Galan Lithium [ASX:GLN] shares are up by 8.05%, trading at 94 cents per share after announcing positive results in its Definitive Feasibility Study (DFS) for Phase 1 of its Hombre Muerto West (HMW) Project in Argentina.
The mining junior GLN has seen shares slide in the past 12 months, down 8.74%, as investors remained wary of riskier lithium brine projects, and the price of lithium fell at the end of 2022.
Today’s Phase 1 DFS results could excite some investors as the company looks forward to Phase 2 DFS results, due in September this year.
What were the results that gained attention today? Let’s dig in.
Source: TradingView
Galan Lithium phase 1 results
Galan Lithium announced the results of the Phase 1 DFS for its HMW Project in Catamarca Province, Argentina.
Phase 1 DFS focused on the production feasibility of a brine-extracted lithium chloride concentrate and delivered impressive economic results, positioning the HMW Project as a competitive and compelling player in the lithium brine industry.
The project is part of the Lithium Triangle region in the Andes, which is known for its rich reserves.
Source: Galan Lithium
Phase 1 DFS results outlined an initial production rate of 5,367 tonnes of lithium carbonate equivalent (LCE) per year contained in a concentrated lithium chloride product.
The economics of Phase 1 looks good, with a post-tax net present value (NPV8%) of US$460 million, an internal rate of return (IRR) of 37.5%, and an annual free cash flow of US$54 million.
The study also estimated a Capex of $104 million and an Opex of US$ 3,963 per tonne for Phase 1 production — signalling the company would have a payback period of 1–2 years.
Galan’s Managing Director Juan Pablo Vargas de la Vega commented on today’s announcement:
‘We are delighted by the compelling economics produced from just the first phase of the HMW DFS. The re-evaluation of the DFS process and long-term production strategy will now deliver a high-quality lithium chloride product into the market which will provide Galan with strong early cash-flows.
‘The numbers speak for themselves with an approximate 2-year payback and a project NPV that represents more than twice our current market cap.’
Earlier this month, Galan also announced that it had secured permits to begin developing the HMW project, beginning with a 250-man campsite and removing topsoil for further testing.
Phase 2 DFS is expected in September to outline the runway for Galan to ramp up output to 20,000tpa of LCE.
These production levels could be sustained for a 40-year period, with an MRE of approximately 6.6Mt LCE at a grade of 880mg/L.
Galan Hopes to extend this in a four-phase development that includes its sister project Candelas to eventually produce 60,000tpa of LCE from combined projects.
Outlook for Galan Lithium
The Phase 1 results were unexpected, even for Galan, which undersold the site’s potential after previous announcement hype and then disappointment has seen shares bounce for several years.
The results of the Phase 1 DFS indicate the project’s strong economic potential and significant upside.
The next consideration is the future price movement of lithium, which suffered from a massive inventory from producers towards the end of 2022, pushing the price down as the global market — particularly China slowed and dragged on demand.
Source: Trading Economics
Galan’s price estimates were understandably conservative in this environment but still pointed to promising results.
With an 8% NPV of US$ 460 million, the company will have an approximate IRR of 36% and US$ 54 million in free cash flow to extend and expand its production timelines.
The prospect of setting up salt brine production within Argentina is not without its headaches, as the company is still waiting for approval for an export license and continues to weigh options for in-country refining.
By 2025 Argentina will have around nine conversion plants online. However, some are facing difficulty as the Argentinian Peso faces 114% annual inflation and foreign investment dips.
Country politics aside, the production method is also a unique one that provides its own set of challenges for the company.
Brine production is seen as more lucrative, less intensive and produces fewer emissions but can often fall over in the planning and development stages as complexities compound. Here’s a simple summary.
Galan non-executive director Daniel Jiménez Schuster commented:
‘With brines it can be very complicated, while you know what you are getting in any static moment, you extract it and the pond will infill from what’s around it, so it requires careful planning, management and control of the brine chemistry to optimise the lithium grades while minimising the co-extraction of unwanted impurities.’
Overall, the Phase 1 DFS results are positive and provide a strong foundation for the future development of the HMW Project to be one of the country’s next major lithium brine producers.
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