American Manganese (TSX-V: AMY) – Is This Battery Recycler Really Better Than The Rest?

The American Manganese company logo.
American Manganese
  • TSX-V: AMY
  • Shares Outstanding: 181M
  • Share price C$0.13 (27.03.2020)
  • Market Cap: C$23M

Crux Investor recently interviewed Larry Reaugh. He is the President & CEO of Lithium-ion battery recycling technology company, American Manganese (TSX-V:AMY). The interview was very interesting, and perhaps a little controversial.

Our most recent interview with a manganese company was our interview with the Managing Director of manganese developer, Element 25 (ASX: E25), Justin Brown. We’ve interviewed other manganese companies in the past; it may well be worth watching. There are also some manganese-related articles on our platform.

It might also be worth watching our interview with project developer, Neometals, a battery recyling company we think is very promising, but Reaugh thinks isn’t transparent with the market.

American Manganese Inc. is a critical metals company focussed on extracting cathode materials from lithium-ion batteries via recycling using its RecycLiCo™ Patented Process. Just what does American Manganese have going for itself that its battery recycling competition doesn’t?

We Discuss:

  1. Company Overview
  2. The American Manganese Backstory
  3. Cash Position, Pilot Test Results, and Plan of Actions to Attract Funders
  4. The Business Plan
  5. Conversations Driving American Manganese Forward
  6. Imminent Raises:
  7. Management Share Position: Are They Buying More?

Company Website: https://americanmanganeseinc.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The American Manganese company logo.

Scared About Investing? Read this.

More Of The Upside, Less Of The Down.

People have been putting their hard-earned cash into junior mining companies for decades. What exactly do these companies do with your money? They throw it into a hole and hope something good comes out. But let me be clear, investors can make a lot of money investing in mining companies if you know what to look for and are clear about your investment strategy.

An aerial photo of one of the world's largest mining holes, the Mir Mine in Eastern Siberia.
The Mir Mine in Eastern Siberia; is some of your money inside?

This article is for those investors who may be less knowledgeable about mining and nervous of miscalculating the risks. I would also like to introduce you to a very interesting business model within the current electric vehicle (EV) thematic which removes a lot of these risks for investors. 

First, let’s talk about mining risk. There is an ever-present risk factor that is inseparable from junior mining investment, and it is every investor’s most loathed buzzword: uncertainty. ‘Indicated resource’ and then ‘inferred resource’ estimates from preliminary drilling can become the flimsy foundation for investment decisions. Forming the top of this wavering base is the decision-making capacity of a company’s management team; they may have a promising asset, but without mitigating risk effectively, and employing an astute business plan or the appropriate strategy to deliver that plan, the asset can become uneconomical. Not only is the potential value of investment opportunities nebulous, but this value might not even be extractable. 

The truth of the matter is all junior mining operations have an element of luck. We are dealing with resources that are hidden underground, with a list of risk factors that would make Evel Knievel wince. There are an innumerable number of things that can go wrong on a daily basis, and this is just on a company level: expand that logic to the wider financial market and the extent of risk becomes clear. The day to day role of junior mining management teams is to mitigate these risks in the best interests of their shareholders, but the reality is there is only so much influence they can have over an industry more akin to gambling than one might realise.

Junior mining companies have to sell us an idea that doesn’t necessarily require substantial evidence. Boards of directors and management teams are usually master salespeople who can coerce their way to funding they often don’t deserve. Unfortunately, this is the cold, hard reality of investing in junior mining companies; just as gamblers will head to the casino and get the fruit machines bleeping, people are always going to roll the dice and take a punt on a company they think can give them an exciting bang for their buck. Junior mining investment isn’t quite a casino of pure luck, but luck is of undeniable significance.

However, what if there was a better way? What if there was a way to gain exposure to much of the exciting upside of mining investment, but that steer away from geological risk and mining difficulties? The answer is in extracting value from materials and products that are already at surface. This provides a reliable, unequivocal inventory, and helps work towards the green energy sentiment sweeping the western world with all the ferocity of the awful Australian bushfires.

A screenshot of three dollar signs in a line.
More Money, Less Worry.

There is no doubt that mining is essential to provide the items we use in everyday life and no number of protesters outside mining conferences harassing mining executives is going to change that. The irony of these protesters filming themselves on phones made from mined materials, having travelled there on transportation made from mined materials, is not lost on me.

So, let’s get real. Mining is here to stay. If you want to talk about ethical mining, fine. Hold management accountable to those standards, fine. But if you go down this track, you need to go all the way. End to end.

