We had the opportunity to sit down with the management of Piedmont Lithium (ASX: PLL / OTC: PLLLY) to learn more about their background, their company and their plans for the future. Below are the highlights of our conversation with the CEO of Piedmont, Keith Phillips.
January 22, 2018
The Lithium Spot: The company has an Australian background but you are based in North Carolina in the United States. Can you go further into that background?
Keith: Our Company was founded by Apollo Group, one of the most successful mining incubators in Australia. A mining incubator is somebody who takes high quality assets and creates a company around them. The Apollo team is a group of individuals who are very accomplished, experienced, who have started companies throughout the world and made a lot of money for shareholders. The team includes geologists, land experts, mining engineers, lawyers, accountants, etc. The core team is completed by a global group of highly motivated people who are always looking to find new potential prospecting targets and assets around which a business can be built. Apollo is based in Perth and has key corporate offices in London and New York.
Piedmont Lithium came together through the efforts of the Apollo New York office and an experienced exploration geologist with knowledge of the area. Taso Arima and Nathan Ainsworth are the Apollo team in New York. They had been focused on the energy sector and lithium in North America. Sometime in 2016, Taso and Nathan realized that the Carolina Tin-Spodumene Belt here in North Carolina was responsible for the Western world’s lithium supply from the 1950s to the 1990s.
The challenge here and something we’ve been very successful with is that the region has many small private land parcels that need to be consolidated in order to create a project. Taso and Nathan teamed up with Lamont Leatherman, Piedmont’s principal geologist who grew up in the nearby town of Lincolnton and earned his BS in Geology from Appalachian State. Lamont had worked with BHP and Noranda in the Carolinas a few years ago. They looked further into the opportunity and put a land package in place within the TSB trend, assembled a team and started new exploration in the region.
Lithium prices are 20x higher than they were when mines were shutdown 20 years ago, so they thought that maybe there’s a chance to do it and build North Carolina back into North America’s pre-eminent supplier of lithium products as it had been in the past.
The Lithium Spot: Competitive advantages are hard to come by with Lithium projects. Can you talk about any competitive advantages that you feel that you have?
Keith: Location is key for us. We are the only spodumene/hard rock lithium project owned by a junior miner in the United States. We’re in a geographic region, known as the Piedmont region, located in Gaston County just outside of Charlotte, North Carolina. North Carolina is a business friendly state and has a business climate and state government that encourages capital investment. This was one of the first regions in the world to mine and produce spodumene concentrate and battery grade lithium products. The first battery chemicals sold to Sony to commercialize the lithium-ion battery in the 1990s came from open pit mines only two miles away from where we a drilling.
A lot of our advantages derive from our location, with the first being lower expected capital and operating costs. The US takes for granted how low cost everything is. As a simple example, a box of Titleist golf balls in NJ is 50% cheaper than Toronto and Sydney. The US is basically a large free trade zone of 330 million people who speak the same language and have no borders between them, so everything is cheaper in the US and that is important from a cost perspective.
The second is access to world class infrastructure. Everywhere you go in the Eastern US you will find power, gas, highways, roads, airports, rail, towns, hospitals, the list goes on and on. You always have access to infrastructure in the Eastern US, especially when located in Charlotte, North Carolina, one of the fastest growing cities in the United States. This is simply not the case for the other primary lithium regions in the world.
The tax legislation passed at the end of last year will also help our relative cost position. Among competitive lithium producing regions, we went from having the highest corporate taxes to the lowest, which will have a material impact on the IRRs our project will generate. Additionally the US has recently designated lithium as a strategic mineral, which is expected to lead to some streamlining in the permitting process for projects like ours.
We are also well-located to be a long term strategic secure source of supply in the US. Batteries are going into cars and trucks and that’s really driving all of this. If you’re Tesla, GM, Ford, BMW, or another company that needs lithium batteries and related products, you will be concerned about your supply. Currently, your primary sources for lithium are Chile, Argentina and China. The Australians are a large producer when it comes to lithium supply, but 100% of the supply is heading to China to then get converted to battery grade Lithium Carbonate or Hydroxide. We believe the car companies, particularly those producing in the US, will prefer to have raw materials sourced domestically, if possible, and when push comes to shove, we will be a favored supplier.
