13 March 2019
(LON:BGS) | A$0.16 | US$29m | Buy | TP : A$0.55
Strategy update for the Goulamina lithium project
Birimian has announced a strategy update for its Goulamina lithium project in Mali. This follows the recent changes of management and the capital raising of A$5.25m to progress the definitive feasibility study (DFS). The new team has reviewed the proposed study and identified multiple opportunities to improve the project and its returns. Three focus areas, which have a high impact on returns and where improvements can be made, have been targeted for completion by 3Q19 and will form the basis of the project design. These are: mineral resources and ore reserves, metallurgical recovery and concentrate quality, and water and road infrastructure. The full DFS is planned to be completed by 1Q20 for a final investment decision by 2H20.
To reflect its business the company proposes to change its name to Mali Lithium Ltd and will seek shareholder approval at the AGM in May.
COMMENT: Birimian’s negative share price reaction today reflects disappointment around the change in timing of DFS completion, originally indicated to be June 2019. In reality the delay is not significant for a project of this nature and the new management is upbeat about the potential improvement in returns achievable from the new focus areas. New MD Chris Evans brings strong experience to the Goulamina project as he was the former COO of Altura Mining which, during his tenure, progressed its hard-rock open pit lithium mine in Western Australia from exploration to production.
A significant upgrade of resources to reserves is anticipated, a meaningful improvement in LiO2 recovery is targeted, and any optimisation of truck transportation of the product to the port, which accounts for one-third of operating costs, could yield significant benefits to the project economics. We would anticipate additional financing later this year to complete the DFS by 1Q20, given the work required, the capital raised recently, and that the capital raising only stated that the funds would be used to ‘progress’ the DFS.
In conjunction with project optimisation work management will increase its engagement with the Malian authorities with the aim of securing all the necessary permitting in conjunction with the DFS. It also aims to secure offtake agreements and financing in parallel with the DFS.
We initiated coverage of Birimian in mid-October 2018 [Birimian Limited — High-quality African Lithium Development, 18 October 2018] and maintain our BUY recommendation and Target Price of A$0.55.
Goulamina is one of the Top 10 largest hard-rock lithium deposits — Current resources total 103Mt grading 1.34% Li2O, containing 3.4Mt of lithium carbonate equivalent (LCE). The resource remains open in all directions and a number of significant targets in the vicinity remain to be tested, offering potential for further increases.
PFS showed a 54,000tpa LCE spodumene concentrate producer with a mine life of over 16 years and returned a 40% IRR — The PFS of July 2018 studied the development of Goulamina as an open-pit mine and a gravity/flotation-based processing plant. The 31Mt reserve grading 1.56% Li2O (containing 1.2Mt LCE) supported production of 54,000tpa LCE contained in a 6% spodumene concentrate for 16 years. AISC were US$349/t CIF China and the initial capital costs were US$199m. At an average spodumene concentrate price of US$666/t, the PFS returned a post-tax NPV10 of US$490m and a robust IRR of 40%.
Maintaining BUY rating and target price of A$0.55 — We base our target price on a risked SotP NAV assuming a lithium concentrate price of US$666/t and a TP/NAV multiple equivalent to 0.2x. Having demonstrated attractive returns in the PFS, we believe that securing offtake arrangements, completing the DFS and finalising debt finance will significantly de-risk the project’s development and should act as a catalyst for a re-rating of the company.