Canada Lithium Will Be Canada’s Sole Producer By 2013
By Ted Niles
Today it is on track to become this country’s sole lithium producer, but this time last year things looked grim for Canada Lithium Corp TSX:CLQ. An internal review of the October 2010 NI 43-101 technical report for the company’s Quebec Lithium project indicated “a material reduction” in the project’s resources, and the company announced February 2011 it had hired Roscoe Postle and Associates to conduct an independent review. News of the apparent error—confirmed May 2011 in a 37% reduction to the measured and indicated resources—sent the company’s share price plummeting. And a $50-million class-action lawsuit by shareholders in April didn’t help.
But while the loss of a chunk of its resource was a blow to the company, it still wasn’t enough to slow the project down. The results of its June 2011 feasibility study confirmed Quebec Lithium’s essentials were largely intact. Projected annual production of 20,000-tonnes lithium carbonate remained unchanged, as did the estimated life-of-mine—indeed it was fractionally increased to 14.9 years from 14.8 years. The project’s pretax net present value decreased from $270 million to $190 million as a consequence of higher stripping ratios, increased dilution and ore loss, and its internal rate of return decreased from 24% to 22%. But due to a lower mineral reserve grade (0.94% Li2O from 1.17% Li20), the project’s proven and probable reserves actually saw an increase of roughly 1.5 million tonnes for a total of 17.1 million. Capital costs increased from $202 million to $207 million.
The blow was further softened by the December 2011 announcement of an updated mineral resource estimate which reported measured and indicated resources of 33.2 million tonnes at 1.19% Li20. An increase of nearly 4 million tonnes at the same grade over the May technical report. The company also reported inferred resources of 13.8 million tonnes at an average grade of 1.21%.
Not only had Canada Lithium managed to keep Quebec Lithium—located 60 kilometres north of Val d’Or—on schedule, on February 13 it announced $75 million in debt financing underwritten by the Bank of Nova Scotia and Caterpillar Financial Services, as well as another $17 million in lease financing from Cat Financial for the mine fleet. Between that and the $130 million the company raised in early 2011, President/CEO Peter Secker reports that Canada Lithium has the capital to build the project. “Exploration is finished, we have resources and reserves,” he says. “We started construction of the project itself in September 2011. It’s probably 20% complete, and we will be commissioning the plants at the end of 2012. There’s a ramp up that takes about 10 months. By October 2013, we’ll be in full production and will produce 20,000 tonnes a year of lithium carbonate.”
Lithium is used in the manufacture of aluminum alloy, glass and ceramics, greases and rubber. But the industry’s biggest growth potential is in rechargeable batteries, which consumed 24% of lithium production in 2009 and is projected to rise as high as 40% of production by 2015. Secker explains, “It is the lightest metal. When you combine its weight benefit with the fact that it has a very high energy-storage capacity, it is the best metal compound that you can have to store electrical energy. Once you start talking about laptops, cellphones and power tools, you have an increased demand for lithium. Moving forward, lithium batteries are the battery of choice for hybrid and full electric vehicles.”
It is this growth potential that inspired support from the province in the form of a partial guarantee by Investissement Québec of the aforementioned $75-million financing. When it starts production at year’s end, the Quebec Lithium project will have no national rivals. At 20,000 tonnes lithium carbonate per annum, Secker estimates that the project will be producing roughly 12% of the world’s supply. “[The Quebec government] has been extremely supportive,” he says. “[And] you have a huge, skilled labour force there, so sorting skilled people is relatively easy. When you combine the competitive advantage of Quebec with cheap hydro power—at 4.5 cents per kilowatt hour it’s some of the cheapest in the world—it gives us a significant cost advantage. You couldn’t ask for a better jurisdiction to build a mine.”
By October 2013 we’ll be in full production and will produce 20,000 tonnes a year of lithium carbonate —Peter Secker
Secker continues, “At the moment about 50% of the world’s lithium products come out of South America. About 30% come out of West Australia and another 15% to 18% out of China. If someone wanted a North American producer, we would be the opportunity.”
With approximately 80% of lithium carbonate demand coming from Japan, Korea and China, a significant portion of Quebec Lithium’s production will go there. However, as Secker notes, “There are two battery plants in Quebec. Phostech Lithium has just finished building a $100 million lithium battery plant, and Bathium Canada already has a plant there. Obviously we would love to mine lithium carbonate in Quebec, produce a battery-grade product in Quebec, and then sell it to the battery manufacturers in Quebec.” He adds, “We’ll also be looking into the US market at the battery plant down there [A123 Systems' plant in Livonia, Michigan]. But while the USA is catching up, we’ll sell material into the Asian market.”
As for Canada Lithium’s share price—which has yet to recover from its 2011 slide—Secker sees it as nothing unusual. “We’re just following the standard cycle of evaluation for a single-mine company. We finished the feasibility, and the share price dropped as we’ve gone into construction. We’re assuming it will rise as we get closer to production, and people actually believe we’re going to build it.”
At press time, Canada Lithium had 252.7 million shares trading at $0.64 for a market cap of $161.8 million.