Western Lithium, Lithium Americas eye strategic merger

VANCOUVER — On June 30, juniors Western Lithium (TSX: WLC; US-OTC: WLCDF) and Lithium Americas (TSX: LAC) announced a strategic business combination agreement the companies hope will create a “leading lithium-development company combining expertise, technology and two significant lithium deposits based in North America and South America.” Western Lithium will acquire Lithium Americas in an all-share deal valued at $80 million.

Under the arrangement Lithium Americas investors will receive a 0.789 share of Western Lithium for each share held. Based on the companies’ closing prices on June 29, the offer values Lithium Americas at 50¢ per share, which represents a 36% premium. Western Lithium will continue to be led by CEO Jay Chmelauskas, while Lithium Americas executives Tom Hodgson, John Kanellitsas and Franco Mignacco will join the joint board of directors.

“The merged company will hold two of the leading lithium development projects in the world,” Chmelauskas said in a prepared statement. “We believe this combination will also result in better liquidity, market capitalization and funding opportunities.”

Chmelauskas noted that his management team had watched Lithium Americas’ progress for several years, and said it was the “right time to combine our efforts and take a leadership role in the sector with our shared vision and commitment to develop the lithium market in a disciplined manner, and a focus on technical innovation and successful project execution.”

In May 2014 Western Lithium released a prefeasibility at its Kings Valley lithium property, 100 km northwest of Winnemucca, Nev. The project is spread over five mineralized lenses — named Stage I through Stage V — that extend 30 km. The company’s Stage I reserve base supports annual production of 26,000 tonnes lithium carbonate, 90,000 tonnes potassium sulphate and 100,000 tonnes sodium sulphate.

Based on an update published in late 2011, Kings Valley hosts 27 million proven and probable tonnes grading 0.4% lithium, 3.9% potassium and 1.4% sodium. The initial development would advance in two stages, with the initial build costing US$248 million, and a second phase costing US$161 million. The plan would carry a 24% after-tax net present value (NPV) at an 8% discount rate, along with a 20% internal rate of return (IRR).

Western Lithium reported producing 99.8% of high-quality lithium carbonate in its first trial run at a demonstration plant in Germany. Studies have been advanced to finalize the design of the company’s lithium hydroxide circuit, and it expects pilot testing later this year.

Meanwhile, Lithium Americas has invested US$47 million in advancing its Cauchari–Olaroz project, which consists of a big part of two adjacent salt lakes on Argentina’s Puna Plateau. The project hosts 2.7 million tonnes lithium carbonate equivalent (LCE) at a lithium cut-off grade of 354 milligrams per litre.

The company released a feasibility study (FS) at Cauchari–Olaroz in mid-2012 that contemplates staged development with a US$315-million price tag. The FS assumes the project is built over two stages, with each stage consisting of a 20,000-tonne-per-year lithium carbonate facility and a 40,000-tonne-per-year potash facility.

The study features an after-tax NPV of US$464 million at an 8% discount rate and a 20% IRR.

In January Lithium Americas unveiled a cooperation agreement with Posco, Korea’s largest steel company and a leader in developing advanced material processes. Posco has been working on innovative extraction technology, which it claims produces lithium much faster than traditional brine evaporation technology, minimizes the environmental footprint associated with large-scale evaporation ponds and has a “significantly higher” recovery rate.

The company followed up in May with an announcement that it was in discussions with Posco to jointly commercialize Cauchari–Olaroz, after receiving promising results from a lithium-extraction demonstration plant that Posco had set up at the project in December.

The demo operation has a 200-tonne annual LCE capacity and achieved full operating rates throughout a test period that ended in January. The companies have produced over 20 tonnes lithium phosphate and exported the product to Posco’s facility in Korea, where it was processed into battery-grade lithium carbonate and lithium hydroxide.

“Manufacturers of lithium-ion batteries are increasingly looking for alternative sources of lithium supply, particularly as they build-out major production facilities. We are creating a combined entity that will pursue innovative process technology, with a goal of producing improved lithium products,” Lithium Americas CEO Kanellitsas commented in a press release.

“This transaction is occurring at an important inflection point for the sector, with the strong fundamentals of the lithium sector all coming into focus from the continued growth of electrified vehicles, consumer and industrial energy storage, and consumer electronics, using lithium-ion batteries,” he said.

The combined company expects to generate revenue this year from Western Lithium’s wholly owned Hectatone subsidiary, which manufactures organoclay products used in complex oil and gas exploration, animal feed and other applications. Hectorite clay is an enabling mineral with thermal stability superior to bentonite clays in high-pressure and high-temperature environments.

The new-look Western Lithium is contemplating revenue from Cauchari–Olaroz based on a two-year development timeline, and potential revenues from Kings Valley under a four-year development schedule.

The companies will also have a good amount of starting capital, thanks to financings that Western Lithium negotiated in the past few months. In May the company closed a US$2.8-million convertible security funding agreement with New York-based asset management firm The Lind Partners.

Western Lithium followed up in June with an $8-million bought-deal offering, wherein it issued 11.4 million units priced at 70¢ per unit. Each unit consists of a share and one-half purchase warrant priced at 90¢ for 24 months.

Company representatives were not immediately available for comment.