European Lithium (ASX:EUR) has signed a binding term sheet with its first off-take partner, Shandong RuiFu Lithium Co., Ltd, a leading Chinese lithium producer.
This is a major milestone on the development road map for the advanced flagship 100% owned Wolfsberg Lithium Project located in Austria.
The plan to supply up to 50,000 tonnes per annum of 6% lithium spodumene concentrates from Wolfsberg under the proposed off-take agreement.
Shandong will commence testing samples of Wolfsberg ore at their concentrate plant and a formal off-take agreement will be entered into within 90 days of signing the terms sheet.
Tony Sage, chairman, commented: “Securing a Chinese off-take partner for concentrate from Wolfsberg is a major milestone for the company.
“Early cash-flows generated from concentrate sales will support the company’s strategy to fast track the development of Wolfsberg.”
Shandong RuiFu Lithium Co., Ltd
Shandong is an established supplier of lithium products and raw materials to the rapidly growing battery industry in China.
Shandong has already secured off-take agreements with Australian based, ASX listed lithium producers, Galaxy Resources (ASX:GXY) and Pilbara Minerals (ASX:PLS) to shore up supply.
Wolfsberg Lithium Project
The Wolfsberg project has a JORC resource estimate of 6.3 million tonnes at 1.17% lithium oxide.
Recent study results supported an economical mining operation at Wolfsberg with an estimated preliminary pre-tax net present value (NPV) of US$94.8 million.
The current JORC resource supports a mine life of 13 years with potential to increase mine life and production rate as additional resources are developed.
Furthermore, the project has proven to be able to produce 99.9% battery grade lithium carbonate from the project’s concentrate.
A preliminary evaluation of the project economics includes:
- Capex cost of US$178.8 million;
- 13 years life of mine (LoM);
- LoM revenue of US$972 million or US$74.8 annually
- LoM EBITDA of US$509 million or US$39.2 annually; and
- Pre-tax NPV of US$94.8 million.
Completion of the pre-feasibility study is anticipated by the end of the September quarter 2017.
Analysis
The signing of a binding term sheet is significant for European Lithium as it suggests lithium producers view the project as viable.
This builds on the recent positive momentum gained from the initial mine design study, which confirmed the project’s technical and economic viability.
The study outlined the upside potential for the project’s valuation that exists should the JORC resource be increased.
This is significant given the resource has been declared by previous owners as considerably greater than the current JORC compliant resource.
A deep drilling program is currently in progress and the first two holes have confirmed that the pegmatite veins do extend to depth.
An updated resource is expected during the September quarter, which will be incorporated into the pre-feasibility study.
At its current share price of $0.053, the company has a market cap of A$23 million, which represents a substantial discount to the project’s current valuation of US$94.8 million.