European Metals – developing a major ESG-credentialed lithium hydroxide project; NPV increases almost 75% to ~US$1.938 bn
European Metals overview
European Metals Holdings (ASX & AIM: EMH, NASDAQ: ERPNF) is a mineral exploration and development company advancing the Cinovec vertically integrated battery metals project in Czech Republic. The strategic location and size of the Cinovec Project makes it well placed to capitalise on the EU’s accelerated transition to renewable energy and electric vehicles.
Share price, last twelve months
Cinovec hosts the largest lithium resource in Europe, and one of the largest undeveloped tin resources in the world
The project is located 100 km NW from Prague on the border with Germany, adjacent to a main road with two rail lines within 10km of the deposit. The project is situated in the heart of Europe with ready access to end user car makers and companies involved in energy storage.
The Cinovec Project is a potential low operating cost lithium hydroxide producer, due to a number of key advantages:
- By-product credits from the recovery of tin, tungsten and potash;
- Paramagnetic properties of zinnwaldite allow the use of low-cost wet magnetic processing to produce a lithium concentrate for further processing at relatively high recoveries;
- Relatively low temperature roasting at atmospheric pressure utilizing conventional technologies, reagent recycling and the use of waste gypsum from power stations;
- Low-cost access to extensive existing infrastructure and cost-effective grid power;
- Global warming potential (GWP) impact mitigation planning recently identified solar power, battery-electric mining fleet, Hypex Bio explosives and the potential use of green hydrogen for thermal energy which could make Cinovec’s lithium chemicals have some of the lowest CO2 intensity in the world if all impact mitigation strategies are pursued;
- Highly skilled workforce and comparatively low costs of employment;
- Historic mining and chemical plant region – strong support by the local community for job creation in areas that have both historic and current mining and chemicals operations;
- The deposit lies in a stable jurisdiction, located centrally to the rapidly expanding electric vehicle industry, which is forecast to be the main driver behind increasing lithium consumption; and
- Established and transparent mining code.
PFS update announced on 19 January provides compelling upside to project economics
- The 2019 PFS Update for the Cinovec Project has been updated to demonstrate the effect of changes in the mining process to incorporate the use of paste backfill, which results in an increase in annual production, together with changes in lithium and by-product prices to reflect current and expected market conditions;
- Annual production of battery grade lithium hydroxide monohydrate modelled to increase from 25,267 tpa to 29,386 tpa, an increase of 16%;
- NPV8 (post tax) increases from US$1.108B to US$1.938B, an increase of 74.9%, based upon a lithium hydroxide price of USD17,000 per tonne which is significantly less than the current price;
- Post tax IRR of 36.3% and a payback period of 2.5 years from the commencement of production;
- Up-front capital cost due to backfilling plant and additional capital costs to produce 29,386 tpa lithium hydroxide increased to US$644m;
- This 2022 PFS Update assumes the life of mine extraction of 13.1% of the Measured and Indicated JORC Resources at Cinovec; and
- Use of tailings for backfill will result in a far smaller environmental impact, further enhancing the Project’s already strong ESG credentials.
Cinovec is the largest hard rock lithium deposit in Europe (by resource), the fourth largest non-brine deposit in the world and a globally significant tin resource
Strategic objectives - to create a sustainable European lithium supply chain with low carbon footprint, strategically positioned to locally supply the fastest growing EV market globally with high margin lithium hydroxide
EMH’s board and management are committed to:
- Fast track the Cinovec vertically integrated battery metals project – Europe’s largest hard rock lithium resource – to development with integrated mine and lithium processing plant;
- Supply secure, sustainable lithium hydroxide to Europe’s EV/Battery gigafactories;
- Maintain a highly positive ESG profile; and
- Nurture and expand strategic partnerships.
Strong board and management team to deliver on corporate strategy and project development
Cinovec Project background
The Cinovec Project is located in the Krusne Hory Mountains which straddle the border between the Czech Republic and the Saxony State of Germany and comprises the Cinovec mine and nearby brownfield land upon which the lithium production facilities will be built. The project is within a historic mining region, with artisanal mining dating back to the 1300s.
In the 1940s a large underground mining operation was established primarily to produce tungsten for the war effort. Mining and processing activities continued under the Czechoslovakian Government with the mine continuing to expand and producing tin as well as tungsten. Due to the fall of communism and lower tin prices, the mine was closed in 1993. In 2011, the old processing plant was removed and the site rehabilitated.
In 2014, EMH commenced a drilling campaign to validate the comprehensive data generated by the earlier exploration activities. The Company’s on-going drilling programme had completed 26 diamond holes for a total of 9,477m drilled by 2017, successfully validating earlier drilling results, adding lithium grade data and providing metallurgical test-work samples.
