Piedmont’s Foothold in Hydroxide

Piedmont Lithium is a unique animal, being an American spodumene and lithium hydroxide play listed on the ASX. We interviewed the company’s CEO, Keith Philips, and discovered an executive thinking critically about the often-overlooked project killers that have mothballed many an Australian project – transport, labour and power costs. Keith makes a compelling case for Piedmont.

NEW-ENERGY RESOURCES [NER] You've recently published PFS-level methodological test results including byproduct resources, also an updated scoping study for the project. Those byproducts seem interesting. You flagged up a mica byproduct credit.

Given that Australian hard rock projects have encountered recovery problems due to high mica content, how are you going to circumnavigate that in an ore body that's obviously rather rich in mica?

KEITH PHILLIPS That's a great question. First of all, it’s important to understand the history of the region in the tin-spodumene belt of North Carolina where we operate. There were two large mines that operated here for decades, during the 1950s and 1990s. One of them was operated by what was then called FMC Lithium. We actually have a number of former FMC Lithium staff working with us as consultants or executives, so we have a good understanding of that ore body.

We've learned that up to half of the revenue of that business was byproducts, feldspar and mica, for many, many years. They had no issue at all isolating the mica as well as the feldspar, recovering it and being able to monetise it. We're very optimistic that can be a big business for us.

The eastern US is the industrial heartland of the country. Most of the core feldspar and mica mineralisation in the country occurs in the Smoky mountain area from Georgia, North Carolina, Tennessee and Virginia. There were pure play mica and feldspar mines in that region. Some have shut down recently: we're actually ordering material from high cost competitors overseas. We're optimistic we can re-enter that market.

With respect to the mining, processing and recovery, I'm not convinced that the Australians’ biggest challenge has been with mica. My impression is that it’s more an iron issue. Historically, FMC never had trouble removing the mica and our current test work doesn't show any problem removing it either.

We think that's largely because we have pure spodumene mineralogy. It’s something not many companies discuss. Our impression from anecdotal discussions and evidence, is that most other hard rock lithium assets in the world have significant issues with respect to the lepidolite mineralisation. Much of the lithium in those resources resides in mineralisation that is not spodumene. So, recovering it is more complicated and the flow sheets aren't necessarily developed to do so.

I think that's actually the biggest issue.

Lee Beasley, Senior Geologist (left), Keith Phillips, Managing Director & CEO (centre), and Patrick Brindle, Vice President & Project Manager

NER Your updated scoping studies show an integrated project producing up to 22,700 tons per annum of lithium hydroxide. What are the main assumptions and outcomes from the scoping study?

KEITH The scoping study is an update on a study that was done in September 2018 when we had a smaller resource. An important priority over the last year has been to prove to the market that this is a bigger resource than we had previously indicated so we did a lot of drilling! The current resource is 27.9 million tons at 1.11%; that's a four to 25 year mine life - a significant differential to our initial mine life of 13 years. For a gold or copper project, 13 years might be fine but when you're producing a specialty chemical product, people want offtake agreements for the long-term.

A longer mine life is important if you want your project to work - the operating costs remain low but with a longer mine life, the economics are just that much better.

NER In the scoping study, you publish a cost curve that positions Piedmont as the lowest cost lithium hydroxide producer in the world by 2028. Given that you're operating in the US with higher labour and power costs and that you're going to be using conventional technologies, how do you justify that?

KEITH I’m afraid I disagree with the premise that the US has higher labour, power and other costs. Certainly, relative to the other spodumene-rich areas in the world like Western Australia or Northern Canada, we reckon we'll have meaningfully lower labour costs and far higher labour productivity. Importantly, we also won't require labour camps. We have about three million people living within a 50 kilometre radius of our project - we're based 50 kms west of Charlotte, North Carolina. Power costs are significantly lower than Western Australia. Perhaps not as low as Quebec but extremely low on a global basis. Our natural gas costs and diesel are similarly far lower than both of those environments.

Transport costs are critical in this business. We think our transport costs will be a fraction of many of the Australian projects. A project like Kidman for example is talking about trucking spodumene 500 kilometres to their chemical plants - a total of 800 kilometres between rail and trucking.

There’s nothing wrong with that but, in our case, we have a 30 kilometre haul at a dramatically lower cost. With a 6% concentrate we’re moving a lot of material over far shorter distances: a big cost saving there.

Furthermore, we're operating on private land in North Carolina, so we have no government royalties. WA obviously has a 5% mining royalty. Five percent's a lot. Ours is zero and we have very low income taxes.

Another benefit is that our byproducts do have a significant impact on our costs. Our current model shows around a hundred dollars a ton of by-product credit on our spodumene concentrate costs. You use about seven tons of concentrate to make a ton of lithium hydroxide. That's roughly $700 a ton of cost savings essentially on the lithium hydroxide front. An engaging advantage relative to the projects without a byproduct opportunity.

NER For the first few years of the project, you're producing and exporting spodumene concentrate. Where is likely to be your main market for that product in respect that spodumene markets are currently oversupplied? Is the spodumene concentrate the strategy you're committed to or have you considered going fully integrated straight away?

KEITH We designed our two-phase strategy largely from a financing perspective. Technically, it's arguably easier to get a mine and concentrate plant up and running than a battery plant. We can do it more quickly. At the time we first thought that through, the spodumene markets were stronger. So, today it's something where we're evaluating on many levels.

Firstly, we are finding that demand for battery hydroxide is growing dramatically. We've been in conversations with a number of parties around the world: in Europe, all over Asia and in the US. It's increasingly clear that more lithium hydroxide is desired. There will be dramatic growth and demand for hydroxide… and it's going to happen soon. We think 2023 is a critical year.

