The mine developer has completed a refresh of the 2023 scoping study prepared by former owner Essential Metals in the months since the all-scrip A$153 million takeover was completed.
It outlines three options: building its own concentrator, selling the ore at the mine gate, or toll treating at a nearby facility.
The former option will generate strong returns at higher prices, while the latter options allow cash flow even in the current depressed economic environment.
Develop, which wants to be shovel-ready by the end of the year, assumes a seven-year mine life, that it will build all site infrastructure, and pricing for 6% spodumene concentrate of US$1395 per tonne based on the Bloomberg consensus price.
Building a 1.2 million tonne per annum plant at Pioneer Dome still requires about A$285 million. It would produce around 200,000tpa of an SC5.5 concentrate using both dense media separation and flotation.
At consensus pricing, it generates $2.2 billion in revenue and $666 million in free cash flow, or around $134 million per annum before tax. It has a $373 million net present value and a 34% internal rate of return.
All-in sustaining costs would be A$1080/t and payback would be four years.
If lithium prices return to around $2000/t, free cash jumps above $1.5 billion, while NPV and IRR are $1 billion and 76%, respectively.
Key changes from the former Essential estimates are less about the costs but in a lower-cost development approach.
The large-scale open pit plan has been replaced with small low-strip-ratio starter pits followed by larger underground mines, cutting waste movements and delivering better returns despite weaker pricing.
Having an eye for other start-up struggles in the lithium processing space, Develop has also hacked the expected recovery rates from 74% to a more conservative 66%.
If Develop decides to skip processing itself – likely in a deal with Mineral Resources – the cost of getting into the mining game tumbles to a mere $35-40 million, and the development risks are substantially reduced.
NPV and IRR would be higher, and profits could flow within months, but the economics would depend on any third-party agreements, and Develop would not control its own destiny.
A key factor in Develop’s thinking will be potential offtake agreements.
If pricing rises to around US$1500/t, the company will feel more comfortable taking on the higher costs and risks associated with the processing option.
Whatever the ultimate decision, Develop managing director Bill Beament said Pioneer Dome was set to generate “outstanding cashflow and financial returns”.
It will study both options over the coming months
A mining licence is already in place.
The project is some 130km from Kalgoorlie and just 50km from MinRes’ Bald Hill and Mt Marion operations.
MinRes is a major Develop shareholder, and Develop is already established at Mt Marion, where it has a $46 million contract to build an exploration decline.
Develop has a lot on its plate, with plans to reopen the Woodlawn copper-zinc underground mine in New South Wales at a cost of around $42 million, and studies on the Sulphur Springs zinc-copper development in WA’s Pilbara being drawn up by its 80% partner Anax Metals.
The company started the quarter with $37 million in cash.