I have previously spoken about true end-to-end green investing. We live in a time of disposable products. Many of these products contained mined materials which go to landfill and dumps. We then mine more materials out of the ground to make more products. It’s not just the ethical and environmental issues, commercially this doesn’t make sense. We are leaving billions of dollars of materials in dumps.

Mining ethically is one thing, but recovering value from end-of-life products is the, as yet, unanswered requirement for a fully functional and genuine green energy investment eco-system. A primary driver of the green energy narrative is the electric vehicle (EV) revolution. There has always been a contradiction when it comes to EV, because the very thing it seeks to positively effect, climate change, is only positively impacted at the front end of the process – less carbon emissions from the vehicles. If one is to analyse the process of battery and electric vehicle manufacture it is far from zero carbon neutral. In addition, the environmental challenges around battery disposal and destructive pyrometallurgic recycling techniques, mean the entire EV macro investment story becomes fatally flawed.

I recently wrote an article regarding an exciting solution to the cost and environmental ramifications of current pyrometallurgical norms. I explained how I discovered an Australian company, Neometals, who have a proprietary hydro-metallurgical battery recycling process which recovers +90% of materials (nickel, lithium, copper, cobalt, iron, aluminium, manganese). However, I didn’t fully explore the genius of their business plan, or how it relates to us investors.

Neometals is a company with value recovery at its core, and its plan will have the approval of the ‘green army’. Neometals signed a memorandum of understanding (MOU) with German-based private metal industry firm SMS Group to work jointly on the funding, research and evaluation of its lithium-ion battery recycling technology in October, 2019. If successful results are registered at the joint venture pilot plant, the companies will likely develop several fully operational battery recycling facilities.

Neometals’ market cap of AUS$103.44M bizarrely only equivalent to the company’s current cash reserves. They are equipped to make this happen technically and financially, and SGS brings all the contacts and cash to roll this out across Europe.

By partnering with a giant company like SMS Group, Neometals will secure contracts with vehicle manufacturers to provide large, stable quantities of feed-stock (scrap and end of life batteries) for their battery recycling plants. By establishing this robust supply, Neometals solidifies its dominance over traditional junior mining companies; there is nowhere near this level of certainty when mining underground resources.

In addition, Neometals will look to secure contracts to supply its >90% recovery of battery materials back into battery manufacturers. In my opinion, €5Bn SMS Group can confidently facilitate these arrangements, and can bankroll all aspects of the joint venture with confidence.

It is quite clear: by investing in Neometals, investors gain access to an undervalued, unique, proprietary solution that has the funding security investors wish for. The feedstock supply and market demand provide certainty, and the economics of the project provide junior mining upside but without the risks. The economics of the project also fit into the EV narrative in a way that junior miners have not yet been able to deliver on. By re-using surface-based material, Neometals reduces the costs, safety risks and environmental impacts associated with mining. The EV cycle now has an appropriate end, and it is an end that could make you a bucket full of cash.

The Neometals’ management team has pieced together an eco-system of people and partners. I am under no illusion; this team has a clear, solid plan for growth, with undeniable evidence of great success in the past. The company originally made their money with a lithium mining project, Mt Marion, in Australia, and timed their exit perfectly. They pocketed c.AU$140M, but more importantly returned c. AU$45M to shareholders. This is a team that clearly know what they are doing.

A picture of a 'risk-o-meter;' the risk is in the red zone: 'high.'
Why take a big risk when you can play it safer and still make big money?

In conclusion, let’s start getting smarter with our investments. While conventional mining is always going to have the potential to make us money, why not consider alternatives that can mitigate risk and still provide excitement?

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

What Investors are Forgetting about the EV Revolution.

A picture of a pile of stacks of dollar bills. There is a picture of Duracell batteries in the top right corner, an anonymous character icon in the bottom right and a Crux Investor logo in the bottom left.

The Electric Vehicle (EV) revolution narrative is as rapturous as ever. Macro conscious investors have had their attention, and therefore the contents of their wallets, drawn to ‘statistically’ predicted leaps in demand in nickel, copper and lithium, amongst numerous other battery metals. In other words, every Tom, Dick and Harry have been pushing their green investment credentials and telling us how they are going to make money by selling materials to put into batteries.

The current EV macro story has been digested by a flock of vulture-like investors for many years. However, such scrutiny has oddly failed to explore one of the fundamental stages of the process: the end; just what happens once EV batteries reach the end of their lives?

