Tawana Resources N.L.’s (ASX:TAW) shares soared 15% on Wednesday after the company confirmed that it had commenced production of lithium concentrate at Bald Hill.
The Bald Hill lithium and tantalum mine in the eastern goldfields of Western Australia is a 50:50 joint venture between Tawana and Alliance Mineral Assets Ltd (SGX:40F).
Successful commissioning of DMS circuit
The spodumene (lithium) concentrate production is the result of ore commissioning through the newly constructed dense media separation (DMS) circuit.
The DMS will be ramped up to full production run rate over several months.
This is an important milestone for both Tawana and the broader industry given that Bald Hill is the first Australian mine to commence spodumene production since 2016.
Focusing on steady-state production from Stage I
Mark Calderwood, managing director said: “It is a great effort by everybody involved to take Bald Hill from maiden lithium resource to production in nine months including only seven months of construction from the ground up.
“The focus now is to achieve steady state production from the Stage I DMS circuit, and optimise lithium yields.
“Concurrently, we will work on completion of the Stage II lithium fines circuit design and re-commissioning of the tantalum circuits.”
Offtake agreements secured
Each of Tawana and Alliance executed separate offtake agreements in April 2017 for the supply of lithium concentrate from Bald Hill over a five-year term.
Pricing for 2018 and 2019 is US$880 per tonne free on board Esperance for 6% lithium.
The prepayments from the offtake agreements are being used towards the capital costs of the project.
Canaccord price target implies upside of 20%
Reg Spencer, Canaccord Genuity analyst is of the view that the company will ramp up to initial nameplate rates of 150,000 tonnes per annum by September 2018.
He also is forecasting that production will increase to 200,000 tonnes per annum by early 2019.
Based on offtake pricing and Spencer’s costing model he noted that the company should be trading on an enterprise value to underlying earnings multiple of about three in fiscal 2019.
He views this as conservative, and based on his projections a share price target of 60 cents per share is warranted.