Critical Elements CEO Steffen Haber on 2019 Start of Lithium Production, Export
Critical Elements Corp (CVE:CRE) (OTCMKTS:CRECF)(FRA:F12) CEO Dr. Seffen Haber, who most recently was CEO of Rockwood Holdings when it was sold to Albemarle Corporation for ~$6 billion, is now CRE’s CEO, and his experience in developing extraction systems for lithium from hard rock spodumene has accelerated the company’s progress.
James West: Steffen, thanks for joining me today.
Steffen Haber: You’re welcome, James.
James West: Let’s start with an overview of what the business model of Critical Elements is, and what’s the value proposition for its investors?
Steffen Haber: The business model in a sense is starting with the overall market demand on lithium products in general. And fundamentally to say is now the electric car is getting reality. So we are looking into launching new products, extending the product portfolio of Tesla, which overall means that the demand is substantially increasing.
If you look at most of the studies we are talking about a market demand of about 600,000 tonnes of lithium carbonate, mostly lithium carbonate itself but maybe all the other products in 2025. In order to meet that, obviously, new players have to get on-stream and have to put product to the market.
It’s a rather ambitious timeline, really, to triple the market in close to seven to eight years, though in order to do so, you have to have really reliable suppliers. And that’s appealing portion here with Critical Elements, because given by nature, the deposit is unique. It’s pretty easy to mine, the crystal structure is pretty of advantage, it’s easy to process, you get to a high quality product, low ion content, high concentration – 20 percent better concentration than the peers itself, and our time to market is pretty short.
In the first stage, putting spodumene into the market, that will happen in 2019 or 2020, and then in the second step, we will put lithium carbonate battery grade to the market, which will happen about 2022 to 2023.
James West: Okay. Why don’t you give me a bit of your background leading up to your joining Critical Elements?
Steffen Haber: Yeah. I mean, I’m adding, let’s say, also value to the company because to huge mining expertise and expertise in geology and finance, because I’m a chemist. I’ve got a PhD in chemistry, and originally the lithium industry is a chemical industry, it’s not a mining industry because we’re talking about speciality chemicals.
So I did start my career with Hoesct working various sectors and segments of that large chemical conglomerate…
James West: Sorry, which one? How do you spell that?
Steffen Haber: Hoechst.
James West: Okay.
Steffen Haber: Fine. I’ve also working for the pharmaceutical industry, and especially in pharmaceuticals, you learn a lot how to position a product, how to generate added value, how to put a product to the market, and with easy explanations to the consumer level. And I was lucky; I could transfer that knowledge, in combination with corporate finance, corporate governance, that is, how to run an organization, into the lithium industry. and in 2005, I joined Rockwood, and I got really quickly in charge of running the lithium business, and from 2011 onwards I was CEO of Rockwood Lithium and managing director of Chemetall, and that was a very successful operation of Rockwood itself, which obviously then, in 2014/15, was sold via the New York Stock Exchange to Albemarle.
James West: And that transaction was worth how much?
Steffen Haber: The total transaction was worth about $6 billion USD, and let’s say the bigger contribution came from the lithium portion because I mean we had simply the higher EBITDA margins of close to 42 percent.
James West: Okay. So you say you’re going to start shipping lithium from the Rose deposit in 2019; that implies that there’s already feasibility is done, which I recall it was done. So the figures and the sort of the numbers in that remain current?
Steffen Haber: Yes, the numbers maintain current, and we will publish the feasibility study in May this year, with the first step approach. So it will be a full feasibility study with accuracy of plus/minus 15 percent on the spodumene step, and then we will add also pre-feasibility study again on the lithium carbonate portion, which then, let’s say, is the second step. The feasibility study will be published end of the year, let’s say.
James West: I see. So initially you’re going to ship spodumene concentrate?
Steffen Haber: Initially, we are going to ship spodumene concentrate, but the interesting part with Critical Elements is, it’s one of the rare deposits, if not the only one in the junior mining sector, which is able to sell one-third of the total output as technical grade spodumene directly into the glass and ceramics market, and that’s sold with a premium, and even the cost margin is higher than that for lithium carbonate.
James West: So is that what makes the Rose deposit so unique, is its high grade?
