For years, a major use of the mineral lithium was treating mentally ill patients.
Development of the electric vehicle (EV) industry changed the demand for this mineral that is used in EV batteries.
Prices for lithium carbonate in the last five years have ranged from $75,500 per tonne to a low of $8,000 in 2020. The high price was in 2022.
Currently, lithium sells for $17,500 US a tonne. Demand is expected to grow 13 per cent a year to 2028 as electric vehicle sales increase. As with any new industry responding to high prices the planet is being scoured with lithium explorers.
In 2019, there were 290 companies exploring for lithium around the world. The rate of success has been extremely low. Four of those companies are in/or about to begin production.
Sigma Lithium is the first of the four to go into production with full commercial operations this summer.
Dozens of companies are exploring for lithium in Canada. If any find viable reserves, they will take years to develop, given the opposition by Indigenous people and environmentalists.
Operating in mining friendly Brazil, Sigma has been developing the deposit for six years with three years of a demonstration plant.
During that time, Sigma discovered the lithium produced has 33 per cent more productivity than other lithium.
The Sigma mine is an environmental dream. No hazardous chemicals are used. All water is recycled. Green hydropower runs the mine and plant.
The tailings contain feldspars and some lithium and sell for $1,000 a tonne — pure profit.
Production in the first full year will yield 277,00 tonnes of battery grade lithium. To cash in on the current high lithium pricers before new production increases supplies, Sigma plans a tripling of production over the next two years.
All that is needed is two train lines to the mine from the processing plant at a cost of $100 million.
Financing expansion should not be a concern. Sigma expects $1 billion free cash in the first year of mining.
The expansion will take that to $2.8 billion free cash flow.
The business plan predicts a 75 per cent profit margin after taxes— an almost unheard of margin. Thus Sigma can withstand large drops in the price and be viable.
The company is well supported by the Black Rock, the gigantic financial firm, and controlled by the A-10 fund.
The fund will one day sell its interest in Sigma.
Plans for cash include development of value-added lithium carbonate and/or lithium hydroxide processing and further eventual mine expansion.
Sigma will be the world’s fourth largest lithium producer after the expansion.
The shares trade at $47.74 with a low this year of $16.61and a high of $54.73.
The main downside in Sigma stock would be a sudden precipitous decline in lithium prices if the EV market turns south.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at [email protected]
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
