Lithium Americas steps up Cauchari

SITE VISIT

SUSQUES, JUJUY PROVINCE, ARGENTINA ARGENTINA — What once was overlooked as a clay basin is now set to become one of the largest lithium brine deposits in the world by 2014.

Lithium Americas’ (LAC-T) flagship Cauchari project comprises a portion of two adjacent Argentine salars, Cauchari and Olaroz, and covers 645.7 sq. km of the Puna Plateau. It hosts a National Instrument 43-101 compliant inferred resource of 4.9 million tonnes of lithium carbonate and 7.7 million tonnes of potassium (with average grades of 584 milligrams per litre [mg/L] lithium and 4,860 mg/L potassium). The junior states it’s the only company with an NI 43-101 compliant resource estimate for a brine resource.

By the end of the year, it plans to release an upgraded NI 43-101 technical report and resource estimate for Cauchari, and in the first quarter of next year, a preliminary economic assessment (PEA).

The company plans to follow up the PEA with a full feasibility study by the end of 2011, with a goal of achieving production within three years from then.

Visiting the Cauchari project, company president and chief executive Waldo Perez tells The Northern Miner that the timeline the company has set for itself is “really tight, and we have to do everything like clockwork to get into production in 2014.”

At the property, while walking near a production well (pumping hole) you notice the sun-baked red clay overlying the Cauchari salar stretches for miles, with only low-lying hills in the distance.

This clay was a reason the Argentine government, when it studied the country’s salt lakes for the presence of lithium in the ’70s, disregarded Cauchari, says Perez, adding that this disinterest was not because the area lacked lithium-bearing brine, but because it didn’t have the typical appearance of a sodium chloride salar.

During the potash rush about three years ago, Perez, who was then vice-president of exploration at Latin American Minerals (LAT-V), says he was contacted by investment bankers at Torontobased PowerOne Capital Markets, who were looking for potash projects.

Perez at first thought “potash exploration in Saskatchewan-style solution mining” would be too pricey of a task for a junior.

But then, he realized the company could look for potash in salt lakes, which could produce lithium too. So Perez and his team at Latin American Minerals embarked on a search for potash in salars.

“At that time, no one was talking about lithium; lithium was not in fashion,” comments Perez, explaining that he had to convince the investors that this would be a good idea, because of the lithium potential.

“So we go searching, searching, searching and. . . we found (Cauchari), two years ago. This was before the lithium fad,” he says, noting that this was when the lithium story was starting to pick up.

At the time of the discovery, Perez recalls standing beside the geologist that worked with Latin American Minerals, who wanted to explore what is now Lithium Americas’ Salar de Cauchari project.

“I was with him when he stood in the salar, which again was not a salar, it was a (clay-filled) basin, and he asked, ‘What if there is a salar underneath?’ — that was really the beginning of the story. We said, ‘Well, let’s test it.’ And we invested a few million dollars to drill it.”

They found that, hidden below 50 metres of clay, there was a salar with sandy units that contained lithium. “So, it’s a nice, nice discovery,” comments Perez.

In June 2009, Latin American Minerals decided to spin off its lithium properties at the Cauchari salt lake and merge them with those of private company Grupo Minero Los Boros at the Cauchari and Olaroz salt lakes, into what is now Lithium Americas.

Combined, Lithium Americas’ salt lake properties span 1,468 sq. km in one of the most-prolific lithium camps in the world.

In fact, Argentina’s Puna Plateau and its related extensions into Chile and Bolivia host about 80% of the world’s lithium brine reserves. Roughly half of the current global lithium production comes from this region, where lithium is recovered through an evaporation process, which is known to be 40-50% cheaper than hard rock extraction.

“The beauty of this technology is, it is inexpensive and very cheap to operate, you just have to let the sun do the work,” says Perez, noting “there are some chemicals you have to add to precipitate or clean your brine or to extract the products you need.”

The company plans to extract lithium, potash and boron from Cauchari, once the project is up and running.

Following its inception, Lithium Americas raised $20 million through private placements in 2009, and a year later completed its initial public offering in May, which brought in proceeds of $41.4 million. A large portion of the funds went towards completing a 53-hole exploration drilling program, which is expected to provide the data required to upgrade Cauchari’s inferred resource into the measured and indicated categories, before year-end.

Highlights from the exploration drilling include: hole 19 returning 911 mg/L lithium over 20 metres, starting from 42 metres downhole; hole 20 averaging 747 mg/L lithium over 12 metres, starting from 18 metres downhole, and hole 21 hitting 825 mg/L lithium over 87 metres, starting from 135 metres depth. All the holes also intersected significant amounts of potassium.

On average, the company says, the depths achieved from these exploration drill holes were 40% greater than the earlier holes used to calculate the inferred resource.

The project, which is the sixth-largest known brine resource, is still open at depth and presents exploration potential to the north and south. Nearby infrastructure to the property includes a paved road, a natural gas line and a gas station.

Back at the company’s Susques office, before driving to see two of the three production wells, Perez says that the company has completed its exploration program and has been busy with production drilling since mid-August. The new data it collects from this drill program will enable the company to convert resources at Cauchari into “extractable reserves” in the feasibility study.

The ongoing production drilling at the property, which is expected to be done by the end of 2010, comprises three production wells and 15 piezometric wells used to monitor the pumping rates in the aquifers.

