Rare Geology Great Economics Low Capex

NO WONDER THE SUPPLY CHAIN IS RALLYING AROUND THIS DEPOSIT FIRST PHOSPHATE PHOS-CSE / FRSPF-OTCQB

When you are getting into a big market, you got to think BIG yourself.

This is EXACTLY the attitude of First Phosphate (PHOS – CSE/FRSPF-OTCQB) CEO John Passalacqua.

Passalacqua is not just looking at starting up the next North American phosphate mine – something we desperately need. His vision is far broader.

Passalacqua’s vision is to turn First Phosphate into the next vertically battery material company. That includes producing phosphate, upgrading it to Purified Phosphoric Acid (PPA) and even creating the LFP cathode material used by lithium-iron-phosphate batteries. Phosphate is now a critical mineral in Quebec and many other jurisdictions.

He can do this because he has something nobody else has–a unique phosphate deposit that can produce possibly the cleanest and highest grade P2O5 anywhere in the world.  

Only 1% of the world’s phosphate production is from this unique geology—a mineral called apatite. It’s located 70 km from the ocean and rail in Quebec, a mining friendly location.

He already has deals with several downstream partners, including a large Canadian division of Glencore, and in the US with GKN Powder Metallurgy, with 16,000 employees and 31 manufacturing plants. Passalacqua also has a full collaboration agreement with the local First Nations.

This isn’t just talk – far from it. He has industry buy-in already.  First Phosphate has put stakes in the ground for each of these: the mine, the processing plant and the battery material manufacturing facility.

AND… First Phosphate’s high purity deposit solves The Dirty Little Secret of the global phosphate industry! Only their unique geology can do this!

AN OBVIOUS BUSINESS CASE

Lithium-iron-phosphate batteries are taking share at a breathtaking rate. Already LFP batteries account for 2/3 of China battery production and that number is only going up.

Source: First Phosphate Investor Presentation (Benchmark Minerals)

LFP batteries are taking share because they are superior: in safety, performance, cost, price – not to mention that they can be produced in our own backyard.

For First Phosphate, their role starts at the mine. Their Begin-Lamarche deposit in Quebec is tailormade to produce the inputs required for LFP batteries – Purified Phosphoric Acid (PPA).

PPA is an ultra pure form of phosphate, one that is difficult to make from conventional phosphate deposits.

There are only 4 suppliers of purified phosphoric acid in the West. All are integrated into their own supply chains – their product is spoken for the food and industrial industry

PPA production in the United States has been in terminal decline FOR YEARS.

Source: PhosphateCrisis.ca

And yet, demand for Electric Vehicles continues to increase! Yes demand growth has slowed, but it is still growing.

aWith LFP battery demand expected to increase by 5x in the next decade and by 2x-3x by 2030, new PPA sources are needed—especially if they are A) in the West B) can produce high grade P2O5 and C) are clean & green!

No wonder Passalacqua is jumping at the opportunity and not limiting First Phosphate to being “just another miner”.

I’m not kidding when I say First Phosphate is thinking big. Extraction, concentration and manufacturing – Passalacqua is planning to get a piece of it all. He knows that North America needs this supply chain and he’s building it to own it right from the mine source. 

Source: First Phosphate Investor Presentation

In the last 6 months alone, First Phosphate has announced deals for a battery plant, a processing facility, and for trucking and rail offtake.

On top of that, there is the mine – Begin-Lamarche. Just last week, First Phosphate announced VERY ROBUST economics for the mine – including a $2B NAV and IRR of 37%.

Those are some VERY BIG numbers for a tiny company. With the stock sitting at 20c and a capitalization of just $15M, you have to wonder if something’s got to give?

MAKING A PURE PRODUCT FROM A BETTER ROCK

The First Phosphate advantage begins with their rock.

The vast majority (85-90%) of world phosphate production comes from sedimentary rock. On average, less than 20% of sedimentary rock feedstock can be converted to PPA while over 90% of igneous rock feedstock can be converted directly to PPA. 

