THE CREE NATION OF NEMASKA, QUEBEC — It took five years and more than 40 meetings, but Nemaska Lithium (TSXV: NMX; US-OTC: NMKEF) and the Cree Nation of Nemaska have signed an impact benefits agreement (IBA) that paves the way for the Montreal-based junior to build North America’s richest hard rock lithium mine.
The Whabouchi deposit is 175 km southeast of James Bay and 30 km east of the 1,000-strong First Nations community on the banks of Champion Lake. It’s the second-largest spodumene lithium hard rock deposit in the world and its second-richest, with proven and probable reserves measuring 27.3 million tonnes at an average grade of 1.5% lithium oxide (Li2O).
One of the major selling points for the Cree was that the project would have a relatively small footprint, with just an open pit and a concentrator on-site. The spodumene concentrate produced in Nemaska will be sent to a processing facility to be built in Salaberry-de-Valleyfield, a city in southwestern Quebec on the St. Lawrence River. Salaberry-de-Valleyfield is serviced by two railway systems for both Canada and the U.S., a major port and a pool of skilled workers from the Montreal area.
“One of the things we told the company was that if they wanted to develop the mine, the processing had to be done outside the territory,” Robert Kitchen, Nemaska’s economic development officer and one of the community’s lead negotiators, said in an interview after the IBA signing ceremony on Nov. 7. “The fact that they’re extracting the ore and processing it somewhere else makes this agreement both unique and green. It’s also green in the sense that the lithium produced will be used in electric vehicles.”
Another reason the project can be considered novel is that the company intends to produce lithium hydroxide directly from the mine’s high-grade spodumene concentrate using electrolysis, rather than producing lithium carbonate first and converting the carbonate into lithium hydroxide in a more cumbersome and costly two-step process.
Nemaska president and CEO Guy Bourassa came up with a plan to bypass this step in 2011, during discussions with cathode manufacturers in China on one of his many marketing trips to Asia. At the time, most companies with lithium deposits were selling spodumene concentrate to Chinese conversion plants and trying to compete on price with Talison Lithium, which has produced lithium from its Greenbushes hard rock operation in Western Australia for more than a quarter of a century.
But Bourassa sensed there had to be a better way. So he asked a consultant to the company, Gary Pearse of Ottawa-based Equapolar Research, whether Nemaska could make lithium hydroxide directly from Whabouchi’s spodumene.
“Gary said it was funny that I should ask because he had had that idea years ago, but nobody wanted to try it,” Bourassa recalls. “I said: ‘We’re willing, we have the time and the money, so let’s try it,’ and two months later the process was confirmed in the lab.”
Pearse modified the membrane-electrolysis technology that was already an established method of producing sodium chloride in the industry, and adapted it to lithium production. Nemaska’s process starts with lithium sulphates and removes impurities in the solution down to trace levels. The high-purity lithium sulphate that remains then travels into a membrane-electrolysis cell stack. In the cell stack, the lithium sulphate separates at the anode and the cathode, leaving a high-purity, lithium-hydroxide solution. The solution can be crystallized into powder or bubbled with carbon dioxide to produce lithium carbonate. The lithium hydroxide and lithium carbonate are made as a by-product, and will be 99.99% pure, the company says.
Bourassa chalks it all up to asking the right questions and being in the right place at the right time.
“It wasn’t a matter of not figuring out the process earlier,” says Bourassa, who bought a Tesla S85 electric car in September. “It was a matter of need being the mother of invention.”
“When you looked at the lithium world in 2008, prices were not interesting,” he continues. “Most of the demand was for lithium carbonate and there was little demand for lithium hydroxide. In addition, the majority — or 85% of the supply in those days — was coming from brines in South America, which produced lithium chloride. The remaining 15–20% came from China, which had no electricity — or when it did have it, it was insufficient or unreliable.”
