Canada Lithium secures $92M vote of confidence

While investor confidence hasn’t necessarily returned to Canada Lithium (CLQ-T), the company has been given stamps of approval by Scotiabank and Caterpillar Financial Services in separate financing deals.

Scotiabank has committed to provide a $75-million, five-year debt financing to Canada Lithium as it moves ahead with development of its open-pit Quebec Lithium lithium-carbonate mine and processing plant near Val-d’Or, Que., while Cat Financial has agreed to provide up to US$17 million in lease financing for the mining fleet. Invest Quebec, a provincial economic development agency, has partially guaranteed the $75-million financing.

The money is dependent on meeting standard conditions such as permitting, legal documentation and notably, filling the $25-million hole in the company’s project financing. Canada Lithium had stated it was looking for as much as $100 million in debt financing, and so is evidently on the hunt for the rest.

Meanwhile, the other half of the US$207-million project financing was filled with the $126.5 million Canada Lithium raised in January and February of 2011 in a bought-deal financing at $1.50 while its stock rode high.

Soon after that financing, however, the company’s stock took a hit after it revised its resource estimate in light of major errors found in the original estimate.

When news broke of the resource controversy, the company’s stock fell as quickly as it had risen months earlier. Trading around 70¢ in early October 2010, the company’s stock price climbed to a brief high of $2.23 at the end of 2010 before falling back to 70¢ in early March when the company announced it was looking into discrepancies in the resource model.

Since the debacle, Canada Lithium has been working to advance the project and put the resource issue behind it. 

The company started building in August with plans to commission the mine in late 2012 and reach full production in late 2013.

The company is still in offtake talks, largely with Asian buyers, for the 20,000 tonnes of battery-grade lithium carbonate it expects to produce annually once it reaches full production.

Current reserves for the project stand at 17 million tonnes grading 0.94% lithium oxide, while the company will also stockpile 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. In December 2011 the company released an updated resource based on just over 10,000 metres of drilling completed between June and August. 

The update established 33.2 million measured and indicated tonnes grading 1.19% lithium oxide plus 13.8 million inferred tonnes grading 1.21% lithium oxide, both using a 0.8% cut-off. The update added 4 million tonnes of measured and indicated resources compared with the May 2011 estimate. Inferred resources, meanwhile, decreased from 21 million tonnes to the 13.8 million tonnes in the latest resource, though the grade increased from 1.15% to 1.21% lithium oxide.

Both resource updates, however, are a far cry from the flawed October 2010 resource estimate. That resource outlined 46.7 million measured and indicated tonnes at 1.19% lithium oxide and 57.6 million inferred tonnes grading 1.18% lithium oxide.

An updated feasibility study released in June 2011, based on the May resource, outlined a 15-year mine life with a US$190-million net present value at an 8% discount rate and a US$80-million reduction compared with the previous study, owing to increased operating costs from higher dilution and ore loss. 

The internal rate of return dropped from 24% to 22%, while the pre-tax payback period stayed at four years.

The company is still facing a class-action lawsuit in the Ontario Superior Court of Justice related to the resource discrepancies.

On news of the financing, the company’s share price closed up 6¢ at 75¢, in Canada Lithium’s highest stock price since last July.

The company’s share price has hovered between 45¢ and 75¢ for most of the past year.