Interview With President and CEO Keith Phillips
Question: Now, you're developing a lithium project in North Carolina, give us an overview of where you are in the development process and what major milestones you expect over the next 12 to 18 months.
Answer: Sure, well we started this business about 3 years ago in Gaston country, North Carolina, about 30 miles west of Charlotte. It's a mining friendly area, North Carolina is the number 7 mining state in the country. We're operating what's known as the Carolina Tin Spodumene Belt, Spodumene is the mineral that contains lithium. Virtually all of the worlds lithium came from this region from the 1950s to the 1980s, there were 2 very large mines operating then, there are two large chemical plants still processing in the region. We've been aggressively building out a land package, doing exploration drilling, and putting economic analysis around the project so, 2019's actually a very important year, we had a series of important catalysis. So in June, we'll update our resources, in July we'll update our scoping study, which will be a summary of our economics. We hope our resource base grows materially and economics, which are already very strong will be that much stronger. Then towards the end of the year we expect to complete the permitting process and completed the definitive feasibility studies. So we should have a shovel ready project right around the end of this year, which is moving very smoothly for us.
Question: And, as I understand it, it's the only conventional lithium in the U.S.
Answer:Yeah, there are a number of projects across the country that are interesting. There are a number of projects really around the world, some of the projects in Nevada for instances, and some other states, I think are quite intriguing, but ours is quite straight forward, we're really going back to the future, as we say. Doing what was done in the region decades ago, simple open pit quarrying and processing and then straight forward lithium chemical processing, which has been done around the world. So there's nothing novel about our process, it's really quite straight forward and from an executive, risk perspective. and quite manageable.
Question: Keith, what's the essential value proposition? Why should investors take an interest in Piedmont Lithium today?
Answer: That's a great question and it's really a handful of things. First of all, demand for lithium is growing very dramatically 20%+ a year for the next decade or two, people are saying, really driven by electric vehicle demands, so lithium is the essential element in a lithium ion battery, batteries in your cell phone, laptop, and your tablet. But really there are big batteries in Tesla's and other electric vehicles, that's a booming business. We're currently at 2% electric vehicle penetration around the world, many people think we'll get to 10% around 2025, so that's a quintupling in the next 6 or 7 years, and then that's just really the beginning, so lithium exploding we are in North Carolina, with a large, very low cost conventional project which we think we can get on track in the reasonably near future, and we think the economics are fantastic, we are NASDAQ listed, so there are dozens of lithium companies around the world, there are only two juniors listed in the United States, we're one of them. So it's very accessible for American Investors. And we think we're at a point where, our valuation, which it's disappointing to us, it's a great opportunity for investors. The economics of the project are not yet fully reflected in the stock, we think that will change, as we hit our catalysis this year It should be a very exciting, news worthy year, and we think investors should benefit from that.
Question: Well, talk to us about your business model, I think you said you would go into production sometime in 2020? What does that model look like?
Answer: We're contemplating a two-phase development, so phase 1, around this- around the end of the year. We hope to begin construction of the mine and concentrate plant to produce a lithium concentrate, which was done historically in the region, that's a $130M capital expenditure to drive, very strong economics and our model projects $80M a year in EBITDA from that business. We'll then, with that cash and cash flow, finance the chemical plant which will product lithium hydroxide, which is the chemical that goes into batteries for people like Tesla and many others. It's a very fast growing market we can be a very low cost producer of hydroxide. That will come on stream, a couple years later. And then we'll be an integrated specialty chemicals producer. Based in North Carolina, with based on our models, $235M of steady state EBITDA, the longer we can have that EBITDA run, the more value we have obviously in our stock, and we're very focused right now on expanding our land package, expanding our mineral resources to enable a longer project life.
Question: I'll also note Keith, that there are 4 analysis covering your company, all with price targets significantly higher than what you are trading today, and you can see some of those price targets on the screen. How big is the market opportunity in dollars?
Answer: That's a great question, it's really, very dramatic so, I'll answer that a couple different ways. First of all, there's about 280,000 tons a year of lithium production currently, in the world. About half or 60% or so is used for batteries. The batteries side of that equation is growing dramatically, so we're expecting to get to a million tons by 2025, roughly a quadrupling, and that's really again, to get 10% EV penetration so the market will grow far bigger than that. Currently only 1% of the lithium raw material in the world comes from the United States, if we were in production today at our 22,700 ton projected level, we'd be about 7% or 8% of the global market. It's a big business, we beat, by the biggest American producer. We do think that eventually, as every car company moves aggressively into electrification, and they all are doing that, people like Volkswagen are going to build electric cars in Chattanooga, people like BMW will build electric cars in Spartanburg, obviously in South Carolina. Obviously Telsa, Ford, and GM etcetera. So, auto companies like to have local suppliers where they can. There, pretty soon, you're going to have a large, low cost regional supplier in North Carolina, which we think they'll find very attractive.
Question: To recap, what's the main takeaway for investors? And I will note, for our viewers that companies in your space trade at a multiple of their forward EBITDA, about 2x their forward EBITDA. And of course, your current market cap as of this recording is a little less than $80M, we might want to reiterate your EBITDA going forward as you talk about the main takeaway for investors today.
Answer: Sure, so our market cap today is around $75M U.S. dollars. I think that is a attractive valuation from an investors prospective, certainly. We have a construction decision on our project 9 months away we hope. By which time the project will be bigger the economics and that present value will be significantly larger. It's currently $880M in our existing scoping study to the extend we can grow resources and extend mine life, that number should grow. And again, we contemplate $235M of annual run rate, EBITDA. Trading at $75M today, we're at a fraction of our valuation we might ascribe to in the future. So we think it's a very attractive opportunity today.