Buzz is building around a perceived, impending supply deficit in the global lithium market, and that’s music to the ears of management at Nemaska Lithium (TSXV: NMX; US-OTC: NMKEF), which is closing in on a construction decision at its Whabouchi lithium project, 300 km northwest of Chibougamau, Que.
Nemaska has been in the lithium business since late 2009, and that head start has positioned it with one of only three permitted advanced lithium projects worldwide. The company updated a feasibility study on Whabouchi in early April, which is headlined by an optimized flowsheet and a relocation of the a planned hydromet plant from Salaberry-de-Valleyfield to Shawinigan, Que.
An aerial view of Nemaska Lithium’s Whabouchi lithium project, 300 km northwest of Chibougamau, Quebec. Credit: Nemaska Lithium
“There was something like 150 junior companies around the world trying to find the next big deposit. The price slumped a bit, and … until recently, there were only a handful of lithium projects that we’d classify as ‘active.’ We were one of them,” president and CEO Guy Bourassa said during an interview.
“We now have a better idea about the type of lithium compound that’s going to be in demand. Back in 2010 everyone was talking about building lithium carbonate because everyone thought that’s where the growth would come into play. We took a step back and talked to end users around the globe, and realized the compound of choice was, in fact, going to be lithium hydroxide.”
The mine plan would see Whabouchi crank out 27,500 tonnes of lithium hydroxide and 3,245 tonnes of lithium carbonate annually over a 26-year life. The $549-million operation features a 30.3% after-tax internal rate of return and US$1.2-billion net present value at an 8% discount rate. After-tax undiscounted cash flow has jumped 70% to US$3.9 billion, compared to an feasibility study released in 2014.
The sale prices for end products in the study show lithium prices have been on the rise. Two years ago Nemaska had assumed US$8,000 per tonne of lithium hydroxide and US$5,000 per tonne for lithium carbonate, whereas the updated study models US$9,500 per tonne of hydroxide and US$7,000 per tonne of carbonate.
“We issued our preliminary economic assessment four years ago, and we were already planning to produce nearly that quantity of lithium hydroxide. A lot of people around the business were laughing at us and saying that it was a crazy idea — that the hydroxide production was way too large,” Bourassa said.
“Then in February 2014, Tesla Motors (NASDAQ: TSLA) announced their Gigafactory in Nevada, and that’s a big coincidence, because that facility needs hydroxide,” he added.
Nemaska Lithium president and CEO Guy Bourassa (left) and consultant Gary Pearse at the Whabouchi lithium project. Credit: Nemaska Lithium
The mine plan involves 20 years of open-pit mining based on proven and probable reserves of 20 million tonnes grading 1.5% lithium oxide (Li2O). The last six years would see a switch to underground mining for another 7.3 million proven and probable tonnes of 1.3% Li2O. Project development assumes the Shawinigan buildings that would host the hydromet plant will be available during the first quarter of 2017.
The “state-of-the-art” facility would use Nemaska Lithium’s patented process to convert spodumene concentrate into high-quality lithium hydroxide. Shawinigan was chosen due to infrastructure perks that include railway access, existing buildings and proximity to the Hydro-Québec network, as the plant would use close to 50 megawatts in full operation.
“The Shawinigan acquisition took some time to complete, but on the financing and de-risking side, it’s a big plus, because it allows us to focus on the real processing equipment instead of civil engineering work,” Bourassa said. “Over the past two years we’ve made strides on the processing flowsheet at our hydromet plant. We’re reducing our consumption of sulphuric acid by nine times and we’ve lowered the production costs, which puts us well ahead of most comparable projects. And it’s also a ‘green’ operation, which resonates today.”
Bourassa said he hopes financing for the commercial development will hold 60% debt and 40% equity. The company signed a memorandum of understanding with Quebec-based Johnson Matthey Battery Materials in late 2015, which contemplates an upfront $12-million payment that will go towards pilot testing. The arrangement also includes provisions for a “long-term supply agreement” for lithium salts comprised of lithium hydroxide and lithium carbonate.
“We’re already in discussions with two other large, credible end users on agreements we’ll look to sign before financing the development. I want to have off-takes in place so we can support a good portion of debt,” Bourassa said. “The Quebec government is still there with the Plan Nord program, and Investissement Québec has indicated it will support some of that debt.”
The test plant is expected by the fourth quarter, and would produce 500 tonnes of high-purity lithium hydroxide per year for the lithium battery market, and help secure off-take agreements for operations at Whabouchi and the hydromet facility.
Nemaska closed a $13-million non-brokered private placement in March wherein Ressources Québec and Nemaska Development subscribed for 38.2 million units priced at 34¢ each. Each unit consists of a share and one-half purchase warrant exercisable at 48¢ for 24 months.
Nemaska has traded in a 52-week range of 15¢ to $1.21 per share, and jumped 169% to start the year en route to a $1.18-per-share close at press time. There are 207.5 million shares outstanding for a $260.6-million market capitalization.
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