Brazil court shuts Sigma Lithium mine

Sigma Lithium (TSXV, Nasdaq: SGML; ASX: SAU) has halted all mining and processing at its Grota do Cirilo complex in Brazil, two days after dismissing reports that a court had suspended the operation’s environmental licences.

The shutdown began Wednesday after Sigma received an electronic notice from Minas Gerais state environmental regulator FEAM late the previous day, the company said. Grota do Cirilo, about 450 km northeast of state capital Belo Horizonte, is Sigma’s only producing asset and has annual lithium concentrate capacity of 330,000 tonnes. Its first stage reached commercial production in October 2023 after a $188-million (US$131.9-million) build.

“We lower our rating to ‘market perform (speculative)’ and our target price to US$10 as we move to the sidelines pending greater clarity on a number of legal, safety and environmental challenges facing the company,” BMO Capital Markets analyst Joel Jackson said in a note Thursday. “While we recognize the political backdrop in Brazil remains complex, the timing of a return to normalized operations remains uncertain.”

Court ruling

The halt reverses Sigma’s position on Monday, when it said operations were continuing normally and called reports that its licences had been suspended “categorically incorrect.” The restart now depends on a federal appeals court ruling. Sigma kept its 2027 output target but delayed its rolling 12-month guidance by three months.

Sigma’s Toronto shares fell 19% to $11.16 by mid-Thursday, leaving them about 40% lower this year. They have traded between $6.51 and $33.28 over the past 12 months.

A federal judge suspended Grota do Cirilo’s environmental licences and mining operations on Sept. 4 in a civil suit filed by the Federation of Quilombola Communities of Minas Gerais, known as N’Golo. The order also barred state authorities from issuing new licences.

Consultation issue

The dispute centres on whether FEAM should have consulted Baú, a protected Afro-Brazilian community, before licensing the mine. N’Golo says federal mapping places the community’s territory 2.7 km from the operation, inside an 8-km zone that requires prior consultation. The court ordered independent mapping to determine the distance.

The community’s homes are 8 km to 11 km from its pits and the licences predate a November 2023 federal report defining the territory’s proposed boundaries, Sigma maintains. The company denies that its operations have harmed the community.

Sigma said its emergency request to suspend the injunction had awaited a ruling for 15 days. It acknowledged FEAM’s notice on Tuesday evening and halted production the next day. The company didn’t provide an expected date for the appeals court decision.

Sigma kept its 2027 guidance at 330,000 tonnes but delayed its 240,000-tonne 12-month production target. It didn’t say whether the latest postponement comes on top of a three-month deferral announced in August after an earlier shutdown.

Sales of lithium-bearing material recovered from stored tailings will continue, which Sigma says should generate enough cash to fund the company during the halt.

Safety order

Brazil’s National Mining Agency separately ordered Sigma this week to stop work in part of Grota do Cirilo because of an unspecified “imminent risk,” Reuters reported Wednesday.

The regulator ordered immediate repairs to the east wall of the north pit, where it identified a damaged section. The area will remain closed until the work is finished. Sigma’s Thursday release didn’t address that order or provide a repair schedule.

The latest halt follows a five-week shutdown that ended Aug. 21 after Sigma signed an environmental compliance agreement with Minas Gerais. The agreement included up to US$540,000 in fines and about US$1 million of environmental work.

Sigma produced 35,400 tonnes in the second quarter and sold 24,400 tonnes for US$55 million in revenue. It reported US$17 million in cash and US$125 million in net debt at June 30.

BMO’s Jackson cut his 2027 production estimate to 207,000 tonnes from 278,000 tonnes and his earnings forecast to US$103 million from US$194 million. He also delayed his assumed start of Sigma’s second processing plant to mid-2028 from late 2027.