Shares of Avalon Advanced Materials (TSX:AVL)(OTCQX:AVLNF) are topping the gainers on the Toronto Stock Exchange on Wednesday, exploding ahead on news of an updated preliminary economic assessment report for its Separation Rapids Lithium Project near Kenora, Ontario.
The PEA has been amended to reflect a simpler business model that reduces capital expenditures compared to the original report completed in September 2016, giving the project more attractive economics now.
The new plan is to focus on initial production of lithium mineral concentrates and then later expand into the production of battery materials lithium carbonate and lithium hydroxide. In this way, the company can capitalize on the strong demand for lithium in applications outside of the electric vehicle market. Furthermore, recent process test work shows high quality petalite, a hot commodity in the production of glass and ceramics, can be produced from Separation Rapids.
The petalite production will be supplemented by lepiodolite, a lithium mineral for conversion to lithium carbonate. Avalon currently has an off-take agreement for lepiodolite with Australia's Lepidico Ltd., which is working to develop a lithium carbonate demonstration production facility in Sudbury, Ontario.
Plant throughput rate under the new model is cut nearly in half from 950,000 tonnes per annum (tpa) to 475,000 tpa. Based on known resources, this will equate to a 20-year operating life, broken down into annual production of 71,500 tonnes of petalite concentrate; 11,800 tonnes of lepidolite concentrate (both for 18.5 years); and, commencing in Year 6, 100,000 tonnes of feldspar (through to Year 20).
Upfront capex is estimated at $77.7 million. Another $13.7 million will be needed for the feldspar circuit, which is expected to happen around year 6, or once the initial investment is completely recovered.
Annual revenue is projected at $90.0 million, with annual expenses expected at $60.0 million, resulting in a pre-tax Net Present Value (at 8% discount rate) of $156 million and a pre-tax Internal Rate of Return of 27.1%. The post-tax NPV is calculated at C$102 million and the IRR at 22.7%.
The Toronto-based company says the updated PEA report will be available on SEDAR within a couple weeks.
Investors are apparently liking the new model to bring Separation Rapids into production one day.
Shares of AVL had been tumbling from months, dropping from around 15 cents in January all the way down to seven cents yesterday. Shares galloped ahead up to 10.5 cents at one point this morning following the news and are holding at nine cents for a gain of 28.6% at the noon hour in Toronto.
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