Cypress Development (CYP) - Advanced, Large & Complicated Lithium Clay

In recent weeks, we've spoken to a lot of lithium explorer, developers and commentators who have spoken about lithium's potential as a strategic commodity. In fact, the US is said to be actively considering how it can reclaim some of the control of the lithium space from Asia. This is similar to the sort of thing we're seeing from the administration regarding uranium, with the Department of Energy's Nuclear Fuel Working Group Report highlighting policy recommendations to restore America's competitive nuclear advantage.

As a consequence of this desire for strategic fortification, some lithium investors have been bullish about the prospects of new American lithium projects getting funded. However, whilst lithium producers and developers have found capital fairly easy to come by, there has been very little made available to explorers; there simply isn't that much interest in new projects yet.

Matthew Gordon talks to Bill Willoughby, July 2020

The EV picture in general looks bullish, with the €250Bn investment of automotive manufacturers in Europe almost forcing them to encourage EV demand growth. Countries like Germany, France and the UK have been discussing aggressive subsidies to allow COVID-19-afflicted consumers to purchase EVs: in Germany, a figure of c. €9,000 for every EV up to €50,000 could be on offer, with the more extreme idea being that the government could mandate EV charging stations at every single gas station (though this seems farfetched).

So, whilst the lithium price has remained depressed, the demand drivers are providing reasons to feel more optimistic. However, will the general lack of capital be deleterious to a small lithium junior like Cypress Development? With a CAPEX this sizeable, has it bitten off more than it can chew? How will it get financed?

Cypress Development (TSX-V: CYP) (OTCQB: CYDVF) is focussed on developing its 100%-owned Clayton Valley Lithium Project in Nevada, USA. It is a lithium-bearing claystone project but with high lithium recovery over 85% Li, which means the dominant lithium-bearing minerals present are not hectorite (which requires roasting to liberate the lithium). Cypress Development claims that exploration and development have rendered Clayton a 'world-class' resource of lithium-bearing claystone. Encouragingly, the project is adjacent to the Albemarle Silver Peak Mine, which is North America's only lithium brine operation. Clayton has the scale to be attractive to major strategic partners.

In May of this year, the company released a PFS. The numbers are strong:

1. Average production rate: 15,000 tpd to produce 27,400t lithium carbonate equivalent. (LCE) annually over a +40-year mine life.
2. Lithium Carbonate Price: US$9,500/t.
3. Capital Cost Estimate (CAPEX): US$493M.
4. Pre-Production and Operating Cost Estimate Averaging US$3,329 per tonne LCE. This is industry-leading.
5. After-Tax Net Present Value (NPV8): US$1.052 billion.
6. After-Tax IRR: 25.8%.
7. Probable Mineral Reserve: 222Mt averaging 1,141 ppm Li (1.353 Mt LCE) based on a cut-off grade of 900 ppm Li.
8. Measured and Indicated Mineral Resources of 593Mt averaging 1,073 ppm Li (3.387 Mt LCE).
9. Average Annual Production: 27,400t pa LCE.
10. CAPEX Payback Period: 4.4 years
11. Strip ratio: 0.15:1. This is negligible due to minimal overburden and no interbedded waste.

First and foremost, Clayton has the scale to be attractive to major strategic partners. Another positive is that Cypress Development is able to produce self-generated power from a 2,500 tpd acid plant, and this is included in the project’s costs. The cash cost is exceptional, and an IRR of c. 26% is impressive. However, how will Cypress Development finance its c. US$500M. It's not going to get financed on the back of a PFS, and nobody has yet brought a lithium clay deposit into production at this scale, so what is the next step?

The next step is building a pilot plant to provide a proof of concept. This is driven by a focus on the needs of end users. The company will have to scale the plant accordingly to its potential consumers. Right now, Willoughby and his company are aiming for 1 tpd. It's a c. US$7M phased programme. Even if Cypress Development nails the technological side of things, this capital is a big ask for a lithium minnow. The company will be applying for government grants. There is a REEs aspect to this story, and Cypress Development is hoping to play off that as America target building a new rare earths hub. Other than grants, an equity raise/strategic partner is the other option. Willoughby thinks that investors will buy into the value proposition of this advanced lithium project, and he expects them to throw their money into the ring. However, a private placement is not the current priority. It can afford to be patient with US$1M left in the treasury and a low burn rate: C$25,000 per month.

There is still plenty of permitting to resolve in Nevada, including arranging water rights. The company does have a strategy to source a water supply, but these plans are not yet transparent. The company is in discussions with industrial partners, miners and chemical companies to get this thing off the ground. Willoughby has the energy to go all the way: building a mine. However, it will sell the project at the right price. The lithium clay has a big advantage over lithium hard rock in terms of cost, and it has a jurisdiction advantage over lithium brine projects because it isn't in the sometimes unstable realm of Latin America.

In terms of remuneration, Willoughby receives a 'relatively cheap' compensation package of a salary plus some stock, though he won't give us the exact number. He claims that he buys stock on the open market, though he hasn't bought too much recently. He has participated in most of the private placements.

What did you make of Bill Willoughby and Cypress Development Corp.?

Company Website: https://www.cypressdevelopmentcorp.com/