We’re focusing now on how to accelerate our chemical plant plans, which may obviate the need to be a spodumene concentrate seller in the interim. So we remain flexible.

Currently, all the conversion of concentrate in the world occurs in China. That would be the market we would shift into. We've had advanced conversations with a couple of very crowded converters over there.

Accordingly, we’re assessing whether to advance the chemical plant perhaps a year or so, which affirms our strategy, that battery grade hydroxide is the right future for us. It's the right place for us to be with our high-grade, low cost, spodumene-based ore body.

NER One of the questions that come up quite regularly with your project is the land package. What's the nature of your arrangements with the current landowners and what are the prospects of increasing the scale of the project through further land acquisitions?

KEITH We control over 2,200 acres today - probably the largest land package ever assembled on this belt. Some of the land we own but most is under long-term leases with options to purchase over the next several years. Part of the capital in our mining concentrate plan is executing the land options down the road.

The land package we have today supports our 27.9 million ton resource. There's a lot of land we control that we haven't drilled yet - I think there's great prospectivity on some of the other properties. Importantly, we're in contact with a number of other landowners in the area: anyone that has a large property we're certainly in touch with. We think the project could get a lot bigger.

If you look at the belt it's about 40 kilometres long, a couple of kilometres wide at its widest point where we are. Over 95% of the holes we've drilled, on the belt itself, have encountered high-grade mineralisation. Put simply, the more land we have on the belt, the more likely it is we'll have a meaningfully bigger project. I think it could get dramatically bigger if we can make progress on the land front so that continues to be an important part of our strategy.

NER Obviously the deposit is strategically based in the continental US. Can you give us any insights into the potential development of the battery intermediates industry in America? Are you having conversations about the development of an integrated battery industry or are you aware of such conversations?

KEITH We've always said we have the world's best located lithium project and, initially, just thought of that from a cost perspective - in North Carolina the infrastructure's exceptional, a low cost environment etc. Increasingly, we look on it as a strategic factor.

The US is obviously a large industrial economy; huge automotive business. We're in the heart of what is termed ‘auto alley’. If you think about going to Detroit and south to south-eastern US, where most of the growth is, most of the manufacturing plants are growing in places like Alabama, Georgia, Kentucky and Tennessee. We are right in the middle of that region.

Remember, the world's biggest battery plant is Tesla's gigafactory in Nevada. LG currently produces batteries in Michigan. There are rumours of them building a second plant somewhere in the south-eastern US. SK Innovation commenced construction a few months ago.

There’s a large battery plant near Atlanta in Georgia, about a three hour drive from our doorstep. Daimler and others have battery plants under considerations. And importantly, as we've talked to some of those people and as we've talked to OEMs producing cars in the US, it's become increasingly clear that the OEMs in particular want to have localised supply chains. If they're going to produce cars in Tennessee or Alabama, they want to get the batteries nearby. They want their battery suppliers to get cathode nearby. Obviously, the cathode suppliers would like to have a ready lithium supply, which we can offer.

I don't suspect this will be some grand, national strategy that leads the US into a battery supply chain.

I think it will be organic. It's happening. Based on conversations we're having, we have absolutely no doubt about it.

The part that's most interesting to us is, I think, cathode capacity will come to the US in scale. The logical place to put that cathode capacity is in North Carolina, close to existing hydroxide businesses that have more alignment into our project as well.

Hydroxide doesn't have as long as shelf life as some other products. The more you ship it, the more you handle it, the more risk there is associated with it from a moisture perspective, et cetera. Having the supply close to the hydroxide plant makes a lot of sense.

I don't have any question that that will happen. I think it will happen in the reasonably near future.

NER What sort of timetable are you targeting for production? You recently completed the financing, which should take you through to DFS. The other question is, how are you finding the project financing environment at the moment from discussions you've been having?

KEITH We were pleased to complete the financing in July. We were also delighted to bring Fidelity in alongside Australian Super as new large shareholders - between the two of them they own 22% of our stock now. Currently we have roughly US$15 million cash. We will not need to come to the market in this current environment at all.

The project financing environment is challenging for those looking to go into production immediately. We're focused right now on advancing the chemical plant aspect of our strategy, bringing that forward and, in doing so, engaging in conversations with any number of strategic parties: OEM's, battery plants, cathode producers, private equity groups.

Ultimately, we will involve one or more parties, whether it's in an offtake capacity or a strategic capacity, to help finance our projects. Given the strategic and low cost nature of our project I think, at the right time, financing the project will be very doable.

NER A question we ask everyone - what differentiates your project and why do you feel that investors should fund it over and above any other existing projects?

KEITH There are a lot of lithium projects out there, some of which are very attractive. I think what differentiates us is we are the only American spodumene-based, hydroxide business. There are several interesting spodumene projects in Western Australia, Canada and elsewhere, plus some credible carbonate projects in Argentina.

Strategically, we're located in the south-eastern United States, the best part of this country to be in: fast growing from an industrial perspective; constructive regulatory environment; fantastic infrastructure and so on.

Our business is entirely ex-China. There may be a year or two where we sell spodumene to the Chinese converters, if that's sensible, but basically our battery grade hydroxide business will be an American business. This is significant from a cost and strategic perspective. Our asset is an exceptionally low cost business given our location. It’s highly strategic and the only spodumene-based project

looking at the hydroxide rather than the carbonate market in America.

We think the upside is dramatic and the execution risk, very low.