Each year, millions of pounds of Lithium-ion batteries are landfilled or stock-piled instead of being recycled, which depletes natural resources and causes environmental issues. This has severe environmental and safety issues.

To be ‘greener’ or more eco-friendly, surely we should be trying to retrieve as much of the constituent battery metals as possible in order to make the EV cycle even more economically viable? Recycling Li-ion batteries is not yet profitable and must be subsidised by the government. There is an incentive to recover costly cobalt, but no recycling technology exists today that is capable of producing pure enough lithium for a second use in batteries, or so we thought…

One current method of treating spent batteries is pyro-metallurgy: using high temperatures of up to 1,300°C to process battery waste with the aim of reclaiming the target metals.

Batteries

During heat treatment of battery waste, several reactions may take place such as decomposition of compounds, reduction and evaporation of metals or compounds.

A screenshot of a table containing details of pyrometallurgy, hydrometallurgy and electrometallurgy.
Pyrometallurgy: an outdated practice?

While the present day’s most prevalent solution is pyro-metallurgy, it is wasteful, environmentally harmful and, if you really think about it, completely contradicts the EV macro story. For EV to fulfil its promise of a greener environment, every stage of a battery’s life needs to deliver on this promise. The EV macro story’s strength is in the totality of its energy solutions. If one stage is inherently flawed, the whole concept becomes a half-baked mess that struggles both societally and economically. Either it all works, or none of it really does.

One of the current largest players in pyrometallurgical battery recycling is Umicore SA, and their process is as follows:

A screenshot of Umicore SA's pyrometallurgic battery recycling flowsheet.
Umicore’s pyrometallurgical process

It produces huge quantities of CO2, is costly, and burns many of the metals intended to be recovered in the first place. While this process allows Umicore to recycle ‘all types and all sizes of Li-ion and NiMH batteries,(1)’ it is an outdated, primitive solution and is on its last legs.

According to the Financial Times, c. 11 million tons of spent lithium-ion batteries will flood our markets by 2025 (2). The current recycling infrastructure is nowhere near prepared to process this volume.

The Solution

Neometals, an ASX-listed Australian-based mineral/material development company, may just provide a solution to our battery recycling headache. With such a solution comes enormous growth potential for shrewd, well-informed investors with a penchant for profit.

Neometals utilises a hydro-metallurgical process that has Australian and EU provisional and now an international PCT patent application. Let’s try to break down how it works and why it could be a game changer.

Neometals’ Process

A screenshot of Neometals' proprietary battery recycling process.

Here it is in simple stages:

  1. Neometals takes EV and consumer electronic batteries (end of life) as scrap from cell production sites and shreds them as close to origination as possible. Neometals can take whole battery packs, smaller modules from within them and individual cells. Once these are compiled, they are shredded as part of Stage 1 feed preparation.
  2. Once the shredding process reaches completion, Neometals takes out metal casings, and aluminium and copper foil for recycling. The ‘black mass’ that remains has now become safe for potential transport, completely eliminating any fire risk.
  3. This black powder is processed via acid leaching chemistry as part of Stage 2. As the powder is leached, Neometals pulls out the remaining valuable electrode materials, which are upgraded where possible into high purity chemicals.
  4. Upon conclusion of this process, Neometals’ immediate aim is to sell chemicals straight back into battery supply chain, ensuring stable, robust supply to an increasingly hungry market.

This process is superior in every regard to the pyro-metallurgical process. It recovers >90% of the constituent elements before the process begins, keeps dangerous chemicals out of the environment and has a considerably smaller CO2 footprint than mining the minerals from scratch. Neometals has answered the question as to how to recycle batteries more efficiently and, most importantly, economically. Their eco-system of experts and strategic partners have also put into place the supply (feedstock) and demand (selling back in gigafactories) side of things, resulting in an exciting upside potential for investors.

The Competition

While most (if not all) investors will be impressed by Neometals’ highly-effective procedures, there will always remain a cynical, scrutinous few, who will likely ask a perfectly reasonable question before getting involved: Neometals’ process may well be superior to pyro-metallurgy, but what about rival hydro-metallurgical companies? What does the competition look like?

