Lepidico (ASX.LPD) Presentation, FNN Online Investor Event, June 2021

Company Presentations

Lepidico Limited (ASX:LPD) Managing Director Joe Walsh presents on the company's lithium conversion technologies, and the timeline for development of Lepidico's processing plant in Abu Dhabi and its Karibib lithium project in Namibia.

Today, we'll be talking about Lepidico's (ASX:LPD) corporate strategy, its proprietary process technologies. Then from a phase 1 plant project perspective, the geology and mining elements in Namibia, the chemical plant in Abu Dhabi, and then wrapping up with our excellent environmental, social and government credentials.

To kick off, we're developing a vertically integrated lithium business. Our upstream asset is in Namibia at the Karibib Project, where we're also going to be building a small concentrator. The material from there, the concentrate, will then be shipped to the chemical plant in Abu Dhabi. We're headquartered in Perth in Australia, but then we also have a regional office in Toronto.

Market capitalisation of the company is between $70 and 80-odd million. We've currently got $4 million of cash.

Next slide, please. We just recently, or last week, announced a 1 for 7 renounceable entitlements offer, which will bring around another $9 million, we expect, into the business, and really funds us into the development phase of this project. So, we've just appointed the EPCM contractor, Lycopodium, and this funding will really allow us to be then getting into the development aspects of that in parallel with finalising our offtake and debt funding arrangements.

Next slide please. So, to get into our process technologies, the central technology here is L-Max. It's received patent protection now in the countries that you see here -- in Australia, the European block, Japan, the US. There are a couple of other countries that are pending. It's designed to treat lithium micra and lithium phosphate minerals. So, to be clear, we don't treat spodumene. But one of the benefits of L-max is it doesn't require an energy-intensive pyrometallurgical front-end process. It's a purely hydrometallurgical process that is at atmospheric pressure, and the highest temperature we employ is only about 120 degrees Celsius. It also benefits from having common-use reagents. It has very straightforward occupational health and safety characteristics, and the equipment in the plant is very conventional.

The process also benefits from being able to produce a series of byproducts, which just is not the case in chemical conversion of spodumene. And we also see it as being scalable. We have done some work on what we call our phase 2 project, looking at an output of 20,000 tonnes a year of lithium chemical. And that's a work in progress. But, in this presentation, I'm going to focus more on the phase 1 project.

Next, please. So, the other process technology we've got is called LOH-Max, and this has broader application than L-Max in the sense that it's a sister process, it's totally compatible with L-Max, but it also potentially has application in spodumene conversion, and also some conversion of sedimentary-hosted feed sources. This all came about because we were seeking a process that could produce high-quality lithium hydroxide without byproduct sodium sulphate. And we've seen sodium sulphate as being a potential risk in the industry from hard rock sources, because it's a very mature market globally, and it's not an easy compound to dispose of.

So, the LOH-Max process has some elegant chemistry associated with it. It goes straight from an intermediate lithium sulphate to lithium hydroxide. Compared to a conventional processing, we don't produce that sodium sulphate. It's lower operating cost, less capital equipment and lower capital cost. So, we see this as a very sustainable solution for the industry, for direct processing into lithium hydroxide from hard rock sources.

Next, please. So, moving on from the technology, specifically to our phase 1 project, where we own 80 per cent of the Karibib Project in Namibia. We have fabulous infrastructure here. The mining licence area covers 68 square kilometres, and all of our resources sit within that. We also have all of our other permits in place, water extraction permit for more than twice the amount of water that we need, and we're going to be recycling 85 per cent of our water here. And we've our environmental compliance certificate as well. And important to note that we're just actually starting drilling here again, to be looking at expanding our resource base, to support that phase 2 project that I mentioned earlier. All of the major infrastructure's in. The only infrastructure that we need is a powered line spur, which is about 25 kilometres from the main switch station just outside the town of Karibib.

Next, please. The ore reserves and mineral resources that you can see here, these are unique globally in that these are the only ore reserves that include the byproduct elements or metals of caesium and rubidium. And these are both critical minerals on the US State Department's list of 35 critical minerals. So, the caesium and rubidium represent important byproducts for us, as also does the potassium, which reports out from the chemical process as SOP fertiliser.

The ore reserve for the phase 1 project of just under seven million tonnes gives us in excess of a 14-year project life. And we've also got additional resources which we expect in time we'll be converting to ore reserves. These deposits are right at surface, low strip ratio, very straightforward mining. Also, importantly, we're redeveloping former mines. So, these are brown field developments.