With new battery cathodes in subsequent years — such as lithium iron phosphate (LFP), which uses lithium hydroxide over lithium carbonate because of its better power density, longer life and safety features — Nemaska knew there would be more demand in the future for lithium hydroxide from manufacturers of cathodes and lithium-ion battery manufacturers. And with Quebec’s low overall electricity rates of 5.8¢ per kilowatt hour, Bourassa and his management team were convinced that the project could generate solid returns for shareholders.
“We felt that down the road this is the way to go,” Nemaska chairman Michel Baril says. “Not only do we have a top-notch deposit, but we believe we have a revolutionary process that allows us to economically produce hydroxide at a much better cost than our competition.”
An early vote of confidence came from Chengdu Tianqi Industry Group, one of the largest lithium-battery material providers in China. The Tianqi Group, through various subsidiaries, controls a significant share of the Chinese lithium market and has long-term relationships with most of the lithium battery makers in the country.
In March 2011, Tianqi took an initial 10% stake in Nemaska Lithium, and raised it to 19.9% in November of the same year. Today Tianqi’s stake stands at 12%. (Last year Tianqi and Rockwood Holdings [NYSE: ROC] acquired Talison Lithium in a 51–49% joint venture.)
Nemaska finished a feasibility study earlier this year that outlined a 26-year mine life — the first 20 as an open pit and the last six as an underground operation, accessed via a ramp from the pit. Over the mine life Whabouchi would produce 5.5 million tonnes of 6% Li2O spodumene concentrate at a cost of $189 per tonne.
From that, the hydrometallurgical plant at Salaberry-de-Valleyfield would produce 728,000 tonnes of battery-grade lithium hydroxide and 85,000 tonnes of battery grade lithium carbonate. The margins should be significant. Nemaska’s cost of producing lithium hydroxide would average US$3,105 per tonne free-on-board Valleyfield, and could be sold for US$8,000 per tonne, while the production cost and selling price of lithium carbonate would average US$3,771 per tonne and US$5,000 per tonne.
Initial capex of $448 million — in addition to a $52-million contingency and $21 million in working capital — could be paid back in just under four years, and the project is expected to generate a $924-million pre-tax net present value at an 8% discount rate and has a 25.2% pre-tax internal rate of return.
As part of the feasibility study, Nemaska commissioned Signumbox Inteligencia de Mercados, an independent market-analysis group in Chile, to produce a market study on lithium carbonate and lithium hydroxide. The study analyzed existing suppliers of lithium compounds, their planned growth and new suppliers to the market, as well as demand forecasts out to 2025. The study concluded that unlike lithium carbonate, the lithium hydroxide market
is expected to tighten, as growth in demand — driven largely by batteries — will not be satisfied by increases in current installed capacity.
The study forecast that the price of lithium hydroxide will increase from US$7,100 per tonne in 2013 to US$8,000 per tonne in 2017, and reach US$11,100 per tonne by 2025. Lithium carbonate prices, by contrast, are forecast to move from US$5,700 per tonne in 2013 to US$5,000 per tonne in 2017, and rise to US$8,400 per tonne by 2025.
Simon Moores, an analyst at Benchmark Mineral Intelligence — a London-based global price-setting and research firm specializing in critical minerals and metals — notes that orders and enquiries for lithium hydroxide are already priced at much higher levels than seen so far in 2013–14. “Tesla Motors explained to me specifically that they are looking for hydroxide to fuel the Gigafactory,” Moores says, referring to the multi-billion lithium-ion battery plant the electric carmaker is building in Nevada.
“Some prices quoted are 30% up on the lower 2013–14 levels, which shows how lack of liquidity in these markets can cause significant price jumps,” he writes in an email. “We will have to wait and see next year if this materializes, but it shows a lack of supply in the world. There has been no significant hydroxide supply expansion on a global scale, which has resulted in a [supply] restriction.”
On a tour of the Whabouchi deposit, about a 10-minute drive from the airport, Bourassa, wearing a black Tesla Motors jacket and toting a broom he uses to brush snow off the outcropping green spodumene mineralization, jokes that his company will “sweep the competition.”