Steffen Haber: That is one thing which makes the Rose deposit so unique, because it’s high grade, as you are saying it. It’s high grade because of the impurity profile, but it’s also high grade because it’s pretty easy to get up to spodumene chemical grade with a concentration of 6.6 percent, which is 20 percent above the industrial standard. And that’s because the processing is so easy, therefore the recovery rate is higher, and it’s much easier to get it up to the desired concentration. So not only that this is enabling us to sell that with a premium, it’s also enabling us let’s say to differentiate amongst the competition, because obviously any customer is more looking for grade which is higher in lithium oxide concentration because it’s increasing all their throughput by 20 percent. So acid utilization is getting up, output is getting up, purification is getting up.
So I think we have a very good selling point here.
James West: Okay – Selling spodumene initially and then developing a lithium carbonate plant: in full recognition of forward-looking statements in the context of the Securities Act, what is the maximum capacity of output that Critical Elements will achieve within, say, five years, if all goes well?
Steffen Haber: If everything goes well, we are targeting really on an LCE basis, lithium carbonate equivalent basis, to have an output about 26,000 to 27,000 tonnes per annum, which is already higher than most of the competitors are targeting. And this is of significant size; it gives us economies of scale on one side, on the other side, still we are having a substantial life of mine, and we are contributing to the success of the automotive industry, because, I mean, desperately needs the material at the moment of time when we are starting selling the product.
James West: Sure. And you have an offtake agreement in place with major industrial partner at this point?
Steffen Haber: Yeah, we have an offtake agreement in place with HELM. HELM is a German sales and distribution company roughly with a size of about $11 billion USD-Euro turnover, and they have global presence, with global offices everywhere, large sale force and they are pretty well known also in the lithium industry, so I mean, we are not building on a green field; we are getting an expert into the business, and that’s much better than setting up your own SG&A portion on our side, because I mean, time to market is key for us, and we want to go for a low risk profile. And as part of that low risk profile is obviously, let’s say, to take sales and marketing experts, which are available in the market, and not try to re-engineer everything by ourselves.
James West: Okay. So at this point in terms of the financial condition of the company, will you need to raise more capital to achieve your production, or do you have enough available?
Steffen Haber: No, I would say, let’s say, with the agreements in place and the letter of intents in place, what we’re having with HELM and with Investment Quebec, I think we are already getting up to 50 percent of the total funds we need in order to do the investments, and all of them can get in on the equity side. So let’s say on the equity side, I think we have a very good situation, and obviously the other side, I mean, we need to develop the options, whether it’s more on the equity side or more on the debt side. Logically, you would follow a kind of a rule, 50 percent equity, 50 percent debt, but I still think with the agreements in place we are having, we have a lot of flexibility to identify the best option, whatever it is.
James West: Is the offtake agreement with HELM a take or pay agreement, or is it just a commitment for…
Steffen Haber: It’s a very firm commitment by HELM, it’s a take or pay commitment, and they take the material and put it to the market and we share the profits. Or, they pay for the material, but it’s the same price. At the end of the day, it doesn’t matter for us whether they take it or they pay the amount, because it’s the same financial conditions.
James West: Okay. So is there an established price at which they will take it?
Steffen Haber: It will be an established price based on, let’s say, the last quarter market price. You have to put some market intelligence into that. At the end of the day, it’s only a transfer price, because let’s say after the next quarter, we will review the results and either we get a credit or we get a debit on the past transfer price, and it’s a rolling mechanism which is very well established in the industry. And very transparent on top of that.
James West: Right. Okay, so is it the intention of Critical Elements to remain focused on this one deposit and project, or are you looking at acquiring other projects?
Steffen Haber: For the moment, all our efforts is really concentrating on developing the Rose deposit. It’s already a lot to do in order to put up a mine; it’s an easy mine, it’s an open pit mine, but still, I mean, you have to add people, you have to construct the plant. Even if it’s straightforward, it needs a lot of attention from the management side.
On the other side, if you look, let’s say, at the total mining claims we are owning and the total land we are owning in that district of Canada, I would say we have a lot of potential out there, but obviously we don’t want to, let’s say, act in a diffuse way in the market. So first we concentrate on Rose, and as that’s progressing, we will add further efforts into developing the other mining claims and really carefully look what is out there. And already, some of the drillings have been done, and they are very, let’s say, positive in the sense of what else is around in that area.
James West: Okay, Steffen, we’re going to leave it there for now and I’ll come back to you in a quarter’s time and see how you’re progressing. Thank you for your time today.
Steffen Haber: Thank you very much, James.