Ewoyaa lithium: A11’s flagship project, the Ewoyaa Lithium Project, is set to become Ghana’s first lithium-producing mine, has reached Definitive Feasibility Study stage as announced on 29 June 2023. The project is located close to the coast, about 100km west of Accra, Ghana. Several high voltage powerlines traverse or run nearby to the Project site, facilitating connection to the existing power grid and power supply. Existing port facilities are available at Takoradi (deep-sea port), approximately 110km west of the site, and at Tema, 140km east, for Project construction and operations logistics requirements including spodumene concentrate export.
Mining jurisdiction: Ghana has an established mining industry with several currently operating gold, bauxite and manganese mines. It has established supporting industries and supply chains for mining operations as well as a skilled and experienced workforce, which should easily adapt to lithium mining and processing. The Ghanaian Government has a 10% free-carried interest in the Ewoyaa Project.
Ownership: A11 interest in the Ewoyaa Project will reduce to 45% economic interest as Piemont Lithium Ltd (ASX: PLL, NASDAQ: PLL) is earning a 50% interest through a Singaporean subsidiary (45% economic interest after considering the 10% free carried for the Ghanaian Government). PLL also owns 9.4% equity interest in A11.
Project benchmarking: we have undertaken some benchmarking including the following companies and projects: Core Lithium (ASX: CXO, Finniss, NT), Essential Metals (ASX: ESS, Pioneer Dome, WA) European Lithium (ASX: EUR, Wolfsberg, Austria), European Metals Holdings (ASX:EMH, Cinovec, Czech Rep.), Kodal Minerals (AIM: KOD, Bougouni, Mali), Leo Lithium (ASX: LLL, Goulamina, Mali), Savannah Resources (AIM: SAV, Barosso, Portugal). By its mineral resource and ore reserve size and grade, the Ewoyaa project sits among the largest in the Tier-2 group of hard-rock lithium projects. The capital intensity is the best among its peers and the initial mine life of 12 years can be extended with on-going exploration similarly to the Core Lithium development strategy, but with the benefit of not mining from underground.
Mineralogy & metallurgy: one key point of difference is the very coarse grained spodumene material (>20mm) encountered in most of the deposit. The coarse grained P1 pegmatite represents 89% of the mineral resource. This means that the processing flowchart only requires a Dense Media Separation (DMS) circuit. The flotation circuit required to treat the medium and fine grained P2 pegmatite can be added later on. The scoping study for that effect has just started.
Significantly de-risked commissioning: as well as having a simple processing flowchart, Ewoyaa development includes the use of a smaller pre-production modular DMS processing plant, bringing some revenues early.
Funding: The agreement includes PLL funding US$103 million (or A$154.5m) towards the development of the Project. PLL contributed A$15.5m in FY2022 and A$15.6m in FY2023, leaving an estimated A$123.5m to assist the funding of the Ewoyaa capital expenditure. Once PLL has reached 50% interest, it will contribute 50% of the remaining capex funding requirement. On A11’s side, we assumed a funding package made of A$80m debt, which would ideally come in the form of prepayments.
Off-take: The agreement with PLL also includes an offtake agreement for 50% of annual production at market prices on a life-of-mine basis.
Lithium market outlook: the sector has experienced a tremendous uplift in lithium product prices over the last couple of years. The sustained demand for lithium products over the next decades should support high lithium prices. At this time, lithium prices remain well above the assumptions considered in our analysis.
Ewoyaa valuation: using different spodumene pricing assumption:
News flow: the key catalysts in the short and medium terms are the announcements of one of more off-take agreements for the remaining 50%, in parallel to a financing package to start the construction of the Project and the granting of the mining licence.
A11 valuation: Based on the above parameters, our sum of the parts valuation for A11 stands at $712m or $1.10 per share.