Additionally, we believe we will have very straightforward, plain vanilla metallurgy. The flowsheet for recovering Lithium from pegmatites was developed here in North Carolina on the belt we are located in. Everyone in the world is trying to replicate what was done here first. We are working with a local mineral research lab that has studied process design in this belt for more than 60 years. Our team includes senior engineers that have worked in the region for decades. We will not try and reinvent the wheel but will build upon a great foundation of local knowledge and update that with the best improvement in modern mining, process, and conversion equipment. We are currently completing our metallurgical work and we think that it will be the same as it once was here in North Carolina.
The Lithium Spot: Have you arranged any off-take agreements for your lithium production?
Keith: We don’t even have a resource yet so we haven’t had off–take discussions yet. That being said, this is the biggest economy in the world and the second largest car market in the world. It goes without saying that everyone making cars in the USA would prefer that they secure their lithium from suppliers in North Carolina vs. anywhere else in the world.
The old operations here in the belt also produced mica, feldspar and quartz as secondary products. We haven’t started that metallurgical test work yet but we expect there will be considerable value in byproducts, particularly given our proximity to numerous potential industrial customers in the region.
The Lithium Spot: On your site and on your latest presentation, it looks like strong drilling results initially. Do you have a sense of where you’ll be ending up– any more clarity?
Keith: Some of the holes we’ve highlighted are the stronger holes. We’ll have a maiden resource in May-June this year. If you look at any company, let’s take Nemaska for example, they have a 27-million-ton reserve at approximately 1.5% Li2O. If they wanted to, I’m sure they could’ve had 30-50-million-ton resource at a lower grade, or a much smaller resource at a higher grade. So, there’s always a tradeoff. In our case, we’re confident we’re going to have a resource grade in excess of 1%.
Additionally, we recently put out a press release announcing the commencement of a 20,000-meter drilling program and that based on previous drill results an initial Exploration Target of between 10-15 million tonnes of lithium at a grade of 1-1.25% Li₂O has been estimated by CSA Global.
To tell you more about what this means: In Australia, there’s a concept of an Exploration Target, before you even declare your resource. Your resource consultants estimate an exploration target which says based on the current drilling to date, even though you might not have the spacing required for a resource it looks like this company may have an exploration target of X-Y at a grade of Z.
Going into a bit more depth on the new drill program – it is a comprehensive 20,000-meter drill program with two objectives. First, to develop a maiden mineral resource. About 13,000 meters of the 20,000 meters will be densely focused and yield data sufficient to support a maiden resource with a substantial indicated component. Second, 7,000 of the 20,000 meters will be allocated to wide-spaced drilling in other high priority areas to further test the potential for more lithium in the project.
The Lithium Spot: What about the cost of production?
Keith: There’s several things that come into the cost position of an asset – not only the type, scale, grade and metallurgy of a resource, but also the access to low cost labor, power, gas, etc.
Initially, you look at an ore body (hard rock in our case), then you look at how many tons are recoverable and how deep it is when assessing the potential mining cost. We are looking at mining at only very shallow depths (the deeper you mine, the more expensive it is). We are drilling only about 100 meters deep, while drill holes that many other companies announce are deeper than that. We are also in a known lithium producing belt which historically had good grades and good metallurgy.
Next, as discussed before we believe the Piedmont region in North Carolina offers huge infrastructure and cost advantages, especially when compared to the other two producing lithium regions in the world that are developing spodumene/hard rock projects – northern Quebec and Western Australia.
One of our great cost advantage compared with our peer developers will be labor. Labor costs in Quebec and remote Australia are quite high, because they are located far from populations centers with scarcity of labor. On top of wages those regions have to transport, house and feed that person. So in North Carolina, we would expect the all-in cost per man hour worked to be potentially less than half of costs in fly-in fly-out mining regions.
