Canada races ahead of US on current lithium project pipeline

Canada’s lithium supply response is expected to post strong growth through 2031 and outperform the U.S., a new analysis by Fitch Solutions Country Risk & Industry Research suggests.

Canada’s current solid project pipeline, prospective investments into petroleum brine production techniques in Alberta, and a fast-growing battery and electric vehicle (EV) manufacturing base in Quebec and Ontario provide more significant upside in the medium-term due to Canada’s more attractive regulatory environment, the authors say.

Mine permitting times are shorter compared with the U.S., and the current government, led by Prime Minister Justin Trudeau, has proposed $3.8 billion in spending in April to support the mining sector. This includes the creation of infrastructure for remote projects, of which $1.6 billion were dedicated to critical minerals projects.

Critical Elements Lithium’s (TSXV: CRE) Rose project, Sayona Mining’s (ASX: SYA) Authier project, and Sayona and Piedmont Lithium’s (NASDAQ: PLL; ASX: PLL) jointly owned La Corne mine  — all in Quebec — are expected to begin production in 2023. The three projects are expected to add over 50,000 tonnes of lithium carbonate equivalent (LCE) production. La Corne targets a total production capacity of 265,000 tonnes per year in the longer term, assuming its planned expansions are authorized and financed.

Nemaska Lithium’s rebooted Whabouchi mine, also in Quebec, is expected to enter production in 2025 and add another 52,500 tonnes annual output.

According to Fitch’s ‘Americas Lithium Outlook: Robust Project Pipeline To Secure Future Production,’ these planned projects are buoyed by an additional 20 projects without stated production dates receiving growing interest from manufacturers who increasingly provide financing for upstream projects. These arrangements allow them to secure long-term offtake and reduce exposure to spot market prices through contractual price caps.

“There is a significant upside to our current forecast towards the end of the forecast period, with the current forecast seeing Canadian output consistently outperforming the U.S. and seeing the absolute gap in output rise from 2023 onwards,” says the report.

“Our forecast is relatively conservative compared to announced nominal production targets from projects being developed, seeing Canadian production rise from 62,600 tonnes in 2023 to 190,300 tonnes in 2031,” said Fitch analysts in an emailed statement to The Northern Miner.

Canada’s federal government has been strategically positioning to capitalize on the energy transition.

In June, Canada’s Resources Minister Jonathan Wilkinson stated in a speech that “going forward, it simply cannot be the case that it takes up to 15 years to develop and bring into production new mines.”

Wilkinson linked accelerated project development with the security imperative to reduce dependence on supply chains dominated by China. So far, in 2022, mining companies engaged in the exploration and development of critical minerals such as lithium have led capital raising on the Toronto Stock Exchange.

Add to this dynamic the $13 billion that automakers pledged to invest into EV production in Canada through a series of announcements in March through May, on top of another $3.6 billion the Canadian government has pledged to support the development of EV manufacturing in partnership with Stellantis, and lithium miners are enjoying a very favourable financial, economic, and political environment amid high prices.

“We expect renewed efforts from the Trudeau administration to court investment from Japan and other security partners into the sector to further boost exploration spending as well,” wrote Fitch analysts.

Federal agility

Federal policy towards the sector will also influence the pace of production growth as the Biden administration balances ramping up domestic sourcing of critical minerals with environmental protection.

In September 2020, former president Donald Trump signed an executive order addressing the role of critical minerals in the country’s domestic supply chains. The order calls for the protection and development of domestic minerals and processing capacity for the 35 minerals deemed necessary to the economic and national security of the U.S., including lithium.

Among the directives is a call to federal agencies to accelerate permitting and prioritize the development of domestic supply chains.

Fitch analysts expect that should this directive be maintained and executed under the Biden administration, it would support a positive outlook for production growth.

Other recent announcements include: In February 2021, Biden and  Trudeau committed to building an EV supply chain between the two countries, where mined lithium from Canada would be supplied to downstream facilities in the U.S.

In March 2022, U.S. Energy Secretary Jennifer Granholm announced a strategy to help transition coal mines and workers in the coal mining sector towards lithium production while signalling a growing willingness to try and accelerate mine permitting without sacrificing core environmental concerns.

And in July, the U.S. Department of Energy reiterated intentions to accelerate domestic production to support national security aims, though it remains unclear what these steps entail. In contrast to Canada, Fitch points out that much of the U.S. project pipeline remains in early development and uncertainty about environmental scrutiny, as well as the limited executive action taken by the administration to reform permitting will hinder project timelines.

This could cause delays in project development, as had happened in Chile when Albemarle Corp. (NASDAQ: ALB) delayed expansion plans in 2019 due to market oversupply and lower prices.

However, price levels are expected to remain high for years due to ongoing supply deficits, which should push more miners to commit to project development. Further, technological advances should improve resource recovery efficiency at existing projects and provide the potential for additional expansions of projects already being developed.

Lithium learning curve

Tim McCutcheon, a strategic advisor with lithium junior Wealth Minerals (TSXV: WML), tells The Northern Miner that the evolution of the industry pivots on the emerging understanding that aside from the end product, the methodology and asset types required to produce lithium are very different.

