After a relatively quiet summer Nevada lithium explorer Cypress Development Corp (TSX-V:CYP, OTC: CYDVF) has started September with a bang by releasing a positive PEA which includes a net present value of US$1.45 billion using the lithium sector standard 8% discount rate.
Some key metrics from the PEA:
32.7% after-tax IRR
US$1.45 billion NPV(8)
Payback period of 2.7 years
US$482 capital cost estimate
81.5% net lithium recovery
15,000 tonnes per day operating rate over a 40 year mine life
US$3,983 per tonne operating cost estimate for lithium carbonate
Annual production of 20,000 tonnes of lithium carbonate
More than US$6 billion of cumulative cash flow (undiscounted) over the mine life
This is a really impressive PEA from Cypress, a C$25 million market cap lithium explorer that has rapidly advanced its Clayton Valley Lithium Project during the last year. The economics are so robust that even at lithium carbonate prices that are nearly 50% below today’s current market price the project still boasts a US$433 million NPV(8) and a 16.4% after-tax IRR. Given that today’s North American lithium carbonate prices are north of US$15,000/tonne (Asian prices are near US$17,000/tonne) I would say the US$8,000 price scenario would be a worst case:
Benchmark Mineral Intelligence sees lithium prices continuing to trend higher over the next five years, reaching more than US$18,000 per tonne, before correcting between 2023 and 2025:
The US$13,000/tonne lithium carbonate average weighted price used by Cypress in its PEA is well below the average price forecast by Benchmark over the next twenty years. Moreover, it is more than 10% below the current market price and below the prices used in other recent lithium company PEAs (for example Advantage Lithium used a US$14,112 average lithium carbonate price in its PEA released August 14th).
While the maiden PEA is impressive it doesn’t fully appreciate the full extent of the Cypress story; Cypress Development’s Clayton Valley Lithium Project is located directly to the southeast of the only producing lithium project in the United States, Albemarle’s Silver Peak Lithium Project:
Cypress and Albemarle share an extensive border that happens to be very close to many of Albemarle’s lithium production wells. The potential synergies that can be unlocked between these two companies are enormous given that Albemarle already has substantial infrastructure in place in the Clayton Valley.
While the lithium exploration sector has had a dreadful 2018 (many lithium explorers are down 50%+ year to date), shares of Cypress Development are up nearly 50% in 2018:
This is considerable outperformance and a testament to the robust economics at CYP’s Clayton Valley Lithium Project. From my experience as an investor in the junior resource sector over the last 15 years some of the strongest signals have come from stocks that have bucked weakness in their respective sectors.
A few examples that come to mind are Hathor Exploration which was acquired by Rio Tinto in 2012 through an all-cash offer, Kaminak Gold which was acquired by Goldcorp in 2016, and recently Arizona Mining which was acquired by South32 in an all-cash offer.
While Cypress Development’s current market cap is considerably smaller than the companies mentioned above, its potential is right up there considering the economics outlined in the PEA. Today’s Maiden PEA announcement might just check the final box for Cypress to get noticed as a serious lithium player worthy of a considerably larger valuation.
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