Next, please. So, this schematic shows you how we've got straightforward, open pit mining. The ore goes to a conventional flotation plant. Lithium micra phosphate minerals readily float. The waste from that or the tails from that plant are benign, and we're co-disposing those with mine waste, so there's no requirement for a tailings storage facility. The concentrate will then get containerised and trucked to the port of Walvis Bay and shipped to the chemical plant in Abu Dhabi. And one of the reasons why we're basing that plant in Abu Dhabi is because our main consumable is sulphuric acid, and the UAE is the world's largest producer of sulphur, which is going to be our feed source for producing that sulphuric acid. There's also an abundant supply of other reagents there, and then markets for our bulk byproducts. So, we'll also produce an amorphous silica, which is used in construction, and the SOP fertiliser as well.

Next, please. So, here you see an image of the planned chemical plant. Lycopodium has been appointed as the EPCM contractor for building this plant, and they started work under this contract last week. So, the plant is going to be situated in an industrial free zone, so there's no duties and there's no tax. And the infrastructure here is superb. These are huge industrial parks that offer all of the amenities that a chemical plant like this requires.

So, moving onto the project fundamentals, capital cost for the vertically integrated project is just under 140 million. That's split about one-third in Namibia, two-thirds in Abu Dhabi. The NPV at an 8 per cent discount rate is just over US$220 million and an internal rate of return of over 30 per cent. Payback of around three years, competitive cash costs and, importantly, all in sustaining costs after byproduct credits of less than $3,500 dollars a tonne. And we expect the average cash flow of just under $50 odd million a year based on benchmark mineral intelligence forecast for the lithium price. We'll be producing just under 5,000 tonnes a year on average of high-purity lithium hydroxide monohydrate. You can see here also the output of caesium and rubidium chemicals that we'll be looking at producing. And if you take those as equivalent to lithium carbonate equivalent, it's over 7,000 tonnes on an equivalent basis.

Next, please. So, here you see where the project sits on the global lithium hydroxide cost curve. This is taken from BMI again. After these byproduct credits, you can see that we are extremely cost competitive. If you totally ignore the byproducts and assume no value for them, we're still on the cost curve in here, in around the third quartile. I think that that highlights how cost-competitive this project will be.

Focusing now on our ESG credentials, which are excellent. We've completed environmental, social impact assessments for both the projects in Namibia and also the chemical plant in Abu Dhabi. So, two separate studies there to IFC standards and following the Equator Principles. The study in Namibia actually identified that there's going to be environmental improvements because these are abandoned mine sites and our closure plan will actually lead to improvements in the environment based on what's currently there.

We've also working with local community. There are small-scale farmers in the area. We're already providing them with water from some of our water bores. Importantly, we're going to be creating jobs, and in Namibia this is a hugely important aspect. There's going to be about 115 direct jobs, but, importantly, indirect job creation is about sevenfold. So, we expect that overall we'll be creating probably somewhere close to around 900 jobs in the region. And the population in the region is 5,000 to 6,000 people. So, there will need to be some skills coming in, but there's an established mining industry in the area as well. Also, very important to note, since we've started on this project, back in 2016, we have got a clean track record from a health and safety perspective with no lost time on injuries.

Next, please. So, focusing in more detail on some of these environmental credentials, the project is expected to have a low carbon intensity. So, more akin to a brine project, producing around five to seven tonnes of CO2 per tonne of lithium hydroxide. We've also got a very small footprint, and so land disturbance is kept to a minimum and our water usage is low. So, we see this project as offering the best of both worlds between what the brine projects and what spodumene projects offer. So, it's kind of a blend of offering low carbon intensity, low water intensity, low land use. And, as I mentioned, no tailing storage facility as well, which in this day and age, I think, is a major benefit.

Next, please. So, just to wrap up, we're now focused on transitioning the project from the feasibility study that we completed last year into full construction. The main work streams there -- I've mentioned the EPCM contract, where we're now doing early works, front-end engineering and design. These projects are now fully permitted in Namibia and largely permitted in Abu Dhabi. The land lease arrangement is going to be the last thing to be signing, which we envisage we'll do on final investment decision.

We are well advanced with offtake. We've announced several LOIs in the course of the last month. One of those is with an Australian chemicals and commodities trading company called Bisley. We expect to be selling part of our lithium hydroxide product into industrial users, and we expect probably about just over half of it to also be going into the electric vehicle supply chain. And we're in advanced discussions there with a number of consumers in that market segment.

We've also, from a finance perspective, entered into a mandate agreement with the US government's International Development Finance Corporation, which is a development finance institution that provides funding to projects in emerging countries. We're now in the confirmatory due diligence phase there and expect that the independent engineer will be appointed within a matter of weeks. So, we're aiming over the course of the second half of this year to be finalising all of our funding and offtake for the project. And that will then allow us to get into full construction.