Vulcan Energy supercharges the economics of its Zero Carbon Lithium

The projected earnings for Vulcan Energy's (ASX: VUL) Zero Carbon Lithium Project has more than doubled thanks to a 'compelling' Definitive Feasibility Study that outlined plans for increased lithium production. The company's shares opened 2.9% higher as the market opened.

Vulcan hopes to bring its project online in late 2025, marking a world first for lithium and renewable energy production with zero greenhouse gas emissions.

Stage One DFS highlights

Production goals (per annum)

• 24,000 tonnes of lithium hydroxide monohydrate

• >300GWh of renewable power

• >250GWh of renewable heat

Economics

• >250% increase in estimated post-tax net present value (NPV) to 2.6 billion euros (compared to January 2021 pre-feasibility study)

• >40% increase in post-tax internal rate of return (IRR) to 26%

• >200% increase in target revenues for Phase One of more than 700 million euros per annum

• Targeted 3.5-year payback

• Total estimated CAPEX of 1.5 billion euros

Financing

• BNP Paribas advising on debt financing process

• Non-binding Letters of Intent from European Export Credit Agencies

• Discussions with strategic funding partners under way

• Binding offtake agreements with Stellantis, Volkswagen, Renault, LG Energy Solution and Umicore to support cashflow for financiers during payback period

Timings

• Targeted start of construction in 2H23

• Targeted start of production in late 2025

A muted share price

Vulcan shares have mostly underperformed fellow larger cap names like Pilbara Minerals (ASX: PLS) and Allkem (ASX: AKE) over the past 12-24 months.

The stock is down more than -50% from September 2021 all-time highs and -17% in the past 12 months.

Vulcan was hit by a short-seller attack back in October 2021, where its shares fell -16% on the day. The stock hasn't been quite the same ever since.

Vulcan weekly chart (Source: TradingView)

It's also worth noting that the DFS Capex and timings represent quite a big jump compared to what was outlined in the January 2021 PFS.

• PFS: Phase one capex, with a Q2 2024 start, was 700m euros

• DFS: Phase one capex, with late 2025 start, is 1.5bn euros

While revenue and production metrics have improved, costs have more than doubled. The 1.5 billion euro figure converts to roughly $2.3 billion: More than double Vulcan's current market cap of $1.0 billion.

Vulcan appears to be mostly exploring debt options to fund the project and such overhang could be another factor weighing on the share price.

Three interesting charts

On a side note, here are three interesting charts from Vulcan's DFS presentation.

1. Vulcan's Zero Carbon Lithium project is expected to be one of the lowest cost lithium hydroxide producers in the world.

Source: Vulcan Energy

2. The lithium market is forecast to remain a deficit between 2022-27 and 2031-36.

Source: Vulcan Energy, Fastmarkets

3. Lithium hydroxide prices are forecast to average 30,283 euros over the next 20 years.

Source: Vulcan Energy, Fastmarkets