In 2015, EMH completed a Scoping Study for the Cinovec Project (2015 Scoping Study). The 2015 Scoping Study highlighted that the size, grade and location of the deposit made it a very attractive development opportunity and recommended that the project proceed through to a preliminary feasibility study.
A trade-off study was completed in November 2016 comparing the operating and capital costs of the conventional sodium-sulphate roast and the L-Max process. It was concluded that conventional roasting technology would deliver high lithium recoveries with a lower operating cost, lower technical risk, less impurity removal, and be less dependent on potassium by-product credits. The Company then selected the sodium-sulphate roasting option as the preferred method of lithium extraction for the 2017 PFS.
The 2017 Prefeasibility Study (2017 PFS) (refer to the Company’s ASX release dated 19 April 2017) highlighted that Cinovec could be a low-cost producer of lithium carbonate via conventional roasting technology used at atmospheric pressure. The 2017 PFS estimated average production of 20,800 tpa of lithium carbonate at a cost of $3,843/t. The PFS showed a NPV of $540M (post tax 8%) and a capital cost of $393M.
The updates to the pre-feasibility study announced on 17 June 2019 (2019 PFS Update) (refer to the Company’s ASX release dated 17 June 2019) highlighted that Cinovec could be an economically robust producer of lithium hydroxide and estimated annual production of 25,267 tpa battery grade lithium hydroxide at a cost of $3,435/tonne LiOH.H2O. The 2019 PFS Update showed a NPV of US$1.108B (post tax, 8%) and a capital cost of $482.6M.
2022 PFS Update highlights a strong increase in project value
This 2022 PFS Update highlights the very strong increase in value which results from the increase in the price of battery grade lithium hydroxide when combined with the use of backfill and an increase in the overall annual production of battery grade lithium hydroxide to 29,386 tpa. This 2022 PFS Update shows an NPV of $1.938B (post tax, 8%) and an up-front capital cost of US$644M.
Cinovec is centrally located for European end-users and is well serviced by infrastructure, with a sealed road adjacent to the deposit, rail lines located 5 km north and 8 km south of the deposit and an active 22 kV transmission line running to the historic mine. As the deposit lies in an active mining region, it has strong community support.
Proximity to end users - localised hydroxide close to key cathode, battery & auto makers
Critical for EU’s 80% supply security target.
EMH’s proposed use of Solar Power, Electric Mining Fleet, Hypex Bio Explosive and Use of Green Hydrogen is expected to significantly reduce its carbon emissions impact
Positive ESG profile
Historic mine location
Cinovec is a historic tin-tungsten mine located in a region which has supported mining from as early as the fourteenth century. The redevelopment of the site requires minimal environmental impact on the rehabilitated ground and offers considerable environmental advantages when compared to any new mining development.
Strong community support
Cinovec is located in a historic mining district and enjoys significant support in its partnership with the local community. There is a clear understanding that the project has the potential to empower local residents, offering employment as well as the ability to build skills, furthering knowledge which has been held in the region for generations.
Local supply chain
European Metals’ activities are in close proximity to both battery manufacturers and battery end users, such as EV producers. Close proximity and access to facilities such as grid power and rail means Cinovec has a substantial environmental advantage when compared to overseas lithium operations. These operations require long haul shipping which is CO2 intensive and additionally use significant energy transporting a high proportion of waste by-product material.
A key ingredient in batteries
Lithium is a necessary component of batteries such as those used in electric vehicles. The development of the Cinovec lithium project assists the European market develop these batteries in a more cost-effective manner and also reduces the overall demand for fossil fuels.
Electric mining fleet
Reducing CO2 emissions is a major goal for European Metals’ ESG vision. The Company is able to progress towards this goal by not only producing lithium but also by conducting operations in a sustainable manner. The Company is continuing to investigate ways to electrify its operations and proposes to conduct all mining with an entirely electric fleet.
Simple ore body
Some lithium projects around the world require considerable energy and harsh chemicals, but not so at Cinovec. The Cinovec material requires only one roasting process at relatively low-heat and is able to utilise recycled water and benign reagents. This simple metallurgy is a key factor helping make Cinovec more sustainable.
Battery grade lithium hydroxide is expected to be in a significant global undersupply to 2030, which will bode well for developers such as EMH as the company further derisks Cinovec and moves through project financing to unlock potential additional value
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Nicholas is the Co-founder and Chief Investment Officer of the Eden Global Natural Resources UCITS Fund, which is classified as an ESG ‘Light Green’ Fund under Article 8 of the EU Sustainable Finance Disclosure Regulation (“SFDR”).