SYAXF - Piedmont To Start Production At One Mine And Construction At Another

Summary

• Production at the Sayona project will soon begin, providing Piedmont with at least 113ktpa of lithium concentrate for $900/t.
• Atlantic’s Ewoyaa Project is slated to begin next year and will provide Piedmont with half of its 255ktpa of SC6 production.
• Cash generated from Sayona should help defray costs of Ewoyaa's construction.

When I previously wrote about Piedmont Lithium Inc. ( PLL ) in late-August of last year, I was bullish on the company and rated the stock a Strong Buy. I noted that while the development of its North Carolina mine and processing facility probably wouldn't have much of an impact on the stock price in the near term, the impending start of production at its Sayona joint venture in Quebec, Canada would likely help the company get more notice from potential investors. And I continue to hold that view as Sayona's production start-date quickly approaches.

But while it's true that Piedmont's Quebec operations will be integral to the company's success in the short term, investors also need to consider another project slated to come online within the next couple of years to gain a greater understanding of this company's value-generating potential. In this article, we'll review Piedmont's investment in Atlantic Lithium Limited ( ALLIF ) and how it relates to the impending start of production at its Quebec property.

Background Information

Piedmont is a US-based mining company that has long-term plans to build a lithium mine and processing facility in the state of North Carolina. To do so, it will develop its 100%-owned property in Gaston County, which registered a resource of 44.2Mt (I&I) graded at 1.08% at the conclusion of the most recent infill drill program in October 2021 . That number can be further broken down to 28.2Mt (Indicated) at 1.11% and 15.9Mt (Inferred) at 1.02%. Granted, those numbers are respectable, but they're certainly nothing to write home about. The 242ktpa SC6 Carolina Project will also only see first production in 2026, and that will eventually be followed by the 30ktpa LiOH processing facility at some point down the line.

So far so good, but again this doesn't differentiate Piedmont from the half a dozen other lithium producers with projected start dates in the middle and end of the decade. What does differentiate the company, however, is its 25% stake in North American Lithium ("NAL"); a project that is due to start production in less than two months and that is majority-owned by the aforementioned Australia-based Sayona Mining Limited ( SYAXF ). I won't rehash the project's details as that was the subject of my previous article on Piedmont as well as an article on Sayona, but it's safe to say that investors can expect the property to soon start production. Sayona is so confident of this that it has done something rarely seen in the mining world, it has put a countdown clock on its website counting down the hours until output begins.

Needless to say, this will greatly benefit Piedmont as it begins receiving its contracted share of NAL's offtake which consists of the greater of 113ktpa of SC6 or 50% of NAL's production, and that offtake will be priced at between $500 and $900 per metric ton. Given these terms, it's highly likely that Piedmont will soon start generating positive Operating Cash Flow, and that should position the company to comfortably fund the next project on its development schedule.

Atlantic Lithium

Piedmont currently owns 9.4% of Atlantic Lithium, an Australia-based lithium miner with exploration and development properties in West Africa. Atlantic's main asset and the one furthest along in development is the Ewoyaa Lithium Project located in the West African country of Ghana. Ewoyaa has a resource of 30.1Mt (I&I) graded at 1.26%, and in September Atlantic released its PFS in which it established the Maiden Reserve at 18.9Mt (Probable) and graded at 1.24%. Ewoyaa is scheduled to begin production next year and will see an output of 255ktpa of SC6 over 12.5 years.

The project's numbers are impressive, the PFS listed the IRR at 224% and the NPV at 8% at $1.3 billion, and those numbers are based on an Opex cost of $278/t and a conservative $1,359/t SC6 price assumption. And Capex for the project is projected to come in at a very reasonable $125 million.

Now, some readers may be asking what the big deal is. With its 9.4% stake, it appears that Piedmont was able to secure a small slice of a big pie. However, if we look at the terms of the deal, outlined in the exhibit below, we see potential for Piedmont to benefit substantially from its agreement with Atlantic.

Basically, what the above terms outline is an agreement for Piedmont to fund most of the Ewoyaa buildout in exchange for additional equity that will bring its stake up to 50% of Atlantic's Ghanian spodumene projects. Piedmont will also secure half of the project's offtake which will eventually be destined for its planned Tennessee lithium hydroxide conversion facility. This is where the Operating Cash Flow generated from Piedmont's share of the NAL project in Quebec will come in handy; Atlantic Lithium plans to start construction of the Ewoyaa facility shortly in order to get it up and running next year, so that cash will soon come in handy.

Downside Risk

All of this, however, is not without its risks. Imminent production at NAL could be delayed due to operational issues or accidents, and a lengthy delay is something that would almost certainly have a negative impact on Piedmont's stock price. Construction of the Ewoyaa project could also run into problems, resulting in lengthy delays and substantial cost overruns; such a scenario could have an equally negative impact on the share price. Also, all of these plans rest on an assumption that lithium prices remain elevated; if SC6 prices were to plummet, these projects could be delayed or shut down.

Takeaway

Piedmont and Atlantic hammered out this deal in the Spring and Summer of 2021, back when lithium traded at prices much lower than the levels at which it trades at today. And the Atlantic deal has turned out to be both a very shrewd as well as a very fortuitous deal for Piedmont. The agreement was well-structured in that it limited Piedmont's downside risk while simultaneously providing plenty of upside if lithium prices were to rise, which they eventually did and quite substantially. The deal also proved to be quite fortuitous in its timing as Piedmont's funding requirements for the Ewoyaa buildout will happen at about the same time as it starts generating income from the Quebec project, so that cash will quickly find a welcome home.

The company's stock price has remained rangebound for most of the last year as the market has taken a wait-and-see approach. But as production at NAL begins, investors should take greater notice of the company, and as that occurs awareness of its West African operations will grow and that should provide additional momentum to the stock.

For further details see: