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Galan to make AU$124m a year from lithium play for 40 years … and that’s just phase one

Galan Lithium’s Hombre Muerto West project in Argentina. Credit: File

Galan Lithium’s definitive feasibility study (DFS) shows its Hombre Muerto West lithium brine play in Argentina churning out an average annual EBITDA of AU$124 million a year for 40 years … and that’s just for the first of an anticipated four phases.

The $325 million market-capped company says initial annual production targeting a high-quality lithium chloride product will deliver a US$460 million (AU$692 million) net present value and pave the way to fund further significant expansions.

Galan’s share price was up nearly 14 per cent at one point in today’s intraday trading after the DFS was announced, as the market started punting on the potential size and scale of the company’s now highly-anticipated “phase-two” DFS and beyond.

The second phase will see the production of a lithium carbonate equivalent (LCE) product, while phase one will focus on producing a lithium chloride concentrate that Galan says could be snapped up by anywhere up to 10 local processing plants in the region.

Management says its phase-one operation should turn out 5370 tonnes per annum of LCE and phase two will ramp up radically to a significant 20,000 tonnes of LCE.

Notably, Galan’s price-modelling for its first phase has delivered a production margin that would make a gold miner blush. It has modelled a long-term average LCE price of US$20,252 (AU$30,456) per tonne against an average annual operating cost per tonne of LCE of US$3963 (AU$5960), leaving plenty of margin for error.

The company says it has adopted the latest LCE price forecast by Wood MacKenzie, covering the period from 2025 to 2040, with no growth assumed thereafter until 2064.

Initial capex before contingencies is estimated at US$104 million (AU$156 million) against a projected internal rate of return (IRR) of 36 per cent and a total capital paydown of just 2.2 years.

Interestingly, the 6 per cent concentrated lithium chloride product to be produced in phase one is the equivalent of 12.9 per cent lithium oxide, or 31.9 per cent LCE.

The company’s world-class operation and its Candelas project are on the Hombre Muerto salar, which boasts the highest grade and lowest impurity levels of all lithium brines in Argentina. The region already hosts established lithium brine operations owned by the likes of Livent Corp, Allkem, and POSCO.

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. Galan Lithium managing director JP Vargas de la Vega

The company previously revealed it had decided to split its DFS into two phases, with phase one profits potentially assisting with the capex haul in the second phase. With only 334 million shares on issue, any opportunity to keep that number as low as possible will no doubt be welcomed by the market.

DFS optimisation work is ongoing and September has been slated by the company for the tabling of the upgraded DFS that will carry all of the phase-two metrics.

With the initial phase one development permits granted late last month, Galan is now undertaking pre-construction activities such as improving the camp facilities, removing topsoil and other earthworks, procuring long-lead items, tendering major contracts and recruiting personnel. Pond construction is expected to start in the third quarter of this year once the full phase-one construction permit is granted.

Initial construction is expected to take place by the final quarter of next year, with lithium chloride production expected to begin in the first half of 2025.

The construction of phase two is subject to the approval of the 20,000-tonne per annum LCE permit application, which Galan is expecting to obtain next year. That would allow the continuous construction of ponds once phase one has been finalised.

Phase-two production is then expected to begin in 2026 and with a $124 million EBITDA predicted from phase one alone, market watchers will no doubt be keen to wrap some of their own metrics around just how big phase two is likely to be.

One thing seems pretty certain however – it is going to be big. And phase three and four beyond that? Well, that just might leave the calculator smouldering.

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