Avalon PEA values Ontario lithium plant project at three times higher than costs

A preliminary economic assessment (PEA) for Avalon Advanced Materials’ (TSX: AVL; US-OTC: AVLNF) Lake Superior Lithium processing plant in northern Ontario boasts a project with a net present value more than three times higher than its capital costs. Its shares rose Tuesday morning.

The PEA for the lithium hydroxide processing facility in Thunder Bay, released on Tuesday, outlines an after-tax NPV of $4.1 billion (at an 8% discount rate), initial capital costs of $1.2 billion and with a 30-year operating life. Total capital costs are pegged at $1.3 billion and the internal rate of return is 48%.

"We are extremely pleased with the positive outcomes of the PEA and will be advancing the project with a strong focus on environmental sustainability,” Avalon CEO and director Scott Monteith said. “These results reaffirm our view of the project's robustness and substantial economic potential for the company, province and the country. The project is poised to provide high-quality, battery-grade lithium hydroxide to supply Canada's projected demand from the rapidly growing EV industry."

Avalon shares surged 20% to 6¢ on Tuesday morning, valuing the company at $34 million. Its shares traded in a 52-week range of 5¢ to 14¢.

Price slump

The study’s release comes as lithium carbonate prices remain in a slump after losing most of their value since last summer, though Avalon has continued to push the project forward. Last March, the company made a $15-million deal with creditor Lind Global Fund II to accelerate work on the plant, just a month before it started work on the PEA.