With the construction of their 45% owned Lithium plant well underway at Mt Marion near Coolgardie in W.A, Neometals appear to have received a major economic boost for the project ahead of it springing to life in mid 2016.
In a sign that demand for Lithium is on the increase, leading Chinese lithium producer, Ganfeng Lithium Co have agreed to either take or pay for 80 000 tonnes of sub 6% spodumene concentrate per annum.
Ganfeng, who previously committed to take or pay for 200 000 tonnes per annum, or all of the 6% spodumene concentrate produced by the project, have now agreed to take a further 80 000 tonnes per annum at a cut off grade as low as 4%.
The move follows metallurgical test work which identified an additional spodumene product grading between 4% and 6% that could be produced through the addition of a floatation circuit to the current beneficiation plant.
Previously this material was destined for tailings which means that the company has potentially added an unexpected economic benefit to the project.
Whilst Ganfeng have the right to buy all of the 6% spodumene concentrate produced from the Mt Marion project, Neometals and their partner in the project, Mineral Resources, have the option to claw back up to 51% of production after three years, potentially paving the way for a lucrative downstream processing operation.
In addition, Mineral Resources and Ganfeng have the option of increasing their share in the project by paying Neometals AUD$68m. This would have the effect of reducing Neometals share of Mt Marion down to a guaranteed 13.8%.
When added to the approximately $30m that Neometals already have in the bank, the extra $68m would potentially provide Neometals with an extraordinary cash bonanza and a guaranteed share of the project on a free carried basis given that Mineral Resources are currently funding the construction of Mt Marion.
Paterson’s Securities recently compared Neometals to two other advanced Lithium project peers in General Mining Corporation Limited and Pilbara Minerals Limited.
Paterson’s observed that the enterprise value of Neometals per tonne of indicated and measured spodumene resource was just $98 a tonne when compared to $164 a tonne for General Mining Corporation and $281 for Pilbara Minerals Limited.
Avid market watchers will no doubt be keeping a close eye on Neometals share price as the company makes the giant leap into production mid year.
By Matt Birney
