Sigma Lithium - a happy ending
The Uncertainty
The short report that Ocean had launched is now a few weeks old.
How has it aged? - the short answer is: very poorly. Sigma was in a very tricky situation. Low cash, problems with the mine operator, low lithium prices, and short-term debt that needed to be paid. In addition, there were legal difficulties and accusations that they were not storing their tailings safely, endangering villages with avalanches of this waste. Blue Ocean added fuel to the fire during these difficult times by taking up these points and also citing the construction of the mine as a whole as a major problem. The walls were allegedly built too steep in order to get to the precious ore quickly, and this was also cited as a reason why the contractor swap was initiated during the dangerous rainy season.
Worse, despite the technical report’s finding that the mine creates a safety risk with a “high potential for loss of human life,” the steep walls sit on the mine’s approved boundary so it’s not clear Sigma could push back the walls to remediate even if it wanted to - Blue Orca Report
Everything at Sigma now revolved around whether and how quickly they could get the mine back up and running under their own management in order to profit from the recovering lithium prices, and whether they could meet their liabilities until then. It should be noted that bankruptcy was probably not an imminent threat, as the mine itself would still have substantial value, but it would have been unpleasant nonetheless.
Sigma also has an interest in not raising capital, as CEO Ana Cabral-Gardner herself holds a large stake.
Current Status and Q1 Results
Following the Q1 results, things are looking significantly better now.
- The dry spell could be bridged financially, and they once again have a small cushion of ~25 million.
- Even more importantly: The ramp-up is going according to plan. The heavy, new, and modern haulers are once again delivering ore from the mine for processing. Sigma has confirmed new guidance of a ~250 kt run rate over the next 12 months.
- They are currently at just under 35%. As a question in the call reveals, they are now slowly introducing multiple shifts and can thus ramp up.
It seems you expect production to be 13,000 tonsin June, then 24,000 tons in July. How do you get such a large jump in production month-over-month? - Joel Jackson with BMO
Thank you for the question. Hi, Joel. Well, essentially, we haven’t given monthly guidance, but as you can see in one of the slides, we’ve significantly increased the haulage capacity of the fleet, and we have even larger fleet being fully mobilized. In other words, as we commence mobilization in February and we continue on with mobilization, we increase the number of shifts continuously with the mobilization. In other words, it wasn’t just about getting the equipment to site, it was about getting the equipment to basically be available to us for four shifts. We’ve gone from getting the equipment available, large scale equipment, to commencing it with one shift, then moving from one shift to two shifts, and then as personnel went through basic security training, we’ve gone from two shifts to four shifts. Why so? That’s the night shift. We commenced personnel on the day shift, and that split into two shifts, and then we just moved into the night shift at once they received very detailed protocols for night operations. Again, without giving guidance per month, this is sort of how we have actually a very beautiful mobilization curve throughout this quarter as we try to give as much detail as possible to everyone in a very specific slide, where we end up with 33,000 tons of material on the quarter. - Ana Cabral Co-Chair and CEO
Transcript of the Sigma Lithium Investor Call
But the next problem is already looming on the horizon.
A combination of an alleged “fake campaign” combined with a conviction to pay a ~10 million fine, which Sigma will appeal, and where the legal process could drag on for years. On the other hand, this ruling also contains a passage relating to noise pollution at night.
The recent court ruling mandates Sigma Lithium to fund independent technical advisors, establish a voluntary emergency resettlement program, and finance public health initiatives while halting noisy nighttime activities. The judge highlighted serious concerns over environmental and community impacts linked to the mine, which could have long-term implications for the company’s operations and reputation.
Source
This would throw a wrench in the works for Sigma with their night shifts, and likely negatively impact the ramp-up and capacity goals.
Nevertheless, it should be noted here that on the same day of the ruling, official inspectors found no violations of the conditions whatsoever, and Sigma remains one of the most environmentally friendly companies in the industry. Furthermore, as a major employer, they have very high support within the community.
The overwhelming community support for Sigma Lithium had already been demonstrated in a previous public hearing for the issuance of the Company’s environmental license, when over 2,000 people attended and 91% of the depositions heard were favorable to Sigma Lithium’s operations and expansion plans.
I stand by my opinion that the worst is over. The currently very lucrative lithium prices make Sigma a true cash cow right now. The expansion to Stage II builds largely on the infrastructure of Stage I and therefore costs just a little over $100 million, which is comparatively very little for another ~250 kt of spodumene and is absolutely unbeatable. If prices can hold at current levels, the medium-term outlook for Sigma is more than dazzling.
Whether prices can maintain this current level is something I will cover in more detail in a future article. Two camps are currently forming around this question.
Thanks for reading! Not investment advice, merely for entertainment, interest in the industry, and my own opinion. Cheers.