The key players in Quebec’s lithium scene

SITE VISIT

Nemiscau, Que. — Quebec has earned a reputation for being one of the world’s best mining jurisdictions. So it seems only fitting that lithium — widely touted as the metal of the future — would be found in great abundance in the province.

The large swarms of white pegmatite rocks the province holds in its southwestern section from James Bay to Val d’Or have long been known as a source of lithium but it is only with the recent push for the electric car that a flurry of exploration and development activity has erupted around them.

And while the large salt flats of South America and the lithium-producing brines they host have grabbed most of the lithium market’s attention, there is a consensus amongst industry experts that should the electric vehicle take off as expected, new sources of the metal will have to be found, and hard rock pegmatites could vault into the limelight.

And lest investors fear that such a scenario is off in the distant future, it should be considered that the world’s next lithium mine will be producing from a pegmatite orebody in Australia as Galaxy Resources (GXY-A) is on the cusp of producing its first lithium concentrates there.

Back in Quebec, flying over the sparse wetlands of the James Bay region, the starkly defined swaths of white outcrops are wide enough to easily accommodate our helicopter landings.

Once standing on top of them, and more closely inspecting the surface, a faint greenish mineral, spodumene, can be seen, which holds the prized lithium.

Over two days, by helicopter, bus, truck and plane, The Northern Miner visited five projects all of which boasted such outcrops.

The list of companies visited included Canada Lithium’s (CLG-T, CLQMF-O) Quebec Lithium project, Nemaska Exploration’s (NMX-V) Whabouchi project and Lithium One’s (LI-V) James Bay project.

First on any list ordered in terms of advancement is Canada Lithium’s Quebec Lithium project.

The project, first to generate a compliant resource, is the only one with a prefeasibility study complete. It’s on track to have a feasibility study done by the end of the year and could be producing lithium carbonate by 2012.

It’s been a busy few years for the company since acquiring the past-producing project in 2008 — especially considering that it hasn’t just had to overcome the usual exploration-related obstacles but also had to contend with a market perception that is decidedly tilted in favour of the brines.

The theory runs that lower-cost brines will be developed before increasing demand dictates a need for the pegmatites.

But Canada Lithium’s president and chief executive, Peter Secker, challenges such a notion on several fronts.

He points out that we are already further along the development time-line for brines than many realize.

“The brines that are out there have already been and are continuing to be developed,” he says. “The next generation of projects are pegmatites like the one being developed by Galaxy and then us.”

Pegmatite-based projects also benefit from being quicker to move into production than brines — which can take 18 months to three years depending on evaporation rates. With pegmatites, once a mill is built, the production of lithium carbonate is only a matter of days.

Another key edge that spodumene has over its more popular brine rivals, is the purity of the lithium carbonate it can produce. While the battery industry needs grades of at least 99.5% lithium carbonate, the make-up of that final 0.5% is important. If it contains higher amounts of iron, magnesium or other deleterious materials it is less attractive to end users.

“Our project has just a pure spodumene, there are no other byproducts, no potash or other salts in them, it’s already pretty much just silica, which is good for battery manufacturing,” Secker says.

But perhaps the most important point that Secker and Canada Lithium have to challenge the traditional-brine-favoured-view on is that of costs.

While brines produce lithium carbonate in the low US$2,000-per-tonne range, some experts have estimated similar production at a pegmatite project would cost more than double.

“We published true operation costs without credits and it surprised people,” Secker says of the US$2,850-per-tonne figure published in its prefeasibility study.

Secker says much of Canada Lithium’s ability to bring in low production cost can be attributed to low power costs in Quebec. The province will be charging the company between 4¢ and 5¢ per kilowatt-hour, where as in South America power costs are in the 10¢ range and in Australia they are 15¢.

And those production costs could be set to drop even further thanks to revenues that could potentially be generated from selling spodumene to the North American glass and ceramics market.

