NextSource looks to tap Saudi perks for $280 million graphite anode plant

NextSource Materials (TSX: NEXT) says it will cost $280 million to build a new graphite anode plant in Saudi Arabia for electric vehicles as the company expands globally.

The proposed site would produce 20,000 tonnes a year of graphite anode active material for lithium-ion batteries, according to a technical study issued on Thursday. It would operate in the same way NextSource already supplies Toyota and Tesla from a factory in Madagascar. The processor is advancing a plant project in Mauritius while considering expansion to the United Arab Emirates and North America.

The Saudi Arabia project has an after-tax net present value of $677 million at an 8% discount rate and an internal rate of return of 20.3%, the study shows. Construction and $12 million in working capital are to be funded through equity, although NextSource says it’s in debt financing discussions and would consider a joint venture.

“Developing a battery anode facility (BAF) in Saudi Arabia would position us to capitalize on the Kingdom’s robust infrastructure, strategic location along shipping routes and highly supportive business environment,” president and CEO Craig Scherba said in a release. “We are examining a number of potential locations to develop BAFs as part of our global expansion strategy.”

Petro-dollars

NextSource is banking on how Saudi Arabia has pivoted to invest billions of petroleum dollars in recent years into the next wave of energy. The country’s Vision 2030 roadmap to massively expand EV output and battery mineral mining has attracted Barrick Gold (TSX: ABX; NYSE: GOLD) and Robert Friedland’s Ivanhoe Electric (TSX: IE; NYSE AM: IE) among others. Lucid Motors, Ceer Motors and Hyundai Motors have factories there.

Saudi Arabia is keen to act as a regional financing hub at the nexus of Africa, Asia and the Middle East. It’s been offering foreign investors full ownership of projects, co-funding of up to three-quarters of capital spending, five years free of royalties, a 20% corporate tax and 30% discounts on local processing.

At full capacity, NextSource’s Saudi plant could generate annual revenue of $230.1 million, with earnings before interest, taxes, debt and amortization of $128.5 million a year, according to the study.

Site selection

NextSource must still select the Saudi project’s site and prepare a feasibility study, the Toronto-based company said. The study is to incorporate front-end engineering and design and environmental and social impact assessment permitting.

Decisions on when to build and how large depend on the site, offtakes for anode active material, and securing project funding and permits, the company said. Commercial production could start 16 months after construction begins, it said.

NextSource plans to develop an anode processing hub over the next five years with a total production capacity of 100,000 tonnes a year of coated spheronized purified graphite. Modular plants would allow production to match automaker demand, the company said.

Shares in NextSource Materials rose 2.4% on Thursday morning in Toronto to C$0.85 apiece, valuing the company at C$132.9 million ($97m). They’ve traded in a 52-week range of C$0.60 to C$2.10.