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Mali Lithium: Upcoming Catalysts Could Spark A Turnaround Story In 2020

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Summary

Mali Lithium has experienced a tough year, as the share price of EEYMF is currently trading at A$0.075/share, down ~50% in 2019, and ~90% since peaking in late 2017.

Lithium prices have continued to slide and the pain has been felt sectorwide, as mines such as Wodgina and Bald Hill have had to be placed on care and maintenance.

Shares of Mali Lithium are especially worth following for speculators interested in lithium stocks since the current market cap is only ~A$24 million.

Although the share price is currently depressed, Mali Lithium has upcoming catalysts to keep an eye out for, many of which should be released in early 2020.

A DFS, cost estimates from CHICO, a Scoping Study looking into downstream lithium processing, mineral resource/reserve update, and exploration results for the Goulamina Lithium Project should all be due on the horizon. BOA activity is also worth monitoring since good progress in this key area might eventually help lead to a re-rating.

For companies associated with mining lithium, it’s been very tough sledding over the past few years, and in particular for junior developer/explorer Mali Lithium (OTC:EEYMF), which has seen its share price decline by ~50% this year and an astounding ~90% since reaching an apex of A$0.84/share back in late 2017.

Shares of MLL.AX (the native ticker symbol of EEYMF) are currently trading at A$0.075/share.

The Harsh Reality of Lithium Oversupply
With the benefit of hindsight, we can now see that Morgan Stanley’s bold forecast made in early 2018 (calling for lithium prices to decline 45% by 2021 due to a plethora of impending oversupply set to “flood” the market) was right on the money, as broadly speaking, going short on lithium stocks (or staying on the sidelines) since that time has proven to be the correct move, after all.

Since the beginning of January 2018, the following industry-leading lithium stocks have produced the following abysmal returns:

Albemarle (ALB) is down -48.28%.
Sociedad Química y Minera de Chile (SQM) is down -58.62%.
Pilbara Minerals (OTCPK:PILBF) is down -75.99%.
Altura Mining (OTCPK:ALTAF) is down -87.47%.
Galaxy Resources (OTCPK:GALXF) is down -76.00%.
Although there are certain outliers that have bucked the severe lithium downtrend in recent years, the industry (on the whole) has experienced a decimation in market cap valuations, across the board, which has coincided with the sharp pullback in lithium prices.

However, over the more immediate-term, it’s anyone’s guess just exactly where we are in the market cycle; speculators should keep in mind that (a lot) more pain could still lie ahead for the sector. Most likely, the worst is not yet behind us.

Speaking of Albemarle, most recently, the company announced the completion of its joint venture deal with Mineral Resources (OTCPK:MALRF) to acquire a 60% interest in the Wodgina Mine in Western Australia for $1.3 billion.

Worth noting, though, that as a consequence of a “challenging global market” for lithium, the Wodgina Mine (which it can now be argued that Albemarle overpaid for its share of) has been placed on care and maintenance, for the time being.

The Bald Hill Mine is currently on care and maintenance, and a receiver has been appointed to determine a future direction for Alita Resources.

In the commodities business, the saying goes that “the cure for low prices is low prices”; as such, it will remain to be seen when exactly that expression will ring true for lithium (to put an end to the current bear market), but where things currently stand today, the ongoing trend of aforementioned mine closures, plans to cut back on production, and a shifting market environment where it clearly has become a game of “survival of the fittest”, should do much to help the sector take the steps required to combat fears of lingering long-term lithium oversupply.

For 2019, anyway, it would now appear that the bull thesis for projected lithium and electric vehicles (EVs) demand this year was clearly way too optimistic, as the harsh reality so far has shown that adoption/growth has underwhelmed.

Speaking of Tesla (TSLA), despite the company falling short of delivering 100k vehicles in Q3 (which the company is now expecting to hit this mark later this year, in Q4), record delivery numbers are still being routinely established (and should continue to be set into the foreseeable future), which is a good reminder of just how early innings it really is in the EVs ballgame.

Tipping Point has yet to be reached for EVs, and it could very well require a good number of years to achieve; mainstream adoption is still nowhere close in sight.

