Lithium Americas (TSX: LAC) has taken a big stride in securing the technical backing to advance its Cauchari-Olaroz lithium brine deposit in northwestern Argentina, as lithium fundamentals improve.
The Vancouver-based junior — previously known as Western Lithium USA — nailed down a fifty-fifty joint-venture agreement with Chilean mining and chemicals giant Sociedad Quimica y Minera de Chile (NYSE: SQM) to develop its lithium project in Argentina’s Jujuy province. The fully permitted project sits in the “lithium triangle” that straddles Argentina, Chile and Bolivia.
The company picked up the shovel-ready project — comprising part of two nearby salt lake “salars” — in its $80-million merger with Lithium Americas last September.
Under the joint-venture agreement, SQM would pay US$25 million in exchange for a 50% stake in Lithium Americas’ Argentine subsidiary, Minera Exar S.A., which controls the Cauchari-Olaroz project. Roughly US$15 million of this capital contribution would help repay intercompany loans between Minera Exar and Lithium Americas, with the remaining US$10 million earmarked for project development.
“SQM is the world leader in lithium production, with decades of development and operating experience,” Thomas Hodgson, Lithium Americas’ CEO, said in a statement.
The junior intends to use SQM’s technical experience to de-risk the project and deliver new lithium supply to the growing market.
The partners intend to implement a work and engineering plan, as well as update the 2012 definitive feasibility study completed by Minera Exar.
The study envisions building Cauchari-Olaroz in two stages, with each consisting of a 20,000-tonne-per-year lithium carbonate facility and a 40,000-tonne-per-year potash facility. Estimated start-up costs for the 40-year project were US$314 million, with operating costs of US$1,332 per tonne, net of potash credits.
The updated study will assess the viability of a project producing 40,000 tonnes per year of equivalent lithium carbonate. Depending on the results, the partners may phase development.
Patricio de Solminihac, SQM’s CEO, said the Cauchari-Olaroz project would complement the company’s lithium operations in Chile, located a few hundred kilometres away in the Salar de Atacama. He says the companies would have similar production processes, resulting in operating synergies.
The joint venture marks SQM’s first foray into Argentina and demonstrates the policies of the pro-business administration of Argentina’s new president, Mauricio Macri, particularly in attracting foreign investments.
Along with the positive shift in politics, Lithium Americas expects to benefit from the rising lithium demand and prices, spurred by new lithium-ion battery mega-factories that companies such as Tesla Motors are building.
In its latest corporate presentation, SQM notes global lithium demand grew 5% between 2014 and 2015, and should grow 10% in 2016.
Lithium Americas says the Cauchari-Olaroz project is the world’s third-largest lithium brine deposit, behind Uyuni in Bolivia and Atacama in Chile. It hosts reserves of 2.7 million tonnes of equivalent lithium carbonate at a lithium cut-off grade of 354 milligrams per litre.
Since 2009, the Cauchari-Olaroz project has seen $80 million of investments in a resource exploration and project development program. It benefits from good infrastructure, including a nearby natural gas pipeline, a paved international highway, access to a deep-sea port and fresh water on-site, and strong community and government support.
On March 30, the company’s vice-chairman John Kanellitsas became president, replacing Jay Chmelauskas.
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