Canada Lithium (CLQ-T) is ready to move on from a shrinking-resource fiasco at its Quebec Lithium project near Val d’Or, Que., and has recently tabled an updated feasibility study of the project that shows it is still viable.
The physical parameters of the proposed mine haven’t really changed in the updated feasibility study, says Peter Secker, Canada Lithium’s president and CEO. Quebec Lithium is still envisaged as an open-pit mine and processing plant that would churn through 20,000 tonnes of ore per year for at least 15 years. Anticipated capital costs of construction remain at $202 million in the updated study.
The company plans to start building Quebec Lithium by September after a delay of four months, and has just hired three new managers to help the company as it shifts into construction mode: Donald Blanchet as vice-president of sustainable development; chemical engineer Jean Luc Bernier as metallurgical superintendent; and Marco Plourde as construction superintendent.
The proposed open-pit, hardrock lithium mine is expected to be in production by the end of next year, ramping up to full production by the end of 2013.
One change in the updated feasibility study is the pre-tax net present value of the project, which dropped $80 million to US$190 million, at an 8% discount rate. Canada Lithium says the decrease reflects higher operating costs due to an increased stripping ratio, dilution and ore loss factors. The stripping ratio jumped to 5.5-to-1 from 3.6-to-1, and average operating costs to produce a tonne of battery-grade, 99.5% lithium carbonate rose to US$3,164 from US$2,600.
The project’s pre-tax internal rate of return has accordingly lowered to 22% from 24%, “as a result of changes in the geometry of the mineralized zones in the new resource model and increased dilution factors, plus lower mining recovery factors.” Payback is still expected within four years.
But the big change in the new feasibility study for the Quebec Lithium project is in the resource estimate.
“The grade of the (measured and indicated) resource stayed the same,” Secker notes. “All that went down was the tonnage.”
The tonnage in measured and indicated category (inclusive of reserves) has shrunk by 37% to 29.3 million tonnes grading 1.19% lithium oxide from the 46.7 million tonnes grading 1.19% lithium oxide calculated in-house by the company in October 2010.
Inferred resources have dropped by 64% to 20.9 million tonnes at 1.15% lithium oxide from the October 2010 figure of 57.6 million tonnes at 1.18% lithium oxide.
Canada Lithium had at first been satisfied with its in-house resource estimate and raised $136.5 million on it over the winter months in private placements, mostly at $1.50 per share.
But the company then audited the resource in mid-February 2011, after discussions with offtake partners. (Canada Lithium currently has a marketing agreement with Japanese trading house Mitsui.) Secker says the partners “had been going through the whole due diligence and we were looking at various options, so we asked the geologists to look at the model in light of a number of parameters that had been discussed.”
The company retained Roscoe, Postle & Associates to assess the original estimate, and confirmed the new-found inconsistency in mid-March. The miner then brought in AMC Mining Consultants to calculate a revised resource estimate and write a new NI 43-101 compliant report, and hired BBA to tally a new reserve estimate.
As the company explained in May 2011, the October 2010 resource estimate used an inverse-distance-squared modelling technique that should have delineated the main lithium-bearing pegmatite dyke systems within constrained geological boundaries, or “mineralized envelopes”, defined from sampled drill-core sections and other sampling.
Canada Lithium says AMC’s review “identified certain issues” with regard to the October 2010 resource, in that “some of the mineralized envelopes, as originally developed, were broad, included some waste material and, in certain cases, did not conform to the pegmatite dyke boundaries.”
In addition, Canada Lithium says some of the intervals within the dyke boundaries that had not been sampled or assayed were not assigned a zero grade. Consequently, Canada Lithium concluded, “some of the resource blocks should have been classified, in whole or in part, as waste material rather than having Li2O grades assigned to them.”
AMC’s new calculation used a pit shell and a 0.8% lithium oxide cut-off grade to compute the resources, while BBA’s reserve number used a lower cut-off grade of 0.6% compared to the previously used 1.03% cut-off for reserves.
Quebec Lithium’s updated reserves amount to 17 million tonnes grading 0.94% lithium oxide, compared to the previously estimated 15.4 million tonnes at 1.17% lithium oxide. The miner will also stockpile additional low-grade reserves of 3.2 million tonnes at 0.38% lithium oxide to process from year 13 to the end of the mine’s life. Altogether, the updated reserves stand at 20.3 million tonnes grading 0.85% lithium oxide.
Secker says the company doesn’t expect any significant problems building, commissioning or permitting the project: “It’s really a standard open-pit mining operation. It’s not a big mine; it’s only 3,000 tonnes per a day, or 1 million tonnes a year.”
The company has US$130 million in cash, after spending US$10 million on its initial feasibility study, and another US$250,000 on the update.
Canada Lithium has also been removed from the Ontario Securities Commission’s default list, and a management cease-trade order on Secker and the company’s chief financial officer Germaine Coombs has been lifted.
One remaining headache is a proposed class-action lawsuit started in April in the Ontario Superior Court of Justice against the company, its directors and certain officers, which alleges that misrepresentations were made in violation of Canadian securities regulatory requirements relating to the October 2010 resource estimate. The notice of action, filed by Siskinds LLP in London, Ont., also names Michelle Stone, the geologist who prepared that estimate.
Canada Lithium, which has retained the law firm McCarthy Tétrault to fight this particular battle, believes the case is without merit and will ultimately be dismissed.
Looking to the future at Quebec Lithium, Secker argues that in addition to cheap electricity and political security in Quebec, Canada Lithium has several cards in its favour. “We have competitive advantages compared to everyone else,” he says, noting political risks are higher in South America and that brine producers there need a longer time, about 18 to 24 months, to produce lithium through evaporation, where brine is pumped to surface to dry in the sun.
“If you start pumping today, you would produce lithium carbonate in two years (in a brine project). In a hardrock project, if you mine it on a Friday, you’d produce lithium carbonate on the following Wednesday. So it’s a five-day process.”
Thus, as a hardrock lithium producer, Canada Lithium would be positioned to react quicker to changes in global lithium demand, which is expected to start picking up in 2015, Secker says. He says this demand increase would be driven by growth in three groups of high-tech products: cellphones and laptops, electric cars and grid-storage applications. (The latter referring to the use of large lithium batteries to store electrical power.)
While demand for cellphones and laptops is growing 6% a year, he says even stronger demand growth will come from the fabrication of electric cars, with China leading the way. China is expected to produce 1 million electric cars a year by 2015, as a way to cut carbon emissions, air pollution and reliance on imported gasoline.
“So between hybrids and full electrics, the world is electrifying anyway. China is ju
st pushing along a lot quicker,” Secker says.
On June 30, the company’s shares closed at 61¢ apiece, within a 52-week trading range of 49¢-$2.23.
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