Mali Lithium Background
Due to the lingering bear market in lithium, as mentioned earlier, it has been a bloodbath sectorwide for many of the mining stocks. For some companies, like Mali Lithium, the despair experienced since peak lithium euphoria (late 2017 and early 2018) has been even more pronounced, as shares of MLL.AX are now trading at ~52-week lows (and at only 1/10x of the share price from its all-time highs).

As a refresher, Mali Lithium controls the Goulamina Lithium Project, which is located in Southern Mali, south of the capital Bamako.

Back in July 2018, the company (formerly known as Birimian Limited) published an updated Pre-Feasibility Study (PFS) for the Goulamina Lithium Project, which defined a maiden mineral reserve of 31.2 Mt @ 1.56% Li2O.

Further, at the time of its release, the updated PFS (which is now very much outdated) showed solid project economics for the Goulamina Lithium Project, featuring an after-tax NPV (10% discount rate) of $490 million and an after-tax IRR of 41.1%.

Quite frankly, in the world of hard rock lithium projects, there are only a handful that possesses the combination of large size (over 100 Mt) + high-grade (over 1.3% Li2O) that the Goulamina Lithium Project does.

But with a current market cap of only ~A$24 million, it’s quite evident that right now, the market is pricing in Mali Lithium and its Goulamina Lithium Project for failure; such a low market cap is typically what one would expect way out-of-the-money optionality projects to trade at, not world-class ones that are economically viable.

Again, while the latest updated PFS is in need of a major refresh, it does provide ballpark figures to work with, and currently the estimated cash costs for producing spodumene concentrate (6%) at the Goulamina Lithium Project comes in at $281/t, with an All-In Sustaining Cost (AISC) of $319/t.

On paper, anyway, the Goulamina Lithium Project ought to be economically viable, even in today’s depressed lithium market environment that has seen the price of 6% spodumene concentrate fall to ~$600/t (and seemingly trending lower by the day).

Recent Progress At Mali Lithium
In terms of company progress, 2019 has been mostly a transitional year for Mali Lithium, due to the need to install new members to the board and management team (which I covered in more detail in a previous article).

Still, despite any turmoil that took place and had to be sorted out internally, Mali Lithium was able to successfully clear a major hurdle this past summer, gaining final approvals from the Malian government to obtain an operating (mining permit) for its flagship Goulamina Lithium Project.

Most noteworthy is that the operating (mining) permit for the Goulamina Lithium Project was granted under the old 2012 Malian Mining Code (“ensuring” stability for 30 years), not the most current one (recently revised), which has to be seen as being an especially big win for Mali Lithium.

However, despite the very positive outcome of getting the Goulamina Lithium Project fully permitted, a favorable market response towards shares of MLL.AX has been nowhere to be found since the announcement, as the share price has only continued its descent down into the abyss.

Suffice it to say, though, at this stage of the game, the market is looking for more “substantial” news pieces from the company than just “tweaks”, if it’s going to take the progress being made by Mali Lithium towards advancing its Goulamina Lithium Project into production more seriously.

The Continued Search for an Offtake Deal
For Mali Lithium and its Goulamina Lithium Project, outside of a macro event occurring in the lithium sector to ignite a major trend reversal (lifting back up the entire universe of lithium stocks), most likely, the company will need to finally come out and deliver a Binding Offtake Agreement (BOA) with a legitimate third party to appease the market enough to get the share price of MLL.AX out of its current rut.

About a year ago, Mali Lithium signed a Letter of Intent (LOI) with Changsha Research Institute of Mining and Metallurgy (CRIMM), a division of China Minmetals Corporation.

From a press release put out by the company this past September, it would appear that discussions to iron out a deal between the two parties are still ongoing, as Mali Lithium revealed that CRIMM “has committed to commence testing ore from Goulamina at its laboratory in Changsha.”

In addition, Mali Lithium also signed a Memorandum of Understanding (MOU) with General Lithium Corporation about a year ago, for 200,000 tpa of spodumene concentrate (~55% of planned annual production from Goulamina).

However, it’s worth emphasizing that the lithium market environment of today is vastly different than that of years past, and the days of mining companies being rewarded “extra credit” for simply inking LOIs or MOUs has likely come to an end.

In other words, again, for Mali Lithium to be taken seriously by the market in the current lithium bear market, it will be imperative for the company to lock in BOAs with reputable end users.