Secker says there’s a potential market for 50,000 tonnes of spodumene a year and since Quebec Lithium has a resource of some 70 million tonnes and a 45-year mine life, the mine life would only be reduced minimally if some of the spodumene was diverted away from being turned into lithium carbonate.

While more hard numbers on the potential spodumene production will come as part of the feasibility study due in December, the company’s prefeasibility study estimated that some $20 million per year in revenue could be generated from the sale of spodumene.

“With the spodumene component operating cash costs could be reduced by 20% and that would put us in the same range as the brine producers,” Secker says.

As for the mining, Canada Lithium plans to pull the spodumene from a large open pit that would mine eight main pegmatite dykes.

Its recent drill program showed that mineralization continues down to 400 metres and also extended the strike 500 metres to the northwest and 500 metres to the southeast. The deposit remains open in both directions.

And with highlight intersections of 66.3 metres grading 1.29% lithium and 34.3 metres of 1.3% lithium, expect the resource to grow when a resource update is released as part of the feasibility study.

The project currently has a measured and indicated resource of 31.6 million tonnes grading 1.11% lithium for 78.2 million tonnes of lithium carbonate and an additional inferred resource of 38.9 million tonnes grading 1.12% lithium for 96.3 million tonnes of lithium carbonate

The prefeasibility study envisioned a mine that will produce 19,300 tonnes of lithium carbonate per year. The company says it has the potential to move that number up to 50,000 tonnes.

The carbonate produced would have 99.5% battery grade lithium with production achieved by the fourth quarter of 2012.

Other key metrics coming out of the prefeasibility study were capital expenditures of US$148 million to build the mine, a net present value of US$325 million and an internal rate of return of 33% using an 8% discount rate. The payback period came in at 3.1 years.

The project sits 60 km northwest of Val d’Or and benefits from the solid infrastructure that comes from being in such an established mining region. Power lines are less than a kilometre away, a paved road is also within that range and a rail line is just 22 km away.

As for cash, the company currently has $12 million in the kitty, enough to take it through feasibility and into next March.

Now all that is left is to find an end-user to sign an offtake agreement with.

So far, Canada Lithium has signed marketing agreement with Mitsui, a large trading house based in Japan.

While the deal will help it penetrate the Asian market, Secker says, the company is still actively pursuing an offtake agreement with an end user.

“They are extremely interested in Asia and Europe, and with (President) Obama putting more of an emphasis on battery development in the U.S., we’re seeing some interest the
re as well,” he says of the company’s progress.

Nemaska

Following Canada Lithium, Nemaska has worked incredibly hard and quickly to make its Whabouchi property the next most developed lithium project in the region.

Near the Cree community of Nemaska, situated on the shores of Champion Lake east of James Bay, Nemaska completed a compliant resource on the project at the end of May. A commendable feat considering it only acquired the project in September 2009.

The estimate put 9.8 million tonnes in the measured and indicated category grading 1.63% lithium and 449 parts per million (ppm) beryllium for 74,000 tonnes of lithium and 1,600 tonnes of beryllium. It put another 15.4 million tonnes in the inferred category grading 1.57% lithium and 420 ppm beryllium for 112,100 tonnes of lithium metal and 2,300 tonnes of beryllium metal.

What immediately jumps out from those numbers is the higher grades at the project — higher than both Canada Lithium’s average grade of 1.11% lithium and Galaxy’s average grade of 1.06% lithium.

And according to Nemaska’s president and chief executive, Guy Bourassa, the high grade of the deposit is remarkably consistent throughout the well-defined orebody.

“Even with a cutoff of 1.5% lithium you’d still get 70% of this resource,” Bourassa says.

And much of that high-grade material is sitting right at surface. Indeed, Bourassa says, a future mine would have a zero strip ratio to start with for the first two to three years.

Currently, the deposit has a strike length of 950 metres and is still open to the east, where the deposit continues to trend in a narrowing fashion but while maintaining its high grades.

