• Strong interest received for both offtake and strategic financing for Phase 2 development of Galan Lithium’s HMW project
  • Enquiries from car makers, chemical refiners, miners and traders
  • Glencore has signed binding offtake and financing deal for HMW Phase 1
  • Volume highlights continued long-term strength of lithium market

 

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.

 

Interest in HMW “remains high”

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.”

 

Upcoming activities

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.

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