Updated Rose feasibility study lifts Critical Elements shares

Critical Elements Lithium (TSXV: CRE; US-OTC: CRECF) has released a revised feasibility study for the Rose lithium-tantalum project in Quebec, outlining a largely de-risked project with strong economics, CEO Jean-Sébastien Lavallée says.

In an exclusive interview with The Northern Miner, Lavallée said the updated study outlines a low-risk mining approach and responsible production for the e-mobility battery market and the glass and ceramics industries.

Since making the Rose discovery in 2009, Critical Elements has been quietly working away on the project, navigating several cyclical market downturns before the time was right to update the feasibility study for the current market.

“Now that the battery plants are built, the electric vehicles are on the road and lithium demand is increasing yearly, the time is right to move the project forward,” Lavallée said.

The study pegged Rose’s after-tax net present value (8% discount) at US$2.2 billion, with an internal rate of return of 65.7%.

Project highlights

Based on probable reserves of 26.3 million tonnes grading 0.87% lithium oxide and 138 parts per million tantalum pentoxide for 193,800 tonnes of lithium concentrate and 2,300 tonnes of tantalum in concentrate, the mine life spans 17 years. Once in production, it will produce on average 157,706 tonnes of chemical grade 5.56% spodumene concentrate, 46,059 tonnes of technical grade 6.16% spodumene concentrate, and 580 tonnes of tantalum concentrate.

The average operating costs are expected to range between US$81.30 per tonne milled and US$587 per tonne of concentrate for all combined concentrate output. The project has an expected gross margin of 78.8%.

Upfront capital expenditures increased by 32% to US$611.2 million from US$463.6 million and operating costs increased by 9% to US$106 per tonne milled from S$97 per tonne milled in the 2022 feasibility study.

Situated on the traditional lands of the Eastmain Community, 40 km north of the Cree village of Nemaska, the Rose property spans 246 sq. km and holds 473 claims within the northeastern end of the Archean Lake Superior Province of the Canadian Shield.

The north-oriented stacked lenses characterize the ore body, with mineralization including lithium-cesium-tantalum-type pegmatite.

Critical Elements plans to employ an open-pit mining operation. The feasibility analysis shows projected pit dimensions of approximately 1,620 metres in length, 900 metres in width, and 220 metres in depth.

Infrastructure improvements will feature a broad 30.9-metre in-pit haulage ramp for double-lane traffic. This beneficiation process includes crushing, grinding, magnetic separation, flotation, and a continuously operating spodumene plant with a 90% availability rate.

Critical Elements will significantly modify the Rose site’s infrastructure to support operations. A notable change will reroute a 4.2 km section of Hydro-Québec’s 315 kV electrical transport line (L3176) currently running over the planned open pit.

Red Cloud Securities mining analyst David Talbot said in a note that the study shows an incremental improvement to project economics despite higher trimmed annual production rates and slightly higher prices.

“Higher costs reflect market conditions and while initial capex increased more than 30%, opex is in line with previous estimates. We note that the Rose lithium project’s low iron content makes its technical grade production ideal for the glass and ceramics industry, while overall purity allows chemical grade for use in lithium-ion batteries. We believe this study and its improved economics will go a long way in helping obtain project financing, potential off-takes and/or a strategic partner,” said the analyst.

Cantor Fitzgerald mining analyst Matt O’Keefe also viewed the updated study in a positive light. “Overall, the refreshed study confirms the Rose project as robust and puts Critical Elements in a better position to attract a development partner and/or project financing,” he said in a note.

Managing the risk

Lavallée said the entire exercise comes down to risk management. For this reason, he said the company had avoided committing to any early offtake agreements before all the project authorizations were in place, making the only one of three development-ready hard-rock spodumene projects in North America that have yet to confirm an offtaker.

“The company’s long-term strategy of avoiding offtake arrangements leaves the Rose project’s planned production unencumbered in a tight market for spodumene concentrate, both for chemical conversion for the burgeoning EV battery market and for the higher-margin glass and ceramics industry,” Lavallée said, noting that signing an early offtake becomes an execution risk besides potentially locking shareholders out of participating in positive market price movements.

“We believe that having the environmental authorization in place and advancing further in the engineering significantly lowers the risk. So, we can negotiate with everyone we want right now,” Lavallée said.

The key project risks entail receiving all required permits, successful results from earlier activities, and, critically, finalizing a funding package.

Lavallée states the package could ostensibly entail about 45% equity and 55% debt, and the company is progressing through negotiations. “Demand for lithium is growing. We’re generally looking for a strategic partnership with industry players. That means we can negotiate with a broad range of groups, and an offtake can be attached with an equity investment. In that case, we’ll happily sign that offtake agreement,” Lavallée said.

He added that Critical Elements has started a process early this year to gather and assess multiple financing interests for the Rose project. “Several parties have shown strong non-binding interest, which matches the project’s initial capital estimates from its 2022 study. The company will further discuss with these interested parties to finalize financing terms, due diligence, and required documentation. However, this process has no set timeline or guaranteed outcome,” Lavallée said.

Should the company successfully secure finance for the buildout, deforestation and initial preparation work could start by the end of the year, with the first production slated for late 2025.

Discovery potential

The company in June launched a 12-week surface exploration program aimed at probing priority pegmatite areas. Activities will include prospecting, mapping, and trenching. Geosciences firm ALS GoldSpot Discoveries will oversee this 2023 program, working alongside the company’s teams. After completion, the findings will guide a drilling program to find new spodumene-rich pegmatite formations.

“We own 1,000 sq. km in the area where we already have other discoveries. The potential is there. We’ve seen several lithium discoveries announced in the James Bay Lowlands over the last year, which bolsters our narrative,” Lavallée said.

Another key de-risking event was the onboarding of experienced mine builder Yves Perron in August last year. “He will lead an experienced technical team as the vice president of engineering, construction, and operations, as Critical Elements aims to establish the Rose project as a mining operations and sustainability benchmark,” Lavallée said.

Critical elements shares closed up 5.5% Tuesday at $1.53, after ranging between $1.32 and $3.03 over the past 12 months. It has a market capitalization of $333.2 million.