26 February, 2017

European Metals Holdings has a large, low-cost, lithium project right on the German border


How many ten-baggers have there been in mining over the past few years? These have been lean times, so you’d think the answer would be not many, and you’d be right.

But European Metals Holdings Limited is the exception that proves the rule, or just about.

Shareholders who bought in at the time the shares listed on Aim are now sitting on nearly seven times their money, as the price has rocketed from 10.75p on the first day of dealings in December 2015 to 75.25 now.

Whether many shareholders actually did buy in on that day is open to question, since the company already had an Australian listing, and in subsequent months the shares came under some pressure on the downside as liquidity dried up after some initial enthusiasm.

By February of 2016, they had drifted to 5.125p.

But what a turnaround since then. The lithium market was already flying, but it was at that point that European Metals started to post really encouraging news from its Cinovec project in the Czech Republic.

There was an announcement on metallurgy, following a A$1.75 mln fundraising, and suddenly the shares started to move – to the point where European Metals had to issue a statement to say that was “not aware” of any reason for what it called the “significant increase” in the company’s share price to 14.75p.

There was a lot more to come after that though. In the months that followed, as lithium continued to ride high in investors’ minds, with talk of Tesla, electric cars, ballooning battery use and lithium brine companies popping up all over Canada, European Metals made steady progress at Cinovec.

In May there was a drilling and resource update, in July an update on pre-feasibility work, in September news of likely capital cost savings that run to the tune of US$85 mln.

Fast forward into February 2017 and the latest round of drilling at Cinovec has been completed, the company is making moves towards securing a mining license, and chief executive Keith Coughlan is feeling distinctly upbeat. The resource has just been established at nearly 11 mln tonnes of lithium carbonate equivalent.

“We’re within two months of finishing our pre-feasibility study now,” he says. “And at that point we’ll be able to show hard numbers. The key things will be the net present value, the capital expenditure and the operating costs.”

And it’s here, in the realm of costs, that Coughlan reckons European Metals has a real advantage.

Because while Cinovec is relatively low grade, the costs of getting lithium carbonate out of the ground will be very low indeed.

That’s because the type of ore that hosts the lithium at Cinovec is mica, while most other hard rock lithium deposits are hosted in spodumene, and it takes more heat and more reagent to extract value from spodumene than it does from mica.

“We don’t have to heat it to anywhere near the same temperature,” says Coughlan. “That means our operating cost is going to be very much in the bottom end of the global cost curve.”

And given the size of Cinovec, that should make for quite some operation. “We have the largest lithium resource in Europe,” says Coughlan. “We have the fourth largest non-brine resource in the world. And it could be bigger, but we’re not bothering with that for now.”

The location is ideal too. The Czech Republic is a relatively benign operating environment for miners, but perhaps more significantly, Cinovec sits right on the German border. And who’s going to be buying lithium by the crate-load? – German carmakers.

“At the moment,” says Coughlan, “the lithium market has pretty much been cornered by the Chinese. Europe is going to have to get into it from other sources. And we have a large, low-cost, long-term source of lithium right on the German border.”

Money will be needed, of course, to build the mine, but here too Coughlan is pretty confident.

“The numbers are compelling so I don’t see any problems getting that money raised,” he says. “Once we’ve done the pre-feasibility study we’ll roll straight into the bankable study and then raise the money to build it. The capex will be pretty inoffensive.”

After that, construction is likely to take between 12 and 24 months, at which point European lithium supplies will become that much more secure. And in a world where protectionism is making a sudden and rapid return, the importance of that may come to be much more widely appreciated.

source: proactiveinvestors.co.uk