Lithium production for the March quarter was 68% higher than the previous quarter with 38,291 wet metric tonnes (wmt) of high-grade spodumene concentrate produced grading 6.1% lithium oxide.
Hartleys has maintained its speculative buy recommendation on Alliance given the strong quarterly production.
Following is an extract from Hartleys’ research report:
GXY investment allows for exploration spend
Alliance Mineral Assets Ltd (A40) announced a placement to Galaxy Resources (GXY) and China based Jiangxi Special Electric Motor Co. Ltd (Jiangte) for a total of A$32.5m, and will leave A40 with a cash position of ~A$48m. GXY will invest A$22.5m and will be the largest shareholder of A40 with ~11.8%. A40 plans to spend the funds on plant upgrades along with exploration and general working capital.
Record MarQ of production from Bald Hill
The company recently reported it produced a record 38.3Kt of spodumene concentrate grading 6.1% Li2O in the March quarter, which is up from 22.6Kt produced in the December quarter. The Company’s cash costs were US$553/t concentrate which reduced substantially from the DecQ costs of US$823/t with grades, throughput and recoveries all improving. A40 processed 387Kt (329.6kt DecQ) of ore at a grade of 0.89% (0.73% DecQ) Li2O with recoveries of 68% (excluding unprocessed fines) improving from 57% in the DecQ. The strip ratio remains high at 15.5x in the MarQ compared to 16x in the DecQ, which is higher than the 11.5X strip ratio guided by the Company for CY19. In CY20 the Company expects the strip ratio to fall to 4.4x. The Company produced 13.3kt at 6.29% Li2O from the 1 st to the 28th of April which leaves it on track to achieve the upper end of guidance (65-80kt concentrate in the 1H CY19). The Company sold 44.3kt of concentrate for US$780/t, with this being the first quarter the Company has sold into its restructured offtake agreement. We expect the received spodumene price to be steady in the JunQ (US$780/t) and to fall slightly in 2HCY19.
Stage 2 plant upgrade until delayed until DecQ CY19
The company’s stage 2 plant upgrade involves introducing a third DMS circuit which will allow the bottom size of feed to be lowered from 1mm to 0.5mm, enabling the plant throughput to increase from the current 220tph to 300tph (2.1mtpa). We note that the Company has delayed the plant upgrade from the first half of the SepQ until the DecQ. We have assumed recoveries being maintained at 68% for the next two quarters, increasing to a steady state of 72.5% from mid CY20, which is at the lower end of Company guidance of between 72-80% recoveries.
Hydroxide MOU with Jiangte
The company recently signed a non-binding MOU with Jiangte to participate in a 50:50 JV to produce battery grade lithium hydroxide. Jiangte is due to commence commissioning of its hydroxide circuit at the Yichun facility in September 2019 and will consume ~20% of Bald Hill’s spodumene production, however once in full production it will consume ~100ktpa and will have a nameplate of ~15ktpa of lithium hydroxide. We currently attribute $55M (4cps) for the lithium hydroxide refinery in our valuation as we assume the JV lasts for 5 years. We await more detail in the formal binding agreement which is expected by 30th June 2019.
Maintain Speculative Buy, price target 29cps
We have a base NPV of 29cps, spot 46cps. We maintain our Speculative Buy recommendation given the strong quarterly production, but we consider it higher risk based on current weakness in spodumene pricing and short mine life dependent on exploration success.