The controversial debate over Ghana’s Lithium Mining Deal with Atlantic Lithium is not ending anytime soon, as the newly revised agreement presented to parliament has sparked new heated concerns.
Vice-President of IMANI Africa, Bright Simons, is raising fresh questions about the government’s decision to slash Ghana’s lithium royalties from 10% to 5% in the new deal.
Bright Simons argues that the numbers simply do not support the claim that the mine will struggle at the old rate.
In a detailed breakdown of the figures behind the Atlantic Lithium deal now before Parliament, Simons says the Mines Minister’s justification for the new deal is very questionable. The Minister had told the country that global lithium prices had fallen sharply, from over $3,000 to around $630, and that Atlantic Lithium would not remain profitable unless Ghana made some concessions.
But Bright Simons says that explanation hides more than it reveals. In his analysis, he points out that when the original agreement was signed in October, the benchmark price for the type of lithium Ghana will be exporting, the product called “spodumene concentrate,” was around $2,200, not $3,000.
He adds that even at that price, the mine was set to be a “money machine” for the investors.
The numbers, he adds, told an interesting story: Per the original plan, Atlantic Lithium was expected to recover its entire investment in less than two years. Profit margins were so comfortable that even after paying Ghana’s 10% royalty, the company was still left with enough room to thrive.
To break it down, Atlantic Lithium’s all-in cost of producing a ton of spodumene is about $610.
Even at today’s price, they still make a profit of about 30% on every ton of ore they ship. And before anyone argues that royalties will wipe out their gains, Simons breaks it down further, that paying Ghana the original 10% royalty works out to roughly $98 per ton.
Even after this deduction, the company would still walk away with around $260 in gross profit per ton.
The Vice President of IMANI finds it even more troubling that the Minister presented the revised deal to Parliament without sharing any updated feasibility analysis showing why the project’s profits would collapse under the old royalty rate.
For Bright Simons, the government concession and the new review is an indication it can Atlantic Lithium cannot wait for 4.5 to 5 years to recover their investment, instead of the originally projected 19 months, would be “too long.”
“When the original agreement was signed in October, the price-benchmark for the lithium to be produced in the mine (spodumene 6% Li2O, CIF China) was ~$2200. Profitability of the original project was insanely high due to high prices & soft terms;
Breakeven/payback = 19 months (~1.6 years).
Gross Margin per ton on project cash cost basis = 76%
On industry-standard all-in (AISC) basis, gross margin = 62%.
Net margin (Net Profit After Tax/ Revenue over Life-of-Mine basis) = 35%,” he stated.
He continued that, “What Atlantic is now saying is that waiting for 4.5 to 5 years to recoup their investment is too long. Remember that the mine’s all-in cost per ton is about $610. So, even at current prices, they make a profit of about 30% per ton. Paying Ghana ~$98 per ton (at the original 10% royalty rate) should reduce their gross profit to about $260 a ton.”
He added, “Atlantic says that would be terrible! Bear in mind that corporate taxes are on operating income and not gross margin.”
From this analysis, the big question is if the mine is still profitable at current prices and even more profitable if prices rise again, why should Ghana accept less?