He says that “we don’t impact the muskeg. We don’t impact any lakes, rivers, fish habitat, anything. It’s a dream for any mining company.”
The open pit would run 1.3 km from the northeast to the southwest, span 300 metres at its widest point, and extend 190 metres deep. The underground development would extend 90 metres below the pit bottom.
“What is exceptional about this deposit is the thickness of the main zone,” Bourassa continues. “Usually pegmatite dykes have 10 to 12 metres on average in thickness, but here the zone is 85 metres thick. And at 520 metres deep, the main zone is still there at a thickness of 45 metres, so it’s exceptional.”
Another positive attribute is that the mineralization is uniform, which makes it ideal for processing, Pearse of Equapolar Research explains. “The whole deposit averages out to 1.5% Li2O. It drops down a little bit as you get down at 200 or 300 metres or so, but we have taken placer samples here there and everywhere, and they all come out to 1.6% Li2O.”
In addition, the company used a cut-off grade of 0.4% Li2O. “We put the cut-off at 0.4% because it’s economic to mine it, but there’s not much, really, and within a few inches of 0.4%, we’re back up to the 1.5%-plus,” Pearse says. Adds Bourassa: “A cut-off grade of 1.1% Li2O is the usual grade for a spodumene mine. We did some trials and with a cut-off grade of 1.1% Li2O — we lost 10% of the resource.”
Whabouchi’s in-pit measured and indicated resource stands at 28 million tonnes grading 1.6% Li2O, with inferred in-pit resources adding 4.7 million tonnes averaging 1.5% Li2O.
As for reserves, the project’s open pit has proven and probable reserves measuring 20 million tonnes grading 1.5% Li2O, with underground proven and probable reserves of 7.3 million tonnes grading 1.3% Li2O%.
Instead of building the hydromet plant first, Nemaska plans to advance the project further by building a pilot plant that will produce enough lithium hydroxide to offer potential end-users, who can then test it to make sure it fits their specifications, and then hopefully line up orders.
“The intent of building the pilot plant is not to demonstrate the process because we think that we have demonstrated it, but produce small quantities in order to offer it to the market and secure offtake agreements,” chairman Baril explains. “The intent is to de-risk the entire process and from a financial standpoint as well, because then we would come up with true orders and we would have projected cash flow coming in, and not only goodwill.”
Bourassa says it would take nine months to build a 500-tonne-per-day pilot plant at a cost of $25 million. It plans to operate the pilot plant for two years at an annual operating cost of $7 million. The pilot plant should be in production by October 2015.
Nemaska signed its first offtake and collaboration agreement in October 2012 with Phostech Lithium — now Clariant Canada, a company within Clariant AG — which makes LFP cathode material for rechargeable lithium ion batteries. Under the deal, Phostech will buy lithium hydroxide monohydrate from the new plant, and test whether Nemaska’s technology and equipment can convert its lithium sulphate rejects into lithium hydroxide.
As for the main hydromet processing facility, Bourassa says construction could start as early as the fourth quarter of 2015 and finish in the third quarter of 2016. Commissioning would get underway in the fourth quarter of 2016, with commercial production in the second quarter of 2017. The company expects to receive its General Certificate of Authorization from Quebec’s Environment Ministry in the second quarter of next year. The company hopes to build the mine and concentrator by September 2015.
Bourassa says he isn’t worried that competitors might try to copy Nemaska’s innovative process.
“Don’t forget we’ve been working on development and optimization for 30 months now, so we have put a lot of energy and effort in-house, and it’s not something you can easily put in place within two or three months,” he says.
Even if someone did try to copy the process, he adds, Nemaska has other advantages that others lack, including rock-bottom electricity and spodumene concentrate production costs.
“Even if electricity cost 1¢ per kilowatt hour in the Middle East, for instance, you need to have the concentrate,” he says. “We’ll be competing with Talison in Australia and their cost is $40 higher than us to produce spodumene concentrate. Their electricity costs are four or five times higher than in Quebec, so we would still be competitive with anyone who wants to copy us.”