Neometals (ASX: NMT) - Path to Revenue in Europe is Clear

Neometals Limited is a mineral and advanced material company involved in the recycling, and production of high-grade lithium and vanadium. The company was founded in 2001 and is headquartered in Australia. Alphamet Management Pty. Ltd, Mount Finnerty Pty. Ltd., Reed Advanced Material Pty. Ltd., Mt. Edwards Lithium Pty. Ltd., Barrambie Gas Pty Ltd., and Inneovation Pty. Ltd (formerly Australian Vanadium Exploration Pty. Ltd.), are the companies' subsidiaries.

Matt Gordon caught up with Christopher Reed, CEO and Managing Director, Neometals. He started his career in the mining industry in 1990 and co-founded Reed Resources in 2001. He is a member of the AusIMM (Australasian Institute of Mining and Metallurgy) and former Vice President of the Association of Mining & Exploration Companies. His educational background includes a Bachelor of Commerce degree from the University of Notre Dame, WA School of Mines.

Company Overview

Neometals is an innovative mineral and advanced materials company focused on a sustainable future. The company seeks to de-risk and develop long-life projects with strong integrated partnerships throughout the value chain. The company was founded in 2001 and is headquartered in Australia. It is listed on the Australian Stock Exchange (ASX: NMT).

Neometals is a green battery materials producer. The company has a portfolio of projects underpinned by its technologies. All the projects are focused on producing green material materials. The company is also involved with end-of-life battery recycling that produces hard commodities including nickel, cobalt, and lithium. Interestingly, the company is producing at the lowest point in the cost curve, which is significantly more efficient than building new refineries or mines. Green battery materials are high-purity battery metals that come from waste. These materials have a low carbon footprint and a low production cost.

The company’s representatives recently travelled to London to meet with its partners that run different businesses across Europe. All strategic and critical minerals produced by the company are crucial for battery production. This includes the vanadium recovered from steel slags and lithium production from Portugal.

The company has received extensive support from several investment banks including EIB (European Investment Bank) and NIB (Nordic Investment Bank). Since the company is producing green battery materials, it has also gained a lot of interest from commercial banks. The banks have green pools of capital that they are looking to deploy.  Neometals offers a unique green investment opportunity. According to the company, the market’s appetite for debt and equity at the moment is palpable.

Neometals is rapidly approaching the investment decision point for a number of its projects. Once the decisions are made, the company will have timelines to deliver cash flow. The company is already selling product from the recycling plant at Hilchenbach, Germany. It is getting paid to shred batteries and selling the resultant black mass containing nickel and cobalt. The operations are now being ramped up at a steady state, and are expected to generate a small profit, which is exceptional for such a large-scale plant.

The Mercedes-Benz supply agreement for the plant gives the company commercial validation because the plant's technology is being provided royalty-free by the company. Mercedes-Benz is being charged for the plant, generating revenue. Stelco is a big, first truly commercial operation to make a commercial return for Primobious, a JV (Joint Venture) between Neometals and SMS group.  The former is looking to make a decision on the same by early next year. Interestingly, all of the company’s projects, including battery recycling, vanadium recovery, and lithium production are at the bottom end of the cost curve.

When the company does plan a capital raise, it will focus on investing in real plants. The R&D (Research and Development), evaluation, and commercialization have been funded by the company's balance sheet. It is important to note that Neometals hasn’t raised capital in over 10 years. In fact, the company returned $82M back to its shareholders. This gives it a strong reason to grow the business.

Once the first plant is up and running in either of the businesses, the plants will continue operating at a steady state. The company is taking a cookie-cutter approach to building plants. Following this, it will look at financing options and adding leverage. The company is cognizant that it isn’t ideal to leverage the first plant for any new technology. It is working with Stelco in order to develop equity. Here, Neometals has the option to buy-in 50% of Primobius. In this case, Neometals would have a 25% direct interest in the first large-scale plant. The company is confident that Stelco will operate on a regional level due to the licensed area in North America. This will enable Neometals to develop a network of plants in the continent over time.

The company has 3 business models, giving it a lot of flexibility when it comes to building larger plants. Neometals will operate the Hilchenbach plant as principal. Working with Stelco, the company has the option to buy into a joint venture or plant supply along with licensing. For very-large-scale plants that have $500M-$1Bn in CapEx (Capital Expenditure), the company has the option to revert to a royalty. This way, it won’t need a big impost in terms of capital. The company is cautious when it comes to capital deployment. It is looking to bring in multi-billion dollar companies to take the project to the next level.