Energy costs and climate are advantages we have here in North Carolina as well. Our electricity and gas costs will be comparable to Quebec which has low energy costs, but Piedmont will have an advantage over Western Australia. But we have a huge weather advantage over Quebec projects. This goes beyond energy costs. Logistics, labor productivity, heating and maintenance are all more difficult in Northern Quebec during long winter months.
Transportation costs are another large component of the cost. Quebec and Australia have hundreds of miles of transportation before they can process (or sell) their spodumene concentrate. In Australia’s case they have to transport it hundreds of miles to a port, load it at the port and then the Chinese converter needs to ship it and receive it somewhere in China to further process it into battery grade lithium carbonate or hydroxide. All this transportation adds a significant component to the cost of the end product. In North Carolina we will mine and process into the end product in the region, as they did from the 1950s ‘til the 1990s, so we will have very low transportation costs.
In the end because of our scale, grade, metallurgy and location we believe we will be one of the lowest cost producers of battery grade lithium products from a spodumene/hard rock resource in the world.
The Lithium Spot: We’re interested in learning more about your perspective on the U.S. Lithium industry. What are your thoughts on potential competitors trying to move into the North Carolina scene similar to what we’ve seen in Nevada?
Keith: I haven’t looked closely at the Nevada projects, but from my prior investment banking experience I know that permitting a mining project on Federal lands is a multi-year process. Additionally, brine production obviously requires the evaporation of water, which is a very scarce resource in the southwestern US. In North Carolina, the trend we are on is 30+ miles in length and up to 1 mile wide, so there is certainly potential for multiple world-class projects, but it isn’t easy to assemble a large contiguous land package. We understand that Albemarle is drilling on their old Kings Mountain property, and from our perspective it would be great to have them producing in the region. The world is going to need a lot more lithium!
The Lithium Spot: Is the intent here to have off–take deals with an ALB or FMC to help process the downstream process?
Keith: We are open certainly to strategic conversations. We are very close geographically to ALB and FMC. They also have downstream operations nearby. We have not had conversations about supply with them, but we will be speaking with them and others once we have completed our maiden Resource and Scoping Study. At the end of the day, if we are able to advance a project that is world-class in scale, grade, metallurgy and economics, I’m sure there will be no shortage of strategic parties with interest in our Company.
The Lithium Spot: Are you looking to raise capital anytime soon? If so, will it be debt or equity?
Keith: We completed a financing in November 2017 for $16 Million (AUD), so we have everything we need right now from a financing perspective for the next year. Having said that, we have a lot of work to do with the project. We will be doing drilling, economic studies, permitting work, securing more land, etc. We will be investing the capital but have no near-term financing plans.
The broader question is, when we start looking at what type of project we have, we will then start looking at financing and more specifically, equity vs. debt. We believe capital costs will be extremely attractive for our project and we hope to demonstrate that in 2018. Finally, of course, the lower the capital costs the lower the requirement will be for financing.
The Lithium Spot: Can you touch upon the ownership of the stock currently?
Keith: Officers and directors own 15%. During the recent financing, AustralianSuper announced that they hold 5.6% of the shares in the company. This is Australia’s largest “pension” fund and we view their investment as a very positive endorsement. Additionally, we have several other notable institutional investors in the company who all own under 5% currently and as such, I can’t disclose their information at the moment.
Additionally, I recently just expanded my stake in the company by purchasing 2,000 additional ADRs (representing 200,000 shares).
The Lithium Spot: Any Final Thoughts?
Keith: We’re a small company with a big project, and it’s a project that we believe is within our capability to advance technically and financially. But obviously our focus is on maximizing shareholder value. And at the end of the day if a strategic transaction comes in then that’s wonderful. We think we have a unique strategic asset in a wonderful location, the only hard rock asset in the US, and we think it should be of interest to a number of parties whether they are mining companies, power companies, automotive companies, PE firms, etc. The future is bright for Piedmont, and our shareholders, as we hit our milestones in 2018.
DISCLAIMER: Please note, this is a sponsored post. We do not own shares in the company.