There are alternative companies out there with similar technologies. One such company is Canada-based private battery recycling play, Li-Cycle. However, once you’ve compared the processes side by side, Neometals’ idiosyncrasy becomes even more pronounced. There are three key differences:

  1. Product: Neometals’ patent-pending process recovers high-purity, complete chemicals, which can be place immediately back into the battery supply chain. Li-Cycle produces mixed metal intermediates as their product that must be sold to a refiner, rather than to the market, with a smaller margin.
  2. Process: Neometals’ processing flowsheet will have subtle differences that impact efficiency of process and economics (CAPEX and OPEX). The flowsheet is a genuinely closed loop, with no environmentally related contradictions of the EV macro story. Furthermore, the process accepts a broad range of battery chemistries and has a flexible modular approach that allows for differentiation of shredding and refining locations. Lastly, the flowsheet ensures Neometals by-passes most transport complications related to the movement of hazardous substances.
  3. Business Model: Neometals has a unique partnership with a global metallurgical plant manufacturer, €5Bn SGS Group, that I will be writing an investigative article about in the near future. Their partner manufacturer is comfortably able to operate and maintain sites and has the brand to remove possible barriers with large original equipment manufacturers (OEMs). Interestingly, the company does not factor revenues from feed collection into their overall numbers; there is an assumption that Neometals will need to pay for feed or, alternatively, share the project economics with a sizeable OEM in exchange for free feed.
A screenshot of a table comparing battery recycling technologies against Neometals.

The Market

A screenshot of Neometals' share price performance for the year.

I already know what all my readers are going to say in response to this statement, but I’ll make it regardless, because it is entirely, incontrovertibly true: the market hasn’t clocked the true value of Neometals… yet. I know you hear this about every company on the face of the planet. You hear it in the quixotic conference ramblings of overpaid and underperforming CEOs, and you hear it from people like me. It’s an awful lot of rhetoric, but on this occasion, it’s well justified.

Neometals has a market capitalisation equivalent to the cash in their bank. That tells me three things:

  1. Investors are not looking at them.
  2. Those who are looking do not yet understand the potential of this one project (Neometals has 5 projects)
  3. Neometals needs to start telling this story.

I like their business model and the team. I like that they are fully funded to develop all their existing projects and more. I like the strength of their strategic partners. And above all I like the scale of the opportunity that they have built within the EV investment thematic. It feels like a market of one: a very nice place to be.

Neometals provides the unique benefit of having the reward profile of a junior, with the risk profile of an established producer. The company also mitigates risk in a way that would be impossible for mining: they are sourcing their supply materials from above ground and the quantities are pre-existent and guaranteed; they are not drilling into the unknown. Mining derivatives is an investment category that provides a truly unique situation, similar to the treatment of tailings, where investors can enjoy all of the upside with much less of the down. Look out for an article in the near future on just why this is so significant for making you more money.

To conclude, Neometals can cement its status as the frontrunning candidate for EV battery macro completion. It will be interesting to delve into specific details regarding management and the numbers in the near future, but for now, I need a stern cup of coffee and some light-hearted, terrible daytime TV.

(1) https://csm.umicore.com/en/recycling/battery-recycling/our-recycling-process
(2) https://www.ft.com/content/c489382e-6b06-11e7-bfeb-33fe0c5b7eaa

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

A picture of a pile of stacks of dollar bills. There is a picture of Duracell batteries in the top right corner, an anonymous character icon in the bottom right and a Crux Investor logo in the bottom left.

Battery Metals: A Shocking Introduction (pt1/7: Cobalt)

An open charging port on a dark grey electric car.

I, like many investors, possess a stalwart belief in the EV revolution and expect charging Teslas to occupy every street corner in the near future. As a consequence, it seems prudent to consider investing in the battery metal market.

Bloomberg’s 2019 Electric Vehicle Outlook report demonstrates the rapid growth of the market, with two million electric vehicles being sold globally in 2018, up from a few thousand in 2010. Their projections further confirm this could be a good time to seek out a winner, with predicted sales rising to 10 million in 2025, 28 million in 2030 and 56 million by 2040. (1)

Furthermore, the International Energy Agency have released their Global EV Outlook for 2019. The results demonstrate a 63% increase in global electric passenger car stock in 2018, and a 44% increase in the installation of electric LDV chargers. Projections under the EV30@30 scenario place EV sales at 44 million per year by 2030. (2) These are just two examples from a swathe of encouraging studies showing the rapid growth of the EV market.

However, the preeminent question for any potential investor still remains to be answered: how on earth can I make money out of this? The answer lies in the heart of the vehicles themselves: battery metals. Here’s how to get started.

