Queensland Pacific Metals (QPM) - Is This The Sectors Best Business Plan?

Queensland Pacific Metals Ltd. is an Australian ASX-listed nickel company focused on the advancement of its Townsville Energy Chemicals Hub (TECH) project. The project is envisioned to be located 40 km south of the town of Townsville in North Australia. The project will implement the “Direct Nickel Process”, a technology which dissolves the ore leaving a small amount of residue, allowing the nickel and cobalt to be processed into high-grade battery minerals. The company plans to import high-grade ore to the TECH project from New Caledonia.

The company holds binding offtake agreements with battery manufacturing leader LG Energy Solution, the major Korean conglomerate POSCO and General Motors (GM). The company announced the binding offtake agreement with GM in October 2022. The highlights of the announcement include the investment of USD$ 69 million by GM by way of equity subscription for ordinary shares, which includes an initial investment of USD$ 20.1 million. GM has the option to purchase all uncommitted nickel and cobalt production from Stage 1 of the TECH project and 100% of production from the project’s Stage 2 expansion.

The company is underway with securing the debt financing of the TECH project, with it in conversation with various financiers. RPM Global has formally commenced technical due diligence with the CRU Group having commenced its review of the nickel and cobalt sulphate markets to support the financing.

The company is underway with the final engineering work of the TECH project, which will enable it to make a final investment decision in H2 2023. The company aims to commence with production at the TECH project in 2025.

The TECH project

The proposed Townsville Energy Chemicals Hub (TECH) project of Queensland Pacific Metals Ltd. Is an envisioned advanced battery material producer, which will be located 40 km south of Townsville at the Lansdown Eco-Industrial Precinct. The Precinct is the first environmentally sustainable advanced manufacturing, processing and technology hub in Northern Australia. The TECH project’s location provides it with access to existing infrastructure including water and gas pipelines, electricity transmission network, fibre optic communications as well as access to Townsville Port through railway and road.

The envisioned operation will process high-grade Nickel Ore sourced from New Caledonia. Stephen Grocott the Managing Director and CEO of Queensland Pacific Metals Ltd. explains the operation at a high level and that it came about thanks to the company’s relationship with various Nickel production operations.

“The project in itself really started about 2.5 years ago. We've had a long-standing relationship with nickel suppliers and miners in New Caledonia, and we plan to import ore from them into the port of Townsville and process them at a very nice location, just south of the port of Townsville.”

The Envisioned TECH project will implement the Direct Nickel Process (DNi). The DNi process uses nitric acid as a leaching agent under atmospheric conditions. The DNI Process produces high-purity hematite, high-purity alumina, high-purity cobalt, high-purity nickel and ammonium sulphate. The nitric acid used in the process is also recovered and reused at a recovery rate of more than 98%. Grocott explains that the attractiveness of the DNi process is due to its number of products and the very low residue it produces.

“We use a completely different process, something that's called the direct nickel process. The direct nickel process dissolves virtually all of the ore, leaving a small amount of amino residue, which can be used as an engineered landfill, and it processes all of the nickel and cobalt, obviously, into the battery-grade materials. Also, the iron ends up as high-purity hematite, the magnesium as high-purity magnesia, so we have a bunch of by-products as well and very low residue.”

Grocott explains that the process is approximately 15 years old, but at the time had limited value as the only commercial use of Nickel was by the stainless-steel industry, which could source its nickel from cheaper alternatives such as low-cost nickel iron.

“It is relatively new. It was developed about 15 years ago. It got close to commercialization about 15 years ago. The only market for nickel was really stainless steel, so that process was competing with low-cost nickel pig iron, which even today is still the cheapest way of getting nickel into stainless steel, but to get nickel into high-purity, battery-grade materials, nickel pig iron doesn't cut it”

The battery industry however utilises higher grades of feedstock and as such is the ideal industry for the DNi process. Grocott explains that 15 years ago the market for the DNi process did not exist, but that it does now.

“We go directly to plug and play into the battery industry. 15 years ago, the battery industry didn't exist. Now it does, so the time is right.”

Grocott explains that the TECH project will be a novel plant, but that the individual components of the DNI process have been tested commercially.

“The process is yet to be fully commercialised, but the component steps are in there, the leaching is totally conventional, the ore preparation is conventional and the nitric acid recycling is exactly what is used in the nitric acid industry. The nitric acid regeneration step, the company we're dealing with has built 77 of these plants. We will be the 78th. The Lego blocks, none of them are particularly novel, but putting it all together has some novelty.”

Funding and offtake agreements

Queensland Pacific Metals Ltd. aims to fund the advancement of the TECH project through a combination of traditional debt financing as well as equity financing. Duane Woodbury, The Chief Financial Officer (CFO) of the company notes that Queensland Pacific Metals Ltd. enjoys the support of both local and international communities, looking to source battery materials from tier 1 jurisdictions.

