It’s been a big year so far for Cypress Development Corp (TSX-V:CYP, OTCQX:CYDVF).
In the past 12 months the company has made progress along a number of fronts in regard to its Clayton Valley lithium project.
These include the attainment of water rights, the construction of a pilot plant, positive results on processing via a direct lithium extraction technique, the acquisition of adjacent ground and a significant boost to grades and the potential pit size of the project as well as making enhanced battery grade lithium carbonate.
To date, Cypress is the first company in the world to make battery grade purity above 99.9% using hydrochloric acid as a process on lithium enriched claystone.
And if that’s not enough to make you catch your breath, wait till you see what’s on the cards for the next 12 months.
As it stands, the Clayton Valley project has a net present value of US$1.03bn, using an ultra conservative US$9,500 per tonne nickel price.
That number was generated in a pre-feasibility study conducted some time ago, and a new study is on the way.
What will it show?
It’s too early to say at this stage, but certainly all the building blocks for an excellent outcome are in place.
It’s already clear enough that Clayton Valley is robust in all directions. In the pre-feasibility study the thinking was that the operation would process 15,000 tonnes of material per day over a 40 year mine life to produce an average annual production of 27,400 tonnes of lithium carbonate equivalent.
And even at that point, the base case US$9,500 selling price stacked up well against likely operating costs of US$3,387 per tonne. So, one way or another there’s potential for huge margin here, and we’re only a few months from finding away exactly how much, especially since the spot price is hovering at around US$80,000.
Of course, the world does look a little different now, even in the short space of time that’s elapsed between the 2020 pre-feasibility study and now - covid’s largely over, a new war has begun, inflation’s on the rise, and Western relations with China have grown even more frosty.
Some of those changes will work to Cypress’s advantage, while others present more of a challenge.
The chill in US-China relations has led to an increasing focus on homegrown assets.
Clayton Valley fits this bill to a tee, and as such is likely to garner significant support at many levels in government. It’s helpful that the US’s only other major producing lithium project, Albemarle’s Silver Peak operation, is directly adjacent to Cypress Development’s own project.
Will there be synergies to be had down the line? Who knows – but this is arguably the best lithium address in the USA, and Cypress Development has a significant acreage on it.
What else has changed since the pre-feasibility study?
Inflation is the obvious other answer, although Cypress’s chief executive Bill Willoughby is cautiously optimistic that costs won’t go up too much in the new study.
In the pre-feasibility study the estimate was Clayton Valley would cost US$493mln to get into production over a two year period. A couple of years on, and there’s still every hope that even in the new inflationary circumstances costs could still come in at below the US$500mln mark.
There is in any case some leeway on this - one of the attractions of any development at Clayton Valley is that the processing rate could quite easily be varied. Thus, if there was a danger that capex might run too high, the initial production profile of the project could be cut to 10,000 tonnes per year.
So, while it remains to be seen how all the numbers play out, with the lithium price continuing to ride high, there’s every ground for confidence.
Also, the pre-feasibility study was based on the use of sulfuric acid. The company has now opted to use hydrochloric acid which it plans to make on site. This is a ‘greener alternative’ because it doesn’t have to be trucked in. It also enables the company to escape the high sulfuric prices that the market has been generating in the last three years.
And Clayton Valley has other things going for it too.
Most importantly, perhaps, is the amount of testwork that has been done on the material. Processing claystone material is still relatively new, but Cypress Development’s has been working with one of the largest pilot plants in America, and processed far more material than other lithium companies like Ioneer have done in their own tests.
These tests have shown not only that the material is recoverable, but that it’s recoverable economically.
Indeed, the US$3,387 cost per tonne of material that was used in the pre-feasibility study indicates that the project will likely be cheaper than many brine operations, and almost all hard rock operations.
A creative approach to power consumption will also keep costs down. The company may use geothermal, and/or solar at peak times.
Water – often a tricky issue in locations like Nevada – was successfully licenced earlier in the year. Mining permits are still required, but the plan is to apply for those once the full parameters of the project are set out in the bankable study.
So, what else is needed?
In the medium-term, Willoughby would welcome a strategic partner in to help with the heavy lifting on financing. Short-term, though, there is no issue with funding. Cypress has C$34mln in the bank, which ought to be plenty to take it forward into a bright new future.
And that future is likely to come up fast. Last year’s pace of work wasn’t unprecedented. The fast work has a track record going back years – the company drilled in 2017, did a preliminary economic assessment in 2018, a pre-feasibility in 2019 (which it then updated in 2020), and is now on the cusp of completing a bankable study.
So what will 2023 bring? If the past is anything to go by, the very least we can say is that it’ll be a very interesting company to watch.