December 21, 2017
We attended an investor presentation by Kidman Resources this past week. Anyone closely following the lithium space has undoubtedly heard of Kidman over the past few months once the company signed a Joint Venture agreement with Chilean lithium major SQM. To help de-risk their lithium operation, and ensure its long term viability, the company entered into a JV with SQM, who has extensive experience in the lithium industry. SQM saw Kidman Resources as an amazing land asset, with a high grade Lithium project and gold asset located in Western Australia. Here are a few of our key takeaways from the investor presentation given by Kidman’s MD, Martin Donahue:
Upcoming milestones: Kidman is expecting to put out Definitive Feasibility Studies (DFS) for both the mine/concentrator and the refinery by the midpoint of 2018, start production in 2019, with the refinery going live in late 2020. It was nice to learn that both studies will be going on in parallel, and once the results from the mine/concentrator study are obtained, they will be able to use the data to simultaneously wrap up the DFS for the refinery. While this isn’t really anything new, we’ve included it for anyone looking for updates on their operations.
Production costs: The lithium project that they are pursuing on this asset is expected to be able to produce spodumene concentrate for $205/t. However, SQM believes that they can increase yields enough to drop costs to well below that number, which would make them the lowest cost hard-rock lithium producer in the world. It should also be noted that while many hard-rock producers account for tantalum and other by-product credits when calculating estimated production costs, Kidman’s numbers do not depend on that.
Furthermore, SQM believes that the cost of taking Mt. Holland’s rock and converting it to Lithium Hydroxide will be similar to taking brine from their Atacama asset and converting it to Lithium Carbonate and subsequently Lithium Hydroxide. While this may not be breaking news, we believe it is a big deal because many market participants only see the headlines of brine based lithium production being cheaper than hard-rock. So while we’ve been discussing the leveling of the playing field for hard-rock producers in terms of producing hydroxide at competitive costs to brine, it’s nice to have one of the major brine-based producers affirm that fact with their wallet. In other words, Kidman Resources has the potential to be the best of both worlds- producing hydroxide at the faster rates expected of hard-rock miners, but at the low cost expected of brine based producers.
Impressive Resource: While we already knew that the company boasts an average grade of around 1.45%, it is very impressive that they believe it is a fairly uniform resource throughout. Whereas many land resources have “hot spots” of higher concentration ore, Kidman’s uniform asset is one of the many reasons why they expect to be a low cost producer. Additionally the company noted that while some projects, like Greenbushes, are struggling to produce spodumene concentrate at the targeted level of 6% lithium, Kidman’s tests have been able to produce greater than 6% spodumene concentrate.
Potential Catalysts- Financing, Resource Expansion and Offtake Partners: As a result of the SQM JV, the company has enough funds to cover the mine and concentrator capital costs. So the company will only need to raise capital to cover refinery related expenses. They are estimating this amount to be $550m (or $275m for Kidman’s share of the expenses). While this may be higher than some of their peers, Martin mentioned that they are building the refinery operation with future expansion plans in mind. They plan on doubling capacity at some point and are thus investing up front.
As for sources of financing, the company believes that this could be a significant near term catalyst for their stock. With most, if not all, of the other lithium producers having signed agreements to supply Chinese buyers with lithium, Kidman believes that there will be a number of European and American offtake suitors in the Automotive industry aggressively looking to fund the company’s refinery plans. This phenomenon will lead to very favorable terms for the Kidman, potentially even enabling them to save some production to sell in the open market to the highest bidders.
These catalysts could definitely get the stock moving again, and should be on any investors’ radar. As always- we’ll keep you posted on any developments with Kidman Resources or their lithium project!