“One of the bigger challenges we face is funding the capital cost of the project. That would be traditional project finance for between 50% to 60% of the capital with equity as the remaining amount. There is very strong support from the government-led debt agencies, both in Australia and with our equipment-supplier countries and our offtake countries, who are very keen to see the supply chain of critical minerals or battery-minerals from tier 1 jurisdictions to another tier 1 jurisdiction”

Woodbury explains that Queensland Pacific Metals Ltd. is in talks with various financial institutions, including Export Finance Australia, the north Australia infrastructure facility and Export Development Canada regarding the debt financing of the project.

“The capital cost of the project is approximately AUD$ 2 billion as per our advanced feasibility study released last year. In terms of the project finance, the negotiations are now underway with the banking syndicate and the likes of Export Finance Australia, the north Australia infrastructure facility and Export Development Canada, by three key government agencies who have given us support for the debt component. There will be other providers, both ECAs as well as commercial banks, but they are three cornerstone investors for us.”

The company is also enjoying the attention of various institutional investors, due to not only its battery materials but also its sustainability credentials.

“On the equity plug, which is the difference between the two, there is very keen interest from a combination of institutional investors who can see the benefit in the EV chain and benefit of the EV growth, but also our sustainability credentials”

The company holds binding offtake agreements with battery manufacturing leader LG Energy Solution, the major Korean conglomerate POSCO, and General Motors (GM). The company announced the binding offtake agreement with GM in October 2022. The highlights of the announcement include the investment of USD$ 69 million by GM by way of equity subscription for ordinary shares, which includes an initial investment of USD$ 20.1 million. Woodbury explains that GM has the option to purchase all uncommitted nickel and cobalt production from Stage 1 of the TECH project and 100% of production from the project’s Stage 2 expansion.

“We are in a usually positive situation in that we have 100% of our production already tied up in binding offtake agreements with three absolutely tier 1 customers. LG Energy Solution, the second biggest battery producer, POSCO, one of Korea's biggest companies, and General Motors. Between the three of those, they've invested in us. They've got skin in the game, they amount to about 16% of owners, and 100% of the offtake for our plant is tied up with them. In fact, General Motors even requested and locked in 100% of the offtake for a second plant, should we build that.”

ESG values

The ESG component of the envisioned TECH project stands out above the rest according to Woodbury. The project has been certified by Enviro fulfilling various ISO standards. The company will implement waste gas as a form of fuel for energy generation at the project.

“We are substantially negative carbon, and that's been verified by Enviro, a UK LCA company. One of the main reasons for that is that we're using a waste gas that is currently being flared and vented, and methane's not very nice for global warming potential. That's green claim number one which is a green fact. That's been verified.”

The implementation of waste gas as a fuel source is not the only environmentally beneficial aspect of the TECH project. The DNi process inherently does not produce any solid waste, which Woodbury explains enables the TECH project to be unique amongst any other of its peers due to producing zero solid waste and zero liquid discharge.

“We end up with zero solid waste. It's absolutely unheard of. I've been in this game for four decades; to have a project that's negative carbon, zero solid waste, and we have zero process liquid discharge because we recycle everything, it's absolutely unique.”

Future

The company is underway with securing the debt financing of the TECH project, with it in conversation with various financiers. RPM Global has formally commenced technical due diligence with the CRU Group having commenced its review of the nickel and cobalt sulphate markets to support the financing. Woodbury explains that the fundamentals of the TECH project have not been questioned by any party carrying out due diligence and that the Company will work throughout 2023 to finalise the funding of the project which will together with the technical work being conducted enable it to make a final investment decision

“Obviously, primarily on the debt, the banks and the agencies we're talking to and how those indicative interests and the letters of interest we have from them and the quantum. I think by mid-year or thereabouts, we will certainly have the capital stack for the project well-defined and investors will see how this project can be funded. That will move to the Final Investment Decision in the second half of this year.”

Queensland Pacific Metals Ltd. is underway with the final engineering work of the TECH project, which will enable it to make a final investment decision in H2 2023. Grocott explains that the company holds binding agreements with various suppliers and aims to commence production at the TECH project in 2025.

“On the semi-technical engineering front. We're continuing on some test work with our major equipment suppliers. We've got binding agreements with a number of equipment suppliers. We made a decision some time ago not to go out and tender. We have chosen the best. We're still working through the engineering with them, doing some value engineering. We're working with a number of big suppliers: KBR, Jords, Siemens technical experts, for the debt syndicates, they have started their process already.”

To find out more, go to the Queensland Pacific Metals website