From a most recent news release from the company, it would appear that a main focus of Mali Lithium is still on securing Chinese partners, as Mali Lithium agreed to another MOU with a Chinese company, this time with China Henan International Cooperation Group Co (CHICO), for estimates on capital and operating expenditures for the Goulamina Lithium Project (by the end of January 2020, at CHICO’s own expense).

Mali Lithium believes that this particular MOU with CHICO “is of enormous benefit to the project and offers the potential to accelerate engagement with other Chinese parties.”

With a DFS also due for release around roughly the same timeframe as CHICO plans to provide their cost estimates for the Goulamina Lithium Project, in Q1 2020, the next few months will be most worth following for anyone interested in the Mali Lithium story.

Opportunities to Further Unlock Shareholder Value
In addition to the in-progress DFS and cost estimates from CHICO, another upcoming catalyst to look forward to in early 2020 is a Scoping Study to investigate downstream lithium processing at the Goulamina Lithium Project.

Although not yet commonplace in the lithium industry among hard rock miners, Mali Lithium is investigating the potential to produce and sell the end products lithium sulphate and lithium oxide “that could be more easily refined than the final Lithium Carbonate or Hydroxide products on site at the Goulamina mine.”

As covered earlier, the price of spodumene concentrate has cratered in recent years (now trading at sub $600/t for 6% grade), which was already very much a “low margin” end product to begin with, and put many producers in serious trouble.

So, although there can be no guarantees made that Mali Lithium will one day ultimately prove successful in being able to produce downstream lithium products at Goulamina, the company should nevertheless be commended for its efforts and willingness to think outside the box; the upcoming Scoping Study looks to very much be the case of a “low risk but high reward” type of proposition.

Furthermore, although Mali Lithium re-branded itself as a “lithium” company earlier this year, the company still controls prospective gold tenements, and the nice run up experienced by the yellow metal in 2019 (currently trading at ~$1,464/oz) has not gone by unnoticed by management, who recently announced plans to commence an exploration drill program at its Koting prospect, also located in Mali.

The drill program at Koting commenced in late October, with 12 reverse circulation (RC) holes planned, which means that initial results should be just around the corner. So, while it’s been firmly established that Mali Lithium’s gold projects are by no means the company’s “flagship” asset, further drilling of these targets could very well represent another type of “low risk but high reward” type of gamble.

Lastly, Mali Lithium also has plans to commence further infill + exploration drilling at Goulamina this month. Likely, an updated JORC-compliant mineral resource and mineral reserve will be published to market prior to the release of the DFS.

While the currently known and delineated mineral resource/reserve for Goulamina is already substantial, it should not be forgotten that there are many other high quality prospects (Dowere, Sabali, Bara, etc.) exist on the company’s lithium tenements that warrant further exploration and drilling to be done at.

In terms of size, the Goulamina Lithium Project is already world-class for a hard rock deposit, but there should still be ample room to grow both the resource and reserve.

Conclusion
At this stage of its life cycle, the Goulamina Lithium Project is not only operating in the “Orphan Period” of the following chart but again, with a market cap of just ~A$24 million, shares of MLL.AX are arguably pricing in failure (to at least some degree).

Still, despite the prevailing weakness in the share price of Mali Lithium in recent years (which has coincided with the bear market in lithium), there are many upcoming catalysts to look forward to, which include the following for the Goulamina Lithium Project: DFS, cost estimates from CHICO, a Scoping Study investigating into the potential to support downstream lithium processing, mineral resource/reserve update, and exploration results.

The kicker which could (eventually) help lead to a turnaround for the Mali Lithium story and share price re-rating will be if/when the company can successfully secure a BOA with a high quality third party (and thus convince the market that the Goulamina Lithium Project is indeed a viable one).

However, as a reminder, if past history is to be used as a guide when it comes to shares of MLL.AX (especially in the context of a bear market in lithium), speculators should resist any type of urges to rush in right away upon the release of any good news (no matter how positive it might initially seem), as the strategy of relying on FOMO has more times than not been the wrong move.

With that said, if underlying fundamentals can improve markedly for Mali Lithium and the share price can continue to stay weak at/near 52-week lows (which in the current market environment is not far-fetched to believe that it could very well happen), wonderful buying opportunities to (slowly) purchase shares in tranches should open up.

For Mali Lithium, there are lots of news events to look forward to, and 2020 should be a most eventful year.

Source: https://seekingalpha.com/

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