Lithium-Ion Batteries – The Misconception

A widely perpetuated falsity about EV batteries is their apparent simplicity. When individuals hear the phrase ‘lithium-ion batteries,’ their minds often retreat back to a rudimentary high-school physics lesson, where paper planes circled the room like a warzone, and batteries were presented as simpler than tying shoelaces.

In truth, batteries feature a variety of metals. These metals are important to the EV economy. More importantly, these metals can make you money.

Today, we’re starting with talking about one of the most controversial battery metals, cobalt.

Cobalt

A photo of a pile of small blue shards of cobalt.

Cobalt appears in the majority of commercial lithium-ion batteries. It is also the most expensive component. In spite of its prevalence, it is worth nothing researchers have developed rechargeable batteries that don’t require cobalt. Moreover, Tesla’s battery supplier, Panasonic, have announced they are developing batteries that don’t need cobalt; Elon Musk tweeted last year: ‘We use less than 3% cobalt in our batteries & will use none in next gen.’ (3) Tesla have reduced the amount of cobalt in its NCA (nickel, cobalt, aluminium) formula massively in recent years.

…yeah, we think we can we can get the cobalt to almost nothing.

Elon Musk in a letter to shareholders

There are a variety of reasons behind the desire to reduce cobalt use in batteries. The majority of cobalt is sourced from Africa, pre-eminently the Democratic Republic of Congo. There are numerous ethical concerns regarding the procurement of cobalt, such as child labour, and artisanal workers employing dangerous methods of extraction. Therefore, companies are being pressurised by human rights activists to reduce their consumption of cobalt, and even discard it altogether. In recent years, companies like Apple and Samsung have been pressured into joining the Responsible Cobalt Initiative.

Furthermore, from an investor’s standpoint, the cobalt market has notable issues. While it is rarer than other battery components, such as lithium or graphite, cobalt is not especially scarce and is typically produced as a by-product of nickel or copper mining. Therefore, if nickel or copper are suffering from low prices, cobalt will too. Investors should be aware that cobalt is not necessarily a fully independent market and is instead reliant on the success of larger nickel and copper markets.

However, attempts to remove cobalt have caused a variety of issues for manufacturers. Cobalt is currently integral to the life cycle of cells within batteries. A reduction in cobalt results in significantly reduced longevity for batteries.

There are also safety concerns that have yet to be addressed. One need only look at the international overheating controversy surrounding the Samsung Galaxy Note 7 to see some of the issues pertaining to cobalt reduction. A reduction in cobalt requires an increased amount of nickel, which can cause cells to overheat and eventually combust. While this is unlikely, it remains an at-present unavoidable risk.

In addition, any formulation with low cobalt levels requires specific dry, costly environments for production. Last year, irrespective of its work to reduce cobalt, Panasonic tripled its consumption for Tesla batteries. It is clear that despite reduction being a long-term aim for many, cobalt is still a crucial element of batteries and will not be going anywhere soon, a position that has been supported by Nobel Prize winner John B. Goodenough.  

There are numerous companies who still feel cobalt is an exciting opportunity for investors to chase paper. Crux Investor has recently interviewed Canada Cobalt Works, (https://youtu.be/V2puGQDRwAk) and Jervois Mining (https://youtu.be/U6GUKdLH_5I). Both offered intriguing arguments as to why it is still an exciting commodity for investors to put their hard-earned cash into.

We investors need to make our minds up about the EV revolution. If we think, like many of the experts and industry players, that it is inevitable, we need to pick some winners. Remember, don’t invest in anything you don’t understand; have a clear view about what your investment thesis is. I want to find out more as there will be clear winners and losers.

As of today, cobalt sits at $38.58/kg , a 34.55% since the beginning of 2019 (4). The all-time high is $105/kg in March of 2018 and the record low is $23.98/kg in February 2016 (5). Huge swings are possible which is all part of the excitement of investing.

Be sure to check out the next article in the series, which will discuss the technological conundrum: vanadium.

  1. https://about.bnef.com/electric-vehicle-outlook/#toc-viewreport
  2. https://www.iea.org/publications/reports/globalevoutlook2019/
  3. https://twitter.com/elonmusk/status/1006968985760366592?lang=en
  4. https://tradingeconomics.com/commodity/cobalt
  5. https://tradingeconomics.com/commodity/cobalt

Company page: http://www.cruxinvestor.com

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

An open charging port on a dark grey electric car.

European Lithium (ASX: EUR) – A Giga Factory JV with a Junior Lithium Developer? (Transcript)

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.

Interview Highlights:

  • 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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