In order to handle the internal capital competition in the business, the company is looking at the project teams to come up with proposals that can deploy capital through the investment committee based on priority. The lower priority proposals will operate at the bottom end of the cost curve for all the company’s assets, including the hard rock titanium asset.

The company has taken a similar approach with its’ nickel business. It realised that nickel exploration wouldn’t fit in with the battery thematic. For battery recycling, 60% of the revenue comes from nickel. The cost of recycling is at the bottom end of the cost curve. The company gets batteries delivered to it every day and it has the option to invest and build a mine along with a concentrator. The company considers it a great asset that will be developed at a certain time. Eventually, the company is looking to give the project back to the shareholders by spinning it out as a separate company. This way, shareholders can decide whether to invest more capital into the project or not. At the same time, the company is looking to ensure that the project gets funded and enters production.

Neometals is open to buying something counter-cyclical or early in the thematic. This way, it can build the project and give it back to the shareholders. One such example is the Barrambie project. The project acquired a mining licence and ministerial approval to construct a concentrator. The company provided detailed cost studies along with the potential revenue that could be generated from an off-take. Following a Feasibility Study, the project can enter production within 2 years. The investment decision would be completely up to the shareholders since they are now the project’s owners.

Targets 2022 and Beyond

Neometals seeks to get the battery recycling and commercial-scale plants running within the next 2 years. It has a pipeline of multiple 50t plants. As the first plant starts operating, the company will be able to determine the project's economics and compare them to the previous estimations. This will help it in developing a value pipeline for multiple large-scale plants. It is currently at a stage where it can readily execute the construction and commissioning by 2023-2024.

10 years ago, the company had put all its money into a single project, and quickly realised that it didn’t work out. Fortunately, the company had Mount Marison and Barrambie as its second and third assets which gave it a second life. This time around,  the company is working with partners to start the projects with minimal risk. This enables it to ramp up its operations and deliver more over time. The company has been successful in taking out the majority of risk from commercialization and is currently working on the execution.

As soon as the company can get started on the 50t plant supply agreements, it will go back to the engineering teams and start getting development ready for the 500t/day plants. The company had originally anticipated that the demand for these plants would come up in the next decade, however, the opportunities are coming a lot quicker than expected. One such example is the Hilchenbach plant. The company was originally looking to feed the plant with sills as it believed it would need some time before end-of-life EV packs would need to be treated. However, in reality, 70% of the Hilchenbach feed is now made up of EV packs that need to be discharged and dissembled. The company didn’t envisage that it would need to work on EV packs for another 2 years, however, it has had a consistent EV supply to work on for the past 6 months.

For the vanadium business, the company is co-funding the project with a company that specialises in turning chloride into a hydroxide. It is converting salt into caustic soda, or sodium chloride into sodium hydroxide. For Neometals, the company will turn sodium salt into lithium salt using electricity. This process makes the lithium hydroxide that is used in batteries. It enables brine production of lithium chloride, a sellable product.

Since the Andes mountains are a challenging location to ship reagents, the company decided to concentrate the liquid in order to cart it to Europe where fresh sellable product can be produced for car makers. Notably, the concentrated product has twice the lithium content compared to spodumene.

Previously, FMC, SQM, and Ganfeng had a lithium chloride export business that was shared among the three companies for 10-15 years. Currently, all three companies are processing the material on their own. There are a lot of developers in the market that have the ability to develop evaporation ponds, which is significantly easier than making high-purity chemicals at a remote location.

In Europe, there is an unbelievable depth in the chemical industry. The company already has the needed equipment, and instead of selling soda for $1,000/t, it can sell lithium for over $50,000/t. If the company can de-risk the operation through a JV that will have the licence for Neometals’ technology for all of Europe. Notably, Europe currently needs 500,000t in domestic lithium production, otherwise, the material would need to be imported.

One of the company’s projects is focused on recovering battery metals from waste, the other project is about recovering material from end-of-life batteries. Meanwhile, the third project is about importing an intermediate material and converting it in Europe. In the past 18 months, the company has grown its headcount by 60%.

Following the contract with Mercedes-Benz, the company has received a lot of interest from the market. When it comes to supply, the contracted customers will be given first priority. Neometals offer low-carbon, high-purity, exchange-traded commodities.

To find out more, go to the Neometals website