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Sayona Mining Ltd: THE INVESTMENT CASE

Sayona Mining moves quickly towards definitive feasibility study at Authier Lithium Project

An impressive pre-feasibility study features a pre-tax valuation of $227 million for start-up capital expenditure of $65 million.
Picture of pilot plant
INVESTMENT OVERVIEW: SYA The Big Picture
Sayona is processing feed samples through a pilot plant

Sayona Mining Ltd’s (ASX:SYA) main focus since mid-2017 has been the completion of studies required to start development of the Authier Lithium Project in Canada.

While the company has predominantly lithium assets in Western Australia, these are relatively early stage.

By comparison, management is targeting late 2019/early 2020 for first production from Authier.

Sayona upgraded its Authier resource estimate in June 2017, followed by an increase in the ore reserve estimate in December.

The Authier North deposit has been included in an updated resource estimate of 18.35 million tonnes at 1.02% for 186,953 tonnes of lithium.

88% in measured and indicated categories

Significantly, 88% of the estimate is in the measured and indicated categories and there is potential to expand the resource through further drilling.

This information contributed to an impressive pre-feasibility study featuring a pre-tax valuation of $227 million for start-up capital expenditure of $65 million.

These figures are based on sales of 1.6 million tonnes of concentrate over 17 years.

Underlying earnings of $38 million per annum

Based on these metrics, the project would generate annual earnings before interest, tax, depreciation and amortisation (EBITDA) of $38 million.

Applying a price of US$614 per tonne, the average operating margin would be US$287 per tonne.

The projected capital payback period is 30 months.

DFS a potential share price catalyst

However, these figures will be refined as the company progresses with its definitive feasibility study (DFS) which is expected to be completed by the second quarter of 2018.

Given this will provide more concise financial metrics and pave the way for potential offtake agreements, financing and decision to mine, it could be a significant share price catalyst.

On the offtake front, Sayona has received a strong show of confidence from a major battery materials producer in the form of a non-binding memorandum of understanding (MoU).

Given the agreement with Huan Changyuan occurred prior to completion of the pre-feasibility study, the group’s interest suggests it is cognisant of the prospectivity of the Authier project.

Subsidiary of China Minmetals Group

Huan Changyuan, a subsidiary of Fortune 500 company, China Minmetals Group, is a battery research, development, and production company.

In 2016, it produced more than 16,000 tonnes of battery cathode materials and the group is expanding production capacity to 36,000 tonnes in 2018.

The main products produced include lithium cobalt oxide and lithium manganese oxide batteries, and ternary (combination of three) composite lithium-ion cathode materials.

The MoU paves the way for advancing discussions to facilitate a development alliance exploring marketing, technical and financial opportunities for the Authier project.

Potential offtake, development and funding opportunities

Under the terms of the agreement, Changyuan could purchase up to 100,000 tonnes of spodumene concentrate per annum.

The MoU could also lead to the development of partnerships for the value-adding of the concentrates into lithium carbonate and/or lithium hydroxide in either China or Canada.

Another benefit of the agreement could be funding and investment opportunities for Sayona and the Authier project.

It is also worth noting that lithium concentrate produced from Authier will be classed as chemical grade specification.

The principal markets for chemical grade concentrates are fairly broad and include battery manufacturing, lubricants, aluminium smelting and pharmaceuticals.

Benefits of nearby infrastructure

The Authier project is 45 kilometres northwest of Val d’Or, a major mining service centre in the Province of Quebec.

It is easily accessed by a rural road network connecting to a national highway a few kilometres east of the project site.

This is significant given the company is considering direct sales of concentrate to converters that produce lithium products suitable for global battery markets.

Tansim only 80 kilometres from Authier

Sayona has no doubt been buoyed by its success at Authier, perhaps prompting management’s recent decision to undertake a staged acquisition of the Tansim project.

Tansim lies about 80 kilometres southwest of Authier and comprises 65 mineral claims across 12,000 hectares.

The area is prospective for lithium, tantalum, and beryllium.

READ: Sayona Mining survey shows lithium potential at new Tansim project, close to Authier

Chief executive officer Corey Nolan said: “Sayona is planning to commence exploration as soon as the winter snow has melted and it can get clear access to the property.

"Tansim demonstrates stand-alone potential but could be developed as a complementary satellite operation to Authier

“The company will draw on its significant experience and expertise in lithium geology in the region, developed through more than 20,000 metres of drilling and exploration at Authier.”

Sayona has strengthened its technical team as it approaches the important construction and production stages at its Authier Lithium Project Québec.

READ: Sayona Mining brings experienced personnel on board as it moves towards construction

Jarrett Quinn and Jean-Pierre Landry have been appointed as project engineer and project director respectively.

Quinn is an experienced mineral processing engineer and hydro-metallurgist who has experience in processing spodumene in Canada.

He will manage the pilot plant testing program and the process plant design for the DFS, as well as engineering of the Authier lithium process plant.

Landry is a qualified civil engineer who has been involved in the construction industry for more than 30 years, 17 of which have been in project management with mining companies.

Their appointment comes at a stage when the company is conducting a test program by processing feed samples through a pilot plant.

READ: Sayona Mining starts pilot plant tests to produce lithium carbonate concentrate

The objective of the pilot program is to further refine the design and confirm the operating parameters for the Authier processing plant.

This is being done in order to de-risk the plant construction, commissioning and ramp-up, indicative of management’s measured approach to date.

Sayona aims to produce a 6% lithium carbonate concentrate at recoveries of greater than 80%.

Data collected during the pilot program will invaluable in completing the DFS.

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