Prospect Resources (ASX:PSC) - African lithium developer

Interviews

by Jessica Amir

Prospect Resources Limited (ASX:PSC) Managing Director, Sam Hosack provides an update on the company's flagship Arcadia lithium project in Zimbabwe, funding and strategy.

Jessica Amir:
Hello I am Jessica Amir for the Finance News Network. With me today from Prospect Resources (ASX:PSC) is Managing Director, Sam Hosack. Hi Sam and welcome to the Network.

Sam Hosack: Hi Jessica.

Jessica Amir: First up for those who are unfamiliar, just give us an introduction to Prospect Resources?

Sam Hosack: Prospect is an ASX listed lithium and battery minerals company and we focus in and around Zimbabwe. We are particularly excited about the massive pegmatite hosted in this region as typified by our cornerstone Arcadia project just up outside Harare. We have a fantastic strategic offtake partner who is currently dominating the petalite market and we have tremendous government support. We have diversified product streams that expose us to the electric vehicle (EV) and battery mineral sector, but are also securely underpinned by the glass and ceramics sector.

Jessica Amir: Thanks Sam. Just before we talk about your projects, maybe we can just pause for a second on where you are based, Zimbabwe. Is it supportive and how supportive is it of projects such as yours?

Sam Hosack: We have managed to secure what is called National Projects status. So we are a project of national significance. We are currently expecting our application on Special Economic Zone to be reported on. So Special Economic Zone is an incentive process driven by the government of Zimbabwe, which allows projects like ours to operate independently and there is a raft of benefits that we stand to pass on to our shareholders.

Jessica Amir: Now let’s dive into the project, your Arcadia lithium project. Tell us about the size of the resource?

Sam Hosack: The resource is a 43 million tonne resource grading 1.41 per cent lithium and it is predominantly hosted with spodumene and petalite. So spodumene and petalite are both lithium bearing concentrates that will produce an export. Spodumene is fairly well understood, with its production in Australia and predominant exposure to the EV and energy storage.

Petalite, however is really where we see our competitive advantage. Not many operations, in fact barely a handful, produce both petalite and spodumene. The demand for the glass and ceramics market is around 30% of lithium consumption. In particular in our case we have a very low iron content which attracts a premium. So we are looking to leverage that and ride the stability of the glass and ceramics industry whilst we hope to expose ourselves to the upside of the EV and energy storage sector.

Jessica Amir: What are the project economics?

Sam Hosack: We drove the DFS through its phases. And the outcomes in summary form were a net present value of $511 million and a capital requirement of $165 million, which will take the project through development to cash flow positive. The development period is 18 months and that should take us through the production and ramp up to cash flow positive by the end of 2020. The return on investment or the payback period is 2.5 years from cash flow positive and it is strongly underpinned by an EBITDA, or earnings before interest and tax deductions of $106 million per year. In addition to the DFS highlights, this positions Prospect Resources (ASX:PSC) in the lowest cash quartile both for CAPEX and in operating costs. Which alongside our diverse offtake and market presentation we feel positions us very strongly for a turbulent lithium market.

Jessica Amir: Can you tell us what is currently taking place?

Sam Hosack: Our focus at the moment is on raising the capital requirements for the project and the development cycle. We are engaged with multiple parties and at multiple levels of progression. Our focus is to be ready on the point that we are fully funded to push on to development and ramp up to production. We have a raft of experience within our management team both in bringing small projects and large infrastructure projects online. We would like to leverage that. We have a really robust development plan and early production operational readiness. So for us the focus right now is to deliver on the funding requirements of the project and immediately traffic straight through the development process. And our offtake partner Sinomine Resource Group (SHE:002738), through their subsidiary Jiangxi Dongpeng New Mineral, are the largest converters of petalite product. And therefore, we feel really confident about converting all of these strategies into a final plan.

Jessica Amir: Now can you give us a comment about your share price, over the past 12 months?

Sam Hosack: Certainly in the last 12 months we have seen lots of volatility in the lithium production space. We see that as congestion primarily in the spodumene production space. We would like to see ourselves as unique in the sense that we are going to try and leverage the petalite space, try and establish ourselves as an emerging producer that can leverage all the upside that is offered from the glass and ceramics industry. With our market cap in the $40 million range and NPV north of $US500 million we see tremendous upside on our shares. We are focused on capturing that and passing it on to our shareholders through the financing and developing of this project.

Jessica Amir: Wonderful. We are looking forward to seeing you grow. Thanks so much for sharing your story Sam Hosack.

Sam Hosack: Thank you Jessica.


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