Sigma Lithium: constructive PEA on the Brazil Lithium project; Production could start in a little over a year
June 2, Sigma Lithium Resources (TSXV: SGMA) has published a constructive Preliminary Economic Assessment (PEA) on its Grota do Cirilo lithium project in Brazil. The Brazilian project will produce a battery-grade 6% lithium concentrate.
The PEA estimates that phase 2 of the facility has an after-tax net present value (NPV) of US $ 449 million and an internal rate of return (IRR) of 208% based on a discount rate of 8%. This brings the after-tax NPV of Phases 1 and 2 combined to US $ 844 million.
Phase 1 of the project, whose input would come from Sigma’s Xuxa field and has the capacity to produce 220,000 tonnes per year (tpa) of lithium concentrate, could begin commercial operations in the third quarter of 2022. Production of 220,000 tpa of phase 1 is equivalent to 32,000 tonnes of lithium carbonate.
Phase 2, which would add an additional processing capacity of 220,000 tonnes and would come from the Barreiro deposit, could be operational in the course of 2023. Construction should begin in 3Q 2022.
Lithium (Li), which is in great demand as a battery component in the electric vehicle (EV) industry, is refined from lithium carbonate. One hundred kilograms (kg) of lithium carbonate can produce about 19 kg of lithium metal. Over time, industry watchers expect the annual demand for lithium carbonate to reach around 1.6 million tonnes per year. The total quantity produced in 2019 was only about 20% of that total.
Sigma’s planned production facilities
All remaining state permits for the construction of Phase 1 are expected to be received by Q3 2021. Construction costs for Phase 1 are expected to be approximately US $ 100 million. Mitsui & Co. has pledged US $ 27 million to Sigma to cover part of this cost. The prepayment is part of a strategic alliance between the companies, which also includes a drawdown agreement whereby Mitsui can take up to 80,000 tpa of the total annual production of phase 1 of 220,000 tonnes of lithium concentrate.
The balance of construction costs will be covered by a $ 45 million project finance facility with Societe Generale; a private placement of US $ 13.3 million closed in August 2020; and US $ 14.5 million in construction finance from Brazil’s Development State Bank of Minas Gerais (BDMG).
Recent private placement strengthens strong balance sheet
As of March 31, 2021, Sigma had $ 46.8 million in cash, bolstered by $ 42 million in proceeds from a private placement that closed in February 2021. The quarterly operating loss and cash flow deficit The company’s operations began to increase significantly in Q4 2020 and Q1 2021, which Sigma has prepared for its construction schedule. (About $ 5.5 million of his operating loss in the first quarter of 2021 was from unusual stock-based compensation.)
|(in thousands of Canadian dollars, except for outstanding shares)||1Q 2021||4Q 2020||3Q 2020||2Q 2020||1Q 2020|
|Operating result||($ 6,375)||($ 814)||($ 330)||($ 142)||($ 263)|
|Operating cash flow||($ 2,199)||($ 1,300)||($ 385)||($ 250)||($ 483)|
|Cash – End of period||$ 46,848||$ 13,543||$ 16,072||$ 150||$ 61|
|Debt – End of period||$ 3,184||$ 5,140||$ 5,207||$ 5,152||$ 4,587|
|Shares outstanding (millions)||87.3||77.8||77.2||68.9||68.9|
It’s possible that EV manufacturers will eventually decide that traditional nickel-manganese-cobalt batteries are better than high lithium and cobalt-free ones (even though cobalt production is decidedly unfriendly to the environment). In this case, a lithium miner and processor like Sigma would be at a disadvantage.
In just over a year, Sigma could start producing substantial amounts of lithium concentrate, a key component of electric vehicle batteries. The company has secured sufficient investments, along with project financing and a construction credit facility, to finance the relatively modest construction cost of US $ 100 million of Phase 1 of its Brazilian mine. A further stage of change in production capacity could take place in 2023. As Sigma’s Phase 1 project nears commercial production, investor interest could increase, thereby increasing its share price.
Sigma Lithium Resources Corporation last traded at $ 6.20 on the TSX Venture Exchange.
Information for this briefing was found through Sedar and the companies mentioned. The author has no title or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author does not hold any license.