The initial grade of First Phosphate igneous rock based phosphate concentrate attains 40% P2O5 after beneficiation and counts as perhaps the highest grade phosphate concentrate in the world. Sedimentary phosphate deposits yield final concentrates of between 15% – 30% P2O5.

Not Begin-Lamarche. The phosphate at Begin-Lamarche is within igneous rock, formed from volcanic activity millions of years ago.

The key with igneous rock is that it is much purer than sedimentary rock. The phosphate that comes from igneous rock is in a mineral form called apatite, which when beneficiated is almost 100% pure apatite ready for conversion into PPA.

First Phosphate’s Bégin-Lamarche deposit is chalk full of high purity apatite, which is ideal for creating battery grade, environmentally friendly purified phosphoric acid solving The Dirty Little Secret of the global phosphate industry

Source: Ni 43-101

While fertilizer applications can handle the impurities that come along with phosphate produced from sedimentary rock, a lot of other applications cannot. Pharmaceuticals, food-processing and chemical manufacturing all need high-purity phosphoric acid.

Only a small fraction (~10%) of sedimentary rock deposits are suitable for producing purified phosphoric acid production

Of course, these markets pale in size compared to fertilizer.  Today only about 10% of phosphate ore comes from igneous rock.

What First Phosphate has at Begin-Lamarche is even rarer. Its an even cleaner igneous rock called anorthosite that is only found in Quebec. Only 1% of the world’s phosphate comes from this type of rock.

Because this rock is virtually uncontaminated, over 90% of mined ore from Lamarche-Begin can be converted to purified phosphoric acid acceptable for use in LFP batteries.

 FIRST PHOSPHATE SOLVES THE INDUSTRY’S DIRTY LITTLE SECRET

Phosphate production has a dirty secret. It comes with a toxic waste that isn’t easily got rid of.

Phosphate source material (apatite) is upgraded from its concentrated form with sulfuric acid in a reactor. The process makes a liquid (phosphoric acid) and a solid called phosphogypsum.

The problem is the phosphogypsum.  While this slag is primarily gypsum, it is also full of toxic stuff like heavy metals (cadmium, uranium, thorium), radionuclides (radioactive isotopes that are mixed in) and phosphate that didn’t react.

There are few ways to use phosphogypsum. While some countries allow it to be used in road material, in general it is not a usable material because of the impurities and its radioactive properties.

Instead, phosphogypsum sits in massive storage piles. Florida, being home to much of the United States phosphate production, has 25 of these storage stacks that hold over 1 billion tons of phosphogympsum!

Source: Storage Pile – Sarasota Herald-Tribune

None of this waste is created when phosphate is produced from igneous rock.

Gypsum created from the processing of igneous based phosphate concentrate is recyclable and actually valuable as a pure source of non contaminated, ultra-purity gypsum – and as we all know, gypsum is a useable material – it is drywall!

Testing has shown that First Phosphate’s gypsum by-product will work as both a drywall AND as a fire retardant. They have signed another downstream agreement, with Rapid Building Systems out of Australia to license their tech to build affordable housing in Canada for rural and indigenous populations.

A SPECIAL PROCESS FOR A SPECIAL HIGH PURITY PHOSPHATE

Once you’ve mined the rock, the second step is processing the rock into phosphoric acid. Last week, they signed a license agreement with the largest industry player who has patented a technology for producing phosphoric acid—it’s one of the 4 PPA producers I mentioned earlier. They are out of Belgium.

With the license, First Phosphate can use the technology to design, build and operate a phosphoric acid manufacturing plant in Canada with a capacity of up to 600 MT of P₂O₅ per day.

First Phosphate also selected a well-known firm for engineering services to build the project out of Italy which is a specialist in phosphoric acid projects around the world. 

In the press release, CEO John Passalacqua said that they expect to be able to produce 190,000 tonnes of phosphoric acid per annum from the plant.

THE LAST PIECE OF THE PUZZLE – IRON PHOSPHATE PLANT

If that it wasn’t enough to mine the phosphate and produce phosphoric acid, First Phosphate is going yet another step – taking phosphoric acid and iron to create usable cathode material for battery manufacturers.

