very good project in a very good country. The government of Austria wanted to go ahead. The local government there wants to go ahead. We’ve had no environmental issues come forth for us. Being in Europe, you see every time there’s a new mine set up, there’s greenies everywhere trying to stop it. Ours is not like that. It’s all underground. I think we’re in a unique position to go ahead, finalize the DFS, have a document that we can present to project financers, institutions that will take chunks in an equity raising and obviously go to the $1Bn fund people out of Germany and also the Horizon 2020 out of the EU. I’m looking forward very positively and I believe that the Lithium price will start to move upwards from January next year.
Matthew Gordon: We shall see. I think lots of people want to see some movement there. And then it’s a case of what happens next. Do we get a slew of Lithium miners coming into market or not? And how do you take advantage of your unique position in Europe and capitalize on that? Tony that’s a great first introduction to the company. I would love to stay in touch and see how you get on.
Tony Sage: Thank you very much.
Company website: https://europeanlithium.com/
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