“When you consider sources of lithium such as spodumene (hard rock), brines and clays, they have totally different required skill sets to make it work. In the case of brines and clay, economic recovery technology is really the future. And that’s part of the reason why I think spodumene projects have done comparatively so well because it’s just mining. The other stuff? I think investors have come to understand that every operator has a learning curve that still casts a bit of a question mark on many projects,” McCutcheon said.

Wealth Minerals has a significant land position in the lithium industry’s leading Atacama Salar. Its development plans follow up on the success of Chile’s state miner, Sociedad Quimica y Minera, which holds production facilities south of Wealth’s land position in the Atacama Salar, which account for about one-third of the world’s lithium output.

American Lithium (TSXV: LI) CEO Simon Clarke says that while there were obvious reasons why the South American brines were going to be limited in terms of how big they could ultimately get, mainly owing to water scarcity and community issues, it underscored the need for a coherent global supply response drawing on all available sources.

“I’m sure the Australians have got some spodumene refining capacity without necessarily tying themselves to the Chinese, and then you’ve got this desperate need in America for a lithium source, and the clay stones seem to be the right source,” he told The Northern Miner in an interview.

The company is advancing its TLC clay stone project near Tonopah, Nev.

“We don’t think a massive technological step is required to produce from clay stones. We now have three very viable process options that we are refining right now. The more these processes get refined and improved, the better for everyone,” he said.

According to Clarke, critical logistics such as paved roads, power, etc., are in place at TLC for development. Water resources are not as constricted as in the nearby Clayton Valley, where other proponents are advancing projects.

In May 2020, the company released an initial resource estimate for TLC comprising 3.4 million tonnes of LCE measured resources, 2 million tonnes of LCE indicated resources and 1.8 million tonnes inferred.

Upon receiving its new approved plan of operations, American Lithium has started an extensive exploration drill campaign to upgrade and expand the TLC deposit. The work will feed into a preliminary economic assessment and the start of a feasibility study by the end of the year.

According to Fitch, U.S. lithium mine production volumes are expected to remain small through to 2025 relative to other key producers in the Americas, such as Chile and Argentina. Fitch estimates that output at the maximum is roughly 1,200 tonnes per year (6,400 tonnes LCE) based on the production capacity of Albemarle’s Silver Peak operation, the sole lithium mine in the U.S.

In January 2021, the company announced plans to invest US$30 to US$50 million to double the current production of 5,000 tonnes LCE per year by 2025. The output expansion will do little to address the relative shortfall of output in the U.S. compared to Canada, Chile, and Argentina.

Fitch analysts flag environmental regulatory delays, project reviews, and lawsuits as a continuing hindrance to mine permitting and project times in the U.S. market relative to peers.

“Over the coming decade, our outlook for U.S. lithium production growth has become more positive, supported by existing projects in the pipeline, long-term fundamentals for lithium, and the upside from newer technology deployments for geothermal and petroleum brine extraction,” said Fitch.

For example, a notable new project in the U.S. is Lithium Americas’ (TSX: LAC) Thacker Pass project, which expects its first production in the current quarter, making it one of the most advanced lithium developments in the U.S.

The project, located in Humboldt County, Nev., is the largest known lithium resource in the country, with 3.1 million tonnes of LCE classified as proven and probable reserves at 3,283 ppm lithium in 179.42 million tonnes of material. The resource statement is under review.

According to Lithium Americas, U.S. battery production capacity will require more than 250,000 tonnes of LCE by 2030, with Thacker Pass well-positioned to contribute at a competitive cost of US$4,088 per tonne of lithium.

The project has received considerable environmental scrutiny amid ongoing lawsuits.

Similarly, Piedmont Lithium is also relatively close to production at its eponymous mine-to-lithium-hydroxide project in North Carolina, should it execute on the schedule released in a November 2020 investor presentation. The firm expected to begin production in 2022 but is currently dealing with regulatory uncertainty in North Carolina, delaying the project.

Piedmont signed a deal in 2020 to begin supplying Tesla with lithium sometime between July 2022 and July 2023 from the North Carolina mine, but last year delayed the first shipments without a definitive date for when deliveries could begin amid a dawdling regulatory review.

Reuters reported last summer that Piedmont’s chaotic roll out of that plan – in which it wooed Wall Street and Tesla before local residents – had fueled concerns about levels of dust, noise and vibrations in the area just outside Charlotte.

The company in 2021 signed an offtake agreement with EV manufacturer Tesla to begin spodumene deliveries between July 2022 and July 2023, which will be affected by these delays. Several other lithium projects in the U.S. are in the early development stages.

“We note particular interest in geothermal production capacity in California’s Salton Sea, with three operators currently pursuing early exploratory works intended to launch pilot projects after 2024,” said Fitch analysts.

Additionally, the analysts expect operating cost savings through vertical integration would further incentivize mid-stream capacity growth in the U.S. For instance, the prefeasibility and integrated scoping study for Piedmont Lithium’s integrated project analyzes a chemical plant with an estimated annual production of 22,700 tonnes of lithium hydroxide.

The plant would be vertically integrated with its domestic mining operations to reduce lithium hydroxide operating production costs from an estimated US$6,689 per tonne in the standalone (merchant) option to US$3,712 per tonne.