Galan Lithium Ltd
- ASX: GLN
- Shares Outstanding: 182M
- Share price A$0.14 (09.09.2020)
- Market Cap: A$25M
Interview with Juan Pablo Vargas de la Vega, Managing Director of Galan Lithium (ASX: GLN).
We all known that lithium has had a torrid time of things in recent years. Argentinian and Australian lithium producers jumped the gun and brought into the hype of the EV revolution. EVs have not yet delivered the demand expected and a glut of lithium in the market has impacted price and sales. The consequence is that many lithium investors have been left hanging onto shares waiting for a change of tides in the market. They could be waiting until 2021.
However, the lithium macro story remains convincing. With many analysts touting EV penetration to be 25% of all car sales by 2030 and aggressive subsidy packages being discussed by numerous governments, the long-term thesis is as compelling as ever. As ever, with all things investing, timing is everything and with lithium, you are going to need to be patient. With this in mind, we wanted to dig into the story of Galan Lithium to assess if this is a lithium investment proposition that investors should explore.
Matthew Gordon talks to Juan Pablo Vargas de la Vega, August 2018
Galan Lithium is a junior lithium explorer. Its 25,000ha portfolio of 6 high-grade lithium brine properties is located in the prolific lithium triangle region of Argentina, South America.
This jurisdiction is the absolute go-to for high-quality lithium projects. In fact, according to Galan Lithium, Hombre Muerto, alongside the wider Salar de Atacama salt pan, hosts the world’s largest reserves of Lithium; 60% of global annual production comes from these salars. This is a global lithium hub for brine production.
Galan Lithium also has a single lithium exploration licence in Australia, called Greenbushes South, covering 43 km2. It is located just 15km to the South of the Greenbushes mine, which has been producing lithium and tantalum for 25 years. As of 30th September 2013, the Greenbushes mine had a resource of 119.4Mt at 2.24% lithium oxide. This is clearly a project with prospective geology, but it remains to be seen how Galan can monetise it. Lithium is almost a dirty word in Australia and De la Vega is perfectly cognisant of this. Nobody wants to put their money into their project right now, and focussing on the development of the Argentinian assets looks like the best route to value. Let’s dig into the sort of potential they might have.
Hombre Muerto West
Galan touts this as a ‘world-class’ lithium project. The recent preliminary pond modelling results, released on the 24th August, exhibit promise. The project exhibits a ‘50% higher concentration grade’ than Candelas (4.8% Li vs 3.1% Li). However, Galan maintains that both projects still show ‘excellent capabilities.’
The company believes that by developing a project with optimised concentrated brine yielding 4.8% lithium of 25.6% lithium carbonate equivalent (LCE), it will be able to create a world-class lithium carbonate plant. Both the CAPEX and OPEX are claimed to be ‘competitive,’ and have reduced meaningfully from previous expectations.
We have always felt that investors should be on the lookout for the best lithium projects, because these are the only ones with a good chance of getting financed. Hombre Muerto West will need hard work to get into this category, despite the high-grade/low impurity settings placing it into a favourable bracket of new lithium triangle projects. Investors will want to see this potential crystallised once the extracted brine samples are sent off to a lab, but Galan is currently awaiting transport permits.
The next big catalyst looks like the PEA and other Scoping Studies. Despite COVID-19, these remain on track to be completed during October with final study results expected in Q2/20. This could well accelerate growth, and the recent $1.6M raised by Galan in a June private placement will bankroll these procedures. This raise also included the small participation of Luxembourg green energy fund, Thematica Future Mobility: a sign that green energy players appear to be noticing Galan Lithium.
The other core project for Galan, Candelas, isn’t receiving the attention of Hombre Muerto West. A January 2019 drill programme was launched by Galan to accelerate growth, and after 8 drill holes, primarily on the north of the property, some strong numbers came up including 192m at 802mg/l lithium with ‘very low impurity levels.’
Galan Lithium thinks Candelas also has the potential to be world class. In October 2019, the JORC Maiden Resource was released: 684,850t of contained LCE at 672 mg/l lithium (based on a 500mg/l Li cut-off). This resource potentially has scale.
With plenty of more advanced lithium players to choose from and little capital to spare, Galan Lithium is going to need to give the institutional powerhouses of the world some good reasons to invest. In fact, de la Vega argues that they already are. The company received investment from Ganfeng Lithium in January. This is a good sign but no more than that at the moment; Ganfeng places bets on lots of small lithium companies. Galan reminds us that Ganfeng is the largest lithium compound producer in China and one of the biggest worldwide. Ganfeng is also said to have the most complete industry value chain among all lithium producers. Galan expects to be talking to Ganfeng soon regarding future fundraising efforts once COVID-19 has become less obstructive. One of Galan’s directors is part of Ganfeng, and the company now represents c. 10% of the share registry via involvement with Galan’s subsidiary, Blue Sky Lithium. Is this just option money or legacy money from the Blue Sky relationship? It remains to be seen, but all capital is welcome at this time.
Moving forward, this looks like something of a box-ticking exercise for Galan Lithium. Without sufficient capital to finance the construction of a pilot plant or finalise the company’s BFS, expect the company to need capital rather soon. However, de la Vega knows “money does not grow on trees,” and he is confident he will be able to find a suitable workaround. The real question that investors need to ask themselves is why bother investing now when dilution seems more imminent than ever? Will the Q4/20 PEA be a catalyst moment? Is the market interested in lithium? These are all factors that investors have to weigh up.
This might well be “one of the highest grade projects in Argentina,” but the team lacks the technical know-how to progress things quickly. This company needs external help, but de la Vega doesn’t have the money to pay anyone right now. Moreover, this is technology that is not yet commercially proven. It is eminently desirable, and the company has already spent 9 months working on Direct Lithium Extraction (DLE), but de la Vega doesn’t want to be the first. He is unwilling to take the financial risk, and this looks like respectful management. He is running Galan on a budget and isn’t throwing shareholder cash around. This is wise considering the board and management own around 27% of the company.
What did you make of Galan Lithium and De la Vega? Comment below and we will respond.
Company Page: https://galanlithium.com.au/
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