Standing on top of the outcrop, the width and the continuity of the mineralized body is impressive. While it outcrops over significant areas, Nemaska has pulled away a thin layer of overburden in others to reveal more of the body that extends over 1.4 km along strike and is as wide as 200 metres.

The typical thickness of the pegmatite, however, is between 50 and 60 metres.

Those sorts of dimensions should make for a relatively simple pit design, one which will have the added bonus of catching some of the smaller dykes that run parallel to the main body.

“A pit would be designed for the main body but the dykes are on the hangingwall side, so they will be mined too,” Bourassa explains.

Since acquiring the project last year, the company has drilled 12,000 metres as it was encouraged early on by assays that confirmed Inco’s work here from some 45 years ago.

The company’s determination was rewarded by highlight holes of 65.7 metres grading 1.92% Li₂O and 20.8 metres grading 1.74% Li₂O.

Another hole, which was drilled to test depth, hit 1.61% lithium over 79.2 metres from 384 metres. That is the deepest level that ore has been found to date, but the hole did not make its way into the resource estimate.

Despite being in an area more remote than the Quebec Lithium project, Nemaska still enjoys solid infrastructure. An all-weather road within a kilometre of the property, Quebec Hydro lines run nearby and there is an experienced labour pool in Chibougamau, which is 280 km to the southeast.

And while it is at a much early stage, in contrast to Canada Lithium, Nemaska is considering using the Galaxy model of producing lithium concentrate that would be shipped to another destination for processing.

Galaxy’s plan is to mine the pegmatite orebody and produce concentrate that will then be shipped to China for processing into lithium carbonate.

Lithium One

Lithium One has a slightly different relationship to Quebec than does Canada Lithium or Nemaska.

That’s because the company has its foot in both the brine and the pegmatite camps, and for Lithium One, the brine is winning out.

While the company professes to be bullish on its James Bay pegmatite project, it is not its primary focus. Instead, its recently acquired Sal De Vida lithium brine project on Argentina’s Salar Del Hombre Muerto is its key focus.

“There’s no question that once we got Sal de Vida, we started running as fast we could with it,” Patrick Highsmith, Lithium One’s president and chief executive, says. “Because of the low cost, the future will still be brine dominated but the best hard rock deposits have a great chance, particularly, in a place like Quebec.”

Such focus on Sal de Vida was recently rewarded with a partnership and offtake agreement with Korea Resources. The deal does what is widely held as the most important factor in getting a lithium project into production — it secures a buyer of the product.

And while the company closes in on success in Argentina, Highsmith maintains that it is still keen on Quebec.

“We love James Bay, why would we not advance it?” he says. “It will have a low cost to operate, there’s a paved highway through the property, a power line only 2 km away and there’s no better place in world to explore than Quebec. It’s just that it’s going to have to be a great deposit with a great starter pit and great economics to make sense.”

Whether such great economics are achieved remains unknown, but meanwhile, to the naked eye at least, the scale of the James Bay project is nothing short of staggering.

The site hosts a series of surfacing pegmatite humps that stretch so far out into the distance that, while perched atop a rock at one, where the white rocks finally stop cannot be seen.

Lithium One describes the outcrops as swarms of pegmatite dykes that unfurl over a 5 km corridor. In all, there are 15 different swarms, each comprised of up to seven dykes that range in width from two to more than 30 metres.

And while the visuals confirm that this is a significant mineralized zone, the company is yet to prove it to the world with a compliant resource estimate. It is currently working on doing just that and expects to have an estimate released sometime in the third quarter.

It did have an independent report done in February that was based on historical work and drilling done by the company. That report concluded that site hosts a body of “significant size” and consistent grades between 1.5% and 1.9% lithium.

With $4.6 million in the bank and the deal with Korea Resources freeing it from having to spend any more on exploration in Argentina, expect to see Lithium One continue to prove up James Bay at a steady pace.

And should the demand for electric vehicles meet analysts’ expectations, that pace, and the development at many of Quebec’s other large pegmatite zones, will pick up considerably.