Red hot: Galan Lithium’s world class HMW is attracting strong offtake, financing interest for Phase 2 development
Special Report: Galan Lithium is receiving approaches for offtake and strategic financing for Phase 2 development at Hombre Muerto West, just two weeks after inking a key deal with Glencore.
Earlier this month, global mining and trading house Glencore signed a binding agreement to purchase up to 100% of the proposed lithium chloride concentrate production from Phase 1 operations at the Hombre Muerto West project in Argentina.
Importantly for Galan Lithium (ASX:GLN), the five-year offtake deal includes an accompanying offer to provide or facilitate finance of up to US$100 million that essentially de-risks the Phase 1 development by covering its construction capex requirements.
HMW’s Phase 1 operation is expected to produce a premium 6% lithium chloride concentrate (comparable to 13% Li2O or 32% lithium carbonate equivalent) at a rate of about 5,400tpa of lithium carbonate equivalent from the first half of 2025 for the first five years of commercial production.
This will deliver attractive post-tax net present value 8% (NPV8) and internal rate of return (IRR) – both measures of a project’s profitability – of US$460m and 36%, respectively, as well as free cash flow of US$54m per year.
Capex is estimated at just US$104m with payback in two years while operational expenses were estimated at US$3,963/t of recoverable LCE.
Highlighting Glencore’s confidence in HMW, the major has also secured the first right to negotiate in respect of marketing and/or financing with regards to future expansion under the proposed Phase 2 operations.
With Glencore’s deal all but guaranteeing that Phase 1 of the HMW will proceed, it is no surprise that there is strong interest in participating in Phase 2 of the project.
GLN says it has received direct enquiries from reputable industry participants including car makers, chemical refiners, miners, and traders – highlighting the strength of the long-term lithium market.
In exchange for offtake production, the company is seeking partners offering financing and funding options for the construction of Phase 2.
Phase 2 seeks to maximise shareholder value by increasing production as well as improving profitability.
The Phase 2 DFS released in early October sees annual production increasing to 20,851t of lithium carbonate equivalent contained in the same concentrated lithium chloride product for a period of 40 years from the second half of 2026.
Economies of scale serves to increase post-tax NPV8 and IRR to US$2bn and 43% while boosting annual free cash flow up to US$236m.
This requires a capex of US$278m in addition to the US$104m for Phase 1 with payback on the combined capex still a relatively quick 2.9 years.
Phase 2 will also reduce opex intensity by 11% to US$3,510/t LCE, leaving HMW in the first quartile of the industry’s cost curve.
“We are very pleased with the progress of the offtake process for Phase 2 of our HMW project and highlights the strength in the long-term lithium market,” managing director Juan Pablo Vargas de la Vega said.
“Subsequent to the delivery of a DFS for each of Phases 1 and 2, and securing Phase 1 offtake from Glencore, one of the world’s largest diversified natural resource companies, the interest in our project remains high.
“Glencore offers to provide or facilitate a Financing Prepayment Facility for US$70 to US$100 million, subject to conditions precedent, with no export licence required, clearly validates Galan’s low-cost low-risk lithium chloride development strategy to become the next lithium producer in Argentina.
“Galan’s robust 4 phase production strategy (up to 60ktpa LCE) provides an exceptional foundation for significant future economic upside.”
GLN is on track for first evaporation pond fill in Q1 2024 while Phase 1 construction is progressing well and on time for first production in H1 2024.
It adds that the Phase 2 offtake process is running in parallel with the permitting process.
This article was developed in collaboration with Galan Lithium, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.