Neometals Ltd (ASX:NMT) has increased its offtake arrangements at the Mt Marion Lithium Project near Kalgoorlie, Western Australia.
Neometals is a near-term lithium oxide mineral producer through its 26.9% interest in the Mt Marion project.
Initial offtake partner Ganfeng has agreed to further expand the scope of the offtake arrangements for lithium spodumene concentrate grading 4-6% Li2O from 80,000 tonnes per annum to 200,000 tonnes per annum of spodumene concentrate.
This is in addition to the existing Offtake Agreement for 200,000 tonnes per annum of +6% Li2O.
The expanded offtake arrangement is conditional to the completion of a detailed metallurgical test program, which is currently in process.
The project is on schedule to achieve first production during 2016.
Offtake arrangements
The initial offtake arrangement saw Ganfeng Lithium Co. Ltd (China’s largest lithium producer) agree to take-or-pay all of the 6% lithium spodumene concentrate produced from the Mt Marion Project, 200,000 tonnes per annum initially.
Following successful metallurgical test work, Ganfeng agreed to expand the scope of the offtake arrangement to take-or-pay an additional 80,000 tonnes per annum of 4-6% Li20 lithium spodumene concentrate.
The most recent increase to 200,000 tonnes per annum of 4-6% Li20 lithium spodumene concentrate is at agreed discounts to the market prices for the 6% concentrate.
The expanded offtake arrangements remain conditional on agreement from project owners and finalising the necessary variations to the Mining Services Agreement to cover the production of the lower grade product.
The variation will be concluded on completion of a detailed metallurgical test program currently being undertaken.
Mt Marion Lithium Project
Mt Marion is a globally significant lithium deposit, containing total Indicated and Inferred Mineral Resources of 23.24 million tonnes at 1.39% lithium and 1.43% iron oxide.
Mineral Resources Ltd (ASX:MIN), operator has a 30% stake, Ganfeng a 43% stake and Neometals a 27% holding in the project.
During the March quarter, the project operator, Mineral Resources continued the construction phase of the project.
Overburden stripping is well progressed and the haul road to pit 1 is close to completion and on schedule according to mine start up plan.
The crushing plant has begun commissioning on run of mine (ROM) material.
Analysis
The conditional expansion to the offtake arrangement to 200,000 tonnes per annum represents a 150% increase on the previous comparable arrangement of 80,000 tonnes per annum.
Considering the offtaker, Ganfeng, is an equity partner in the Mr Marion operation, they are motivated to see it be successful.
The company's share price is up circa 180% year to date, trading around $0.49.
Neometals is positioned as a near term producer coming online in a strong lithium market.
Neometals is leveraged to both production and resource growth of the Mt Marion asset.
Recent drill results confirm the potential for resource growth with Neometals recently intersecting a significant broad zone of pegmatite with intercepts including 186 metres at 1.82% Li20.
Neometals ended the March quarter with a healthy $65.3 million cash in the bank and paid out $11.2 million in dividends during April.
As one of few near term ASX lithium oxide mineral producers, Neometals has attracted research coverage from by two Australian brokers.
Catalysts for the stock over the coming months include:
- Mt Marion resource upgrade;
- Updates on the new A$4 million drill program;
- Metallurgical test program and finalisation of offtake agreement;
- Buying back of the company's shares as part of the ongoing A$5 million program;
- Completion of the definitive feasibility study at the Lithium Hydroxide Project; and
- Completion of legal agreements for use of proprietary technology at the Barrambie Titanium Project.
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