A strong quarter for Talison

Talison Lithium (tlh-t) got a healthy boost from higher sales and production for the period ended Sept. 30. It shares jumped 26.5% to $3.77 on the news.

For the quarter, classified as the first quarter of fiscal year 2012, the miner sold 80,315 tonnes of lithium concentrate, a 53% increase from the same quarter a year ago.

It also ramped up its production of lithium concentrate from the year earlier period by 12% to 90,708 tonnes.

Analyst Jonathan Lee of Byron Capital Markets told The Northern Miner that the preliminary sales and production numbers were in-line with his estimates, adding the company is benefitting from operational tweaks.

 “Talison is currently producing at capacity and it continues to find small gains in production through operational efficiencies,” he wrote in an email. 

Currently, the company is expanding a processing plant at its Greenbushes Lithium Operations in Australia. The project has two plants, one for generating technical-grade lithium concentrates, and the other for chemical-grade lithium concentrates.

The latter plant is undergoing a Stage II expansion at a cost of $65-70 million. Once completed, production capacity at Greenbushes is expected to double to 740,000 tonnes a year lithium concentrate, or about 110,000 tonnes per year lithium carbonate equivalent.

“We believe that this will continue to show operational efficiencies with the modern plant and better efficiencies through scale,” Lee comments on the expansion. He reckons it will help Talison gain more market share and generate extra revenue while reducing its unit operating costs. As a result, margins will rise.

Based on a processing rate of 740,000 tonnes a year, the hard-rock Greenbushes mine could produce for 22 years.

It hosts a compliant reserve of 31.4 million tonnes grading 3.1% lithium oxide, with another 70.4 million tonnes at 2.6% lithium oxide in measured and indicated.

The chemical-grade plant, which should be running by fiscal Q2 2012, is garnering interest from new and existing customers. 

 “Talison continues to experience strong demand from customers across the world,” remarked Peter Oliver, the company’s CEO in a press release. “This demand, together with a recent tightening in global lithium supply is expected to enhance Talison’s pricing in the 2012 calendar year.” 

  In an Oct. 11 note, Lee mentions that FMC (fmc-n) and Chemetall GmbH hiked up prices on their lithium products in July 2011 and expects Talison do the same. Lee believes the prices increased because the year saw unusual amount of rains in South America, higher raw material costs, and greater demand.

“Current market demand is rising as prices have increased over the last six months and we believe that Talison will be able to fill the pent-up demand,” Lee elaborates in his email.  

Responding to the global demand for lithium, driven by electric battery manufacturers, Talison is pushing to build a plant to convert lithium minerals into lithium carbonate. During the first stage, the plant could produce a maximum of 20,000 tonnes per year of lithium carbonate equivalent, before ramping up to 40,000 tonnes in the second stage.

While contemplating whether it should erect the conversion plant at Greenbushes or another location in Western Australia, Talison has retained an engineering consultant to estimate the plant’s start-up and operating costs. Those details should be out by year end. 

At the Salares 7 project in Chile’s Region III, Talison plans to speed up its exploration program, by injecting US$5 million in the second round of drilling. The program would include 5,000 metres, with an objective of outlining a resource estimate at Salar de la Isla.

To help develop its Chilean project, the company is setting up an office in Santiago.

The company will post its financial results for the quarter ended Sept. 30, by mid-November.

At presstime, Talison shares were trading at $3.55, within a 52-week range of $1.73-$7.80.

Byron Capital Markets has a “buy” rating on the stock and a target price of $6.55.