Exclusive Interview with Dr. Bill Willoughby, CEO of Cypress Development
16.06.2021 - 12:40 by Profiteer
The environment for our top favorite in the lithium sector, Cypress Development Corp. (WKN: A14L95), could hardly be better. The Cypress share price hasn't really come out of the crease yet, but that's only a matter of time.
The current market cap of our top pick is just 97.6 million USD. By comparison, the after-tax net present value of the project, based on a price of 12,000 USD per ton of lithium carbonate, is over 1.6 billion USD. This undervaluation is striking. That's why we did question the Cypress' CEO.
Exclusive Interview with Dr. Bill Willoughby, CEO of Cypress Development
Profiteer: Dr. Willoughby, Cypress is developing a large lithium clay deposit in Nevada, next to Albemarle (NYSE: ALB) and not too far away from a Tesla Gigafactory. Can you please explain the next steps on your way to production?
Dr. Bill Willoughby: Our next actions are those of a project at the prefeasibility level. We are working on processing, permitting, and the other areas necessary to advance the project to a feasibility study.
The key portion of the feasibility study is the pilot plant which is under construction now. This part of the process is different from the typical development of a mineral project, as there are not any lithium clay deposits in commercial production in the world. We are doing the work at a metallurgical facility in Amargosa Valley, south of our lithium project in Clayton Valley.
With respect to permitting and financing, we are fortunate to have added two excellent people to the company in recent weeks, Braam Jonker our CFO, and Cassandra Joseph an addition to our Board of Directors. Both are highly experienced with the permitting and operating environment in Nevada and in guiding a company forward at our level.
Quelle: www.cypressdevelopmentcorp.com
Profiteer: Just recently you reached a major milestone by signing a Letter of Intent for the purchase of water rights in Clayton Valley, Nevada. We are talking about 1,770 acre-feet of water for mining, milling and domestic use per year. The water rights appear to be about 20km away from your potential mine site. Are you planning a small pipeline? Is there a possibility to acquire more water rights in other basins around Clayton Valley?
Dr. Bill Willoughby: We are not seeking to acquire water rights in other basins. The hydrometallurgical process we are advancing should conserve water and allow us to design an economic mine plan utilizing the water under this permit. That said, there is still work underway to complete the final agreement and transfer the permit to Cypress. When complete, we will assess the optimum use of the permit.
Profiteer: How far along is the pilot-plant construction? When will we know if your new chloride leaching process is successfully working on a larger scale? Do you want to go into offtake agreement negotiations as soon as you have battery-grade lithium carbonate samples from your pilot plant in hand?
Dr. Bill Willoughby: We are making excellent progress assembling the pilot plant, almost all the equipment is on site or due to arrive this month. We are leasing space in a gold metallurgical and refining facility, we did this for a number of reasons and are very happy with the progress. The staff at the del Sol Refinery are highly-skilled and great to work with allowing the set-up to go quickly and smoothly.
The pilot plant consists of four main areas to be tested at the site; these are: leaching, tailings handling, solution treatment and filtration, and direct lithium extraction (DLE). Once all of these areas are assembled and operating, we will know within a couple of weeks how each area is performing and if we are on the right path with chloride leaching. All our initial work says it will, so it is just a case now of how well it will work at the scale of the pilot plant.
Two additional steps will be completed off-site, one is the treatment of the concentrated lithium solution to make lithium hydroxide, and the other is the recycling of the stripped leach solution. These steps will be performed by NORMAM Engineering in Canada using the fluids produced by the pilot plant.
At this point I cannot predict when or with who we will be working with to sell our lithium product. Our first orders of business are to produce a saleable product and ascertain the potential market for the feasibility study. No doubt that will mean sending samples to prospective buyers or partners.
Profiteer: Are you planning more drilling to increase the lithium reserves for the feasibility study? If yes, how many holes / metres of drilling are you thinking of? Are there any rare earth elements on your property that could be valuable by-products of your lithium production? Did you already shortlist a well-known engineering group for the upcoming feasibility study?
Dr. Bill Willoughby: We have no plans for additional drilling at this time. We have ample reserves derived from the model in the PFS, at a level of confidence necessary to carry a mine plan in a feasibility study. We do have consultants in mind for the feasibility study, so we will see where we end up on additional work which might include some drilling for condemnation or confirmation.
There are rare earth elements present in the claystone and in the resulting leach solutions from our project. Our focus right now, however, is on perfecting the production of lithium. Here we have engaged Chemionex and are working to license their Lionex process for direct lithium extraction. Chemionex is finishing the assembly of their equipment, which we expect to be in Amargosa Valley later this month. This is a key part of the pilot plant and we have high expectations for its success.
Profiteer: In the pre-feasibility study, battery-grade lithium carbonate was estimated at 9,500 USD per metric ton, while we are currently trading around 13,500 USD/ton. What are your expectations regarding the price development of lithium carbonate within the next 5-10 years?