Two weeks ago, First Phosphate announced a strategic collaboration with GKN Powder Metallurgy, one of the largest iron powder producers globally.

Remember, the Begin-Lamarche project is not just producing phosphate ore. It also produces iron-oxide as a by-product.

Iron-oxide can be crushed and separated into a pure magnetite (iron) powder. This is the “F” in LFP battery cathodes. How serendipitous! First Phosphate will produce both the “F” and the “P” in LFP from the same mine deposit.

The deal with GKN will use First Phosphate’s iron-oxide and GKN’s Ancorsteel melting process to produce iron-phosphate precursor for LFP cathodes.

First Phosphate and GKN had previously announced that the magnetite from Begin-Lamarche had been successfully tested with the Ancorsteel process.

Getting a deal with GKN is another big deal. This is a big player in iron-powder. GKN is a multi-billion-dollar company that operates automotive, aerospace and metallurgy divisions, with 16,000 employees and 31 manufacturing facilities across the globe.

The feedstock from GKN will go into First Phosphate’s planned cathode active material pre cursor plant in Saguenay, Quebec.  The plant will be name plated for 10,000 tonnes per year of iron-phosphate precursor. First Phosphate is hoping to have this plant in operation by 2026. 

 

THE ECONOMICS SAY ITS A GO!

If any doubts remained about the viability of First Phosphate’s goals, they were put to rest by the Preliminary Economic Assessment (PEA) announced last week.

First Phosphate announced a pre-tax internal rate or return (IRR) of 37.1% and a pre-tax net present value (NPV) of $2.100 Billion at an 8% discount rate at Begin-Lamarche.

Capital expenditures to bring the mine into production are expected to be $675M, including a $112M contingency (20% of the total).

The PEA was done at what I’d consider to be a fair discount rate of 8% and using a $350/t phosphate concentrate price (three year trailing average for 40% pure apatite). The mine will produce both phosphate and iron-oxide for at least 23 years.

These are great numbers! To be honest, they are better than I had expected – in particular the capital costs, which came in well below the $1B threshold that I had worried might be in play.

First Phosphate has rapidly moved the project to feasibility study ready. They drilled 21 holes in 2023 and 99 holes in 2024. 

Based on this drilling they came up with this resource in mid-September.

Source: First Phosphate Ni 43-101

The deposit is rich with phosphate and iron-oxide – both of which First Phosphate plans to use in its LFP cathode supply chain. There is also potential for a third recovery of ilmenite (titanium) which the company is working on as a bonus.

This deposit is CLEAN. It produces a very high grade P2O5. It’s in a mining friendly place. The Quebec government WANTS to be a center of influence for the new economy. Logistically, the deposit is near a deep sea port and rail. This is a dream of a play for any mining major. 

And the industry sees it—that’s why it has been easy for Passalacqua to get early engagements with so many partners

In addition to GKN and the Belgian processor, Passalacqua has secured a truck and rail transportation, sulfuric acid and an engineering, procurement and construction team.

Passalacqua is not messing around. Unlike juniors that drag their feet on getting a mine built, it is CERTAINLY not the case here.

No one says it will be easy, but First Phosphate is well on its way to becoming a premium supplier of battery-grade material to the North American market.

The stock, which is stuck in the doldrums along with most mining juniors, could be a big opportunity.

Just consider for a second that the NPV of Begin-Lamarche is over $2B. And that doesn’t even consider the phosphoric acid plant and the cathode material plant.

Its almost laughable that at 21c, and with 76M shares outstanding, First Phosphate sports just a $15M market cap (there are another 28M shares and warrants that are out-of-the-money).

 

The market is clearly not seeing the big picture here. Luckily, the team of First Phosphate is.

Once the market catches on…who knows what can happen.

First Phosphate has reviewed and sponsored this article. The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons. Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom. Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements. No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.

Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity. He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.

Source: https://oilandgas-investments.com/2024/sponsored/rare-geology-great-economics-low-capex/