The company says the aquifers at Cauchari are “very productive,” with a deep aquifer extending from 50 metres depth to about 250 metres.

Compared with other brine deposits, the company writes, “Cauchari has higher porosity at depth, creating a very large deposit.” It also notes that the lithium grade is comparable to other producing mines and that the project has a low magnesium ratio — magnesium being a contaminant that is costly to remove.

However, when the company processed the brine at a laboratory scale, it did notice that the sulphate level was relatively high, which it worked on bringing down. The company’s pilot evaporation facilities tested methods to process the brine, and also produced small volumes of lithium carbonate.

Currently at its onsite laboratory, the company is analyzing lithium, potassium, magnesium and sulphate in order to optimize lithium carbonate recovery at the site.

The company says that “its cost structure will be generally in-line with those of the other low-cost producers in the region,” which it hopes to demonstrate in its PEA. Lithium Americas estimates that about 20% of its revenue will come from potash.

To work on its processing path, the company set up pans to test the evaporation in a semi-controlled environment, with the actual weather conditions. It will be expanding these pilot pan tests by building several ponds (100 by 100 metres) by year-end. The junior has already completed soil studies, where brine from the current production wells will be used to fill the ponds. Afterwards, com
pany engineers will build another set of ponds (400 by 400 metres), which will mark the final stage of pond testing before building the mine.

Lithium exploration and mining is definitely not cheap, and the company is fortunate to have the support of two major corporations — Magna International (MG-T, MGA-N) (13.3% equity stake) and Mitsubishi (MSBHY-Q) (4.1%).

In addition, Magna has an offtake option for up to 25% of the company’s lithium production, while Mitsubishi has an offtake option for up to 12.5% of the company’s lithium and potash production. Lithium Americas says if both companies fully exercise their offtake options, 37.5% of lithium production would be sold to these investors, while up to 75% of the mine construction costs would have been accounted for by these offtake options.

Lithium Americas is still looking for more end users to finance the rest of the mine-building costs. The company says it prefers low-interest- rate loans associated with offtake agreements, which minimizes shareholder dilution.

Perez adds: “We are not standing still and waiting for things to happen; we are contacting more people and more customers. It’s a very big deposit, and we need more customers.”

The company shouldn’t have too much trouble finding more custom- ers with the demand for lithium picking up. Lithium demand increases by about 8% a year, says Perez, explaining that the current supply of lithium should be enough until 2014, which is the year the company plans to go into production. He adds that the Cauchari project can be justified on the current demand growth rates only, which comes mostly from batteries in appliances such as cellphones and laptops. However, the larger anticipated growth in demand will be caused by the electrification of the car.

The company states on its web-site that the demand for lithium carbonate should more than triple by 2020, adding that with a 5% electric- vehicle (EV) penetration rate, existing world lithium-production capacity will not be enough to meet demand, according to Chemetall’s estimations. Chemetall, the second largest lithium brine producer, is a division of Rockwood Holdings (ROC-N).

Perez says current producers have expansion capabilities of up to 50%, and can push the estimated 100,000-120,000 tonnes of lithium currently produced a year into the 170,000-to 180,000-tonne range.

But those higher rates still won’t be enough, Perez reckons, if the demand caused by electric vehicles surpasses the 200,000-tonne range.

“There’s no way current producers can match that demand,” he argues, agreeing that there are a lot of sources for lithium carbonate, but not at the current prices in the low US$2,000-US$5,000 per tonne range.

“You need new low-cost suppliers, and we believe we will be one of them.”

Currently, there are four significent lithium brine projects in production: Sociedad Quimica y Minera’s (SQM-N) Salar de Atacama (Chile); Rockwood’s Salar de Atacama (Chile); FMC Corp.’s (FMC-N) Salar del Hombre Muerto (Argentina); and Rockwood’s Silver Peak (U. S.). The three South American producers control roughly 77% of the global market share for lithium production, according to a recent article in Mining Markets.

Perez believes his company has the three components that will help Cauchari become a success story: a sizable project, the right people and enough money.

He says a property should not only contain high-quality resources, but it should be large, especially in the case of a lithium project.

“The size of the basin is going to give you the size of the deposit,” comments Perez, speculating that brine producers with insufficient acreages would face problems justifying their projects.

As for the right people, Perez says that although Lithium Americas is about 18 months old, he has worked with some of his current team members for more than 15 years.

Perez was an exploration geologist for Barrick Gold (ABX-T, ABX-N) before moving to Iamgold (IMG-T, AIG-N) and then to Latin American Minerals, where he was the vice-president of exploration until he stepped into the position of interim CEO, and later became the president and chief executive of Lithium Americas.

At head office in Toronto, Ian Fodie has just replaced Raymond Mitchell as chief financial officer.

As of Aug. 31, 2010, the company had $37.5 million in cash and equivalents, which it says should be enough to take it through the feasibility study. And, of course, it’s financially backed up by Magna and Mitsubishi.

“This is the kind of financial muscle you need to go ahead,” says Perez. “This is a very expensive project — we spent $20 million in a year — but that’s what takes you, in a short time frame, from a grass-roots project to an advanced project that is measuring resources.”

The company has a market cap of roughly $125 million, and 73.5 million shares outstanding. Its shares recently closed at $1.70, trading within a 52-week range of $1.04-$2.30.