Dr. Bill Willoughby: I leave the lithium price forecasting to the lithium price forecasters. We know lithium demand is growing and is led by the electrification of the auto industry, and consumption is expected to increase at least 3-4 times from present levels.
While there is an apparent supply gap, I know from my years of experience working in metals that the gaps tend to get filled, often by existing producers, and through innovations in processing and recycling. Here, direct lithium extraction, or DLE, using membranes or ion exchange resins could be the disruptive technology.
What I want for Cypress is to be at the forefront technologically, with a project that is sustainable, has a low operating cost, is environmentally friendly, with strong economics and investors returns.
Quelle: www.cypressdevelopmentcorp.com
Profiteer: If we use 12,000 USD/ton of lithium carbonate and an 8 percent discount rate, we arrive at an after-tax NPV of 1.6 billion USD for your Clayton Valley project. Your market cap is currently at around 98 million USD. Do you think that you will be able to close the valuation gap to your peer group down the road? How do you want to do that?
Dr. Bill Willoughby: When you say peer group, I think of three advanced lithium clay projects, two in Nevada and the one in Mexico. These projects all have had tens of millions of dollars spent on them. By comparison, Cypress is still just getting started. That said, I don’t think of the group as true peers.
Each project has its own physical and geopolitical setting to contend with. One has better grades, another a boron co-product, and the third a wholly different process. Our project is unique in its deposit-type and location, and I don’t anticipate the same nature of challenges these others are facing.
As mentioned earlier, I prefer not to comment on the price for LCE other than to say there is a fundamental difference between the way marketers and major companies look at pricing and NPVs. Our focus is to build a project that will provide both institutional and retail investors with a strong investment case based on long term sustainable pricing rather than to focus on short term price fluctuation.
As to closing the gap with our peers, and here I think it’s okay to mean market cap, we will do this on fundamentals. If our pilot plant has success and we navigate our permitting and financing goals, I expect Cypress to do exceptionally well and be a leader in U.S. lithium.
However, we should appreciate that building a $1 billion+ 40-year project from the ground up takes time and diligence, so while we are moving forward as quickly as we can, a degree of patience is required.
I am confident as we continue to advance our feasibility study and de-risk our project through processing and infrastructure solutions, permitting, value accretive funding structures, etc., that the market will recognize the investment value of Cypress. With this will come long-term value investors which will certainly reflect positively in our stock price.
Profiteer: Ganfeng Lithium, one of the world's top lithium producers, recently offered to buy the shares it does not already own in Mexico-focused Bacanora Lithium for up to US$264.5 million. Does this transaction for a similar sized lithium clay project at approximately 94 percent its Net Present Value (NPV) set a new valuation standard moving forward?
Dr. Bill Willoughby: An interesting question. I do not think that one should look at a specific transaction and infer that its pricing parameters sets a new industry standard. Each transaction should be judged on its own merits and within the strategic considerations of the parties involved. The fact that a company paid 94 percent of a stated NPV could mean a variety of things.
It is possible they found something that would change the economics of the project positively, or they value their money differently and are willing to take greater risk to control a supply chain. It’s also possible they see greater value coming in lithium markets than what’s reflected by the NPV, and this would bode well for companies like Cypress.
Profiteer: In April, US President Joe Biden was proposing a US$174 billion investment into the electric vehicle market as part of his US$2 trillion infrastructure plan. Do you see an opportunity for Cypress to tap into that money pool for project financing?
Dr. Bill Willoughby: The Biden Administration has stated that they want to see the lithium for electric cars to be mined “in a responsible way”. (see AP comments from Secretary of Energy Jennifer Granholm). I believe Cypress’ project can and will meet those standards. As to tapping a government pool for financing, that is something we would welcome.
Profiteer: Do you have plans to obtain a senior exchange listing in the US in 2022? This would make perfect sense because your project is in Nevada and there is a strong investor appetite for advanced lithium exploration companies, i.e. Piedmont Lithium.
Dr. Bill Willoughby: I agree that a U.S. listing could make sense in the future, but our immediate focus is our feasibility study. However, a possible U.S. listing will certainly form part of our strategic considerations when we decide on the most value accretive way to take the company to the next level.
Profiteer: Can you please elaborate a bit regarding your shareholder structure? Are you planning to swallow a poison pill to avoid a hostile takeover? What is your exit strategy?
Dr. Bill Willoughby: My exit strategy is and has been this: Cypress is on the path to production. Assuming we successfully complete the processing steps required at the project, we are quite capable of adding the people and financial resources to take the company to the next level.
Our shareholders are generally retail with a minor component now of institutional money. We adopted a shareholders’ rights plan last year to afford our shareholders some protection from an undesirable offer. Cypress is in a different place now than we were a year ago. We are well financed thanks to the financing we did in March with PI, and we have a project that is more exciting the further we go with it.
Profiteer: Thanks for the interview and we wish you a lot of success for the future!
Dr. Bill Willoughby: Thank you.
The translated interview in German can be found here:
Exklusiv-Interview mit Dr. Bill Willoughby, CEO von Cypress Development
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