1911 Gold (AUMB.V) has announced it has signed an agreement with Grid Metals (GRDM.V) whereby the latter will lease the True North mill (currently on care and maintenance) to process the rock from its Donner Lake lithium project in Manitoba.
This looks like a good deal from 1911’s perspective as the company will receive C$750,000 in cash up front and an additional C$1M in cash upon the completion of the technical due diligence phase of Grid Metals. Additionally, the lease arrangement will cover additional milestone payments, the operating and depreciation costs of the mill, and more importantly, a 1% Net Smelter Royalty.
The latter could be very interesting. The mill has a capacity of 475,000 tonnes per year but let’s assume it will run at half capacity (240,000 tonnes per year). Donner Lake currently hosts an inferred resource of 6.8 million tonnes at 1.39% Li2O and applying that grade and a recovery rate of 70%, the True North mill would produce about 40,000 tonnes of spodumene (with a 6% grade) per year. At a current price of approximately US$4,000/t this would result in a US$160M annual revenue for Grid Metals and a US$1.6M annual royalty payment to 1911 Gold.
Of course these are just back of the envelope calculations as Grid Metals has not released any economics on the property yet. This also means the anticipated throughput and head grade are just very conceptual in nature and an attempt to calculate what the royalty might be worth to 1911 Gold. But one thing is certain: it will reduce 1911’s cash burn as Grid Metals should cover all expenses related to the mill as it moves forward with its plans to process pegmatite at True North.
Disclosure: The author has no position in either 1911 Gold or Grid Metals. Please read our disclaimer.
