Lithium

Québec’s lithium space sees a flurry of activity

One of the most fertile areas of investment in the development of Québec’s battery material supply chain is lithium. Demand for the chemical is growing as companies build bigger battery powered machines. There will be a need for more lithium than in the past, because the applications are going from the lithium ion batteries the size of your mobile phone, to lithium ion batteries the size of your car, whereby the entire chassis of an electric vehicle is a lithium ion battery. It is an order of magnitude bigger, and as a result you need an order of magnitude increase in lithium supply. Fitch forecasts global lithium production will more than triple from 442,000 tonnes of lithium carbonate-equivalent (LCE) in 2020 to 1.5 million tonnes of LCE by 2030. Meanwhile, Premier François Legault’s Coalition Avenir Québec government is doing all it can to build a lithium-ion battery industry, despite a history of painful failures in the past.

Nemaska’s Whabouchi mine in Quebec’s northern James Bay region is one of the world’s richest deposits of spodumene – a mineral source for lithium, yet the company failed in its last attempt to mine and transform the mineral, filing for bankruptcy protection in December 2019, and leaving thousands of retail investors and taxpayers with worthless shares.

Fortunately, The Pallinghurst Group, a European private equity firm already involved in Québec via a 15% ownership stake in Nouveau Monde Graphite, jumped at the opportunity to take over Nemaska and its flagship Whabouchi asset in a coalition deal which included Investissement Québec. Pallinghurst co-chief executive Arne Frandsen posits that the prior failure was driven by the company’s poor capital structure and cost overruns. He commented: “Cyclicality and price volatility is not your friend in mining, because when it rains there are no umbrellas, and the banks are not keen on giving you anything at that point in time.”

After a prolonged due diligence period, Frandsen and his team concluded that Whabouchi was the world class asset that they always believed it to be, but it needed a new structure not reliant on debt. “It has all the attributes we want in a project and most importantly, there is a minimum 33 year mine life at a consistent high grade of spodumene. It is one of the world's largest and best deposits, full stop,” continued Frandsen.

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Another company making waves with the development of lithium assets in Québec is Australia based Sayona Mining, whose Sayona Québec subsidiary is developing two projects in the Abitibi region. These include its flagship Authier lithium project and the emerging Tansim lithium project. Sayona is also close to finalizing a joint bid acquisition for the facilities of North American Lithium (NAL) in La Corne in Abitibi‐Témiscamingue alongside Piedmont Lithium, which recently acquired a 25% stake in Sayona Québec. “One of our aims with the acquisition of NAL is to improve the established concentrator and create a production hub for all the lithium operations in the Abitibi region. The concentrator will be developed to become a world class production hub, which can be used by other lithium producers in the surrounding area who may not necessarily have the capital to build their own concentrator,” said Guy Laliberté, CEO of Sayona Québec.

Sayona Québec’s partnership with Piedmont, which is forging ahead with plans to develop a mine and chemical conversion plant in North Carolina, makes for a promising future, as the deal comes with an offtake agreement to provide 60,000 mt/y of spodumene concentrate to their operation in North Carolina.

“To explore, build your social license, get permitted, financed, and complete all the technical studies that you need, you are looking at 10-12 years. Therefore, you need to invest today in the mines in order to supply lithium for batteries. It is not happening nearly at the rate it should. In fact, the automobile manufacturers are beginning to realize that the greatest risk to their EV plans is the supply of inputs going into those batteries.”

Eric Zaunscherb, Chairman, Critical Elements Lithium Corporation

Competitiveness through scale

Another notable deal with ramifications for lithium juniors in Québec is the proposed merger between Galaxy Resources and Orocobre, two Australia based companies. On the surface, the deal seems to be driven by Orocobre's Olaroz project, which is the first new lithium brine project in South America in 25 years. By acquiring Orocobre, Galaxy now has access to brine expertise, and also immediate access to a downstream outlet in Japan, where they are building a lithium hydroxide plant. The move also significantly de-risks their Sal De Vida project, which has many similarities.

Galaxy Resources CEO Simon Hay anticipates the move will mean that the company’s James Bay asset located in Québec will also see a significant advantage through the merger. “The combined entities have a market capitalization of US$4 billion, and with that bigger scale, we will be able to attract and source funding a lot easier. That will enable us to build our own downstream converter, which hopefully will be located in Québec,” Hay affirmed.

Galaxy’s James Bay project has several notably strong characteristics, particularly compared to its Mt Cattlin asset currently in production. It has a low strip ratio of 3.7:1 LOM, with a grade of 1.4% Li2O, where it currently mines Mt Cattlin at 1.1 to 1.2%. It also has an 18 year mine life producing at 330,000 mt/y spodumene.

Images courtesy of Vita Marija Murenaite on Unsplash