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Galan Lithium’s (ASX: GLN) Hombre Muerto West (HMW) project in Catamarca Province, Argentina, has shown robust financial outcomes in its recently released Phase 2 Definitive Feasibility Study (DFS). The report, published on Tuesday, reveals an increase in the overall annual production rate from the initial Phase 1 DFS, which was based on a production level of 5.37ktpa lithium carbonate equivalent (LCE).
The Phase 1 DFS, released earlier this year, estimated a capital cost of $104 million and an operating cost of $3,963 per tonne for HMW. With the completion of Phase 2 DFS, the annual production rate has been increased to 20,851 recoverable tonnes LCE. This expansion is expected to last for a period of 40 years.
The Phase 2 project estimated an additional capital cost of $278 million to the $104 million contemplated in the Phase 1 study, bringing the total Phase 1 and Phase 2 capital cost to $382 million. The study also projected a post-tax net present value of $2 billion with an internal rate of return of 43%, and a free cash flow of $236 million per year. This leads to a payback period for both phases of just under three years.
According to InvestingPro data, Galan Lithium’s revenue for the last twelve months was $1480.9M USD, with a revenue growth of 8.91%. However, the company’s earnings per share have shown a declining trend, a point highlighted by InvestingPro Tips. The company’s P/E ratio is currently -1.24, indicating its lack of profitability over the last twelve months.
Galan’s managing director Juan Pablo Vargas de la Vega expressed confidence in the HMW project. “The production volumes and low cost of production from HMW means it is truly worthy of being considered a tier one lithium brine project,” he said. He added that these results fully support Galan’s re-evaluation process and long-term production strategy, promising a high-quality lithium chloride product and strong early cash flows for the company.
InvestingPro Tips also noted that Galan holds more cash than debt on its balance sheet, a positive sign for investors. However, the company’s stock price movements have been quite volatile, with a significant return over the last week but a fall over the last three months.
Phase 1 construction is already well underway with the first evaporation pond 15% complete. Galan is also in advanced negotiations with offtake and funding partners for the Phase 1 project. Phase 2 construction is expected to commence in the second half of 2024 and run until the first half of 2026, with first production from Phase 2 targeted for the second half of 2026.
The HMW project’s Phase 2 DFS results demonstrate that it can produce a premium high-grade lithium chloride concentrate of 6% lithium, comparable to 13% lithium oxide or 32% LCE by the second half of 2026. This solidifies Galan’s belief in the HMW project as a tier one project in the lithium brine industry.
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