Beginning in 2013, the lithium market will welcome a handful of emerging companies with newly producing projects, including Canada Lithium (TSX:CLQ), Lithium Americas (TSX:LAC) and Orocobre (ASX:ORE,TSX:ORL). While both Orocobre and Lithium Americas are advancing projects in lithium-rich Argentina, Canada Lithium is on track to become its namesake nation’s only lithium producer.
Canada Lithium: reviving a past-producer in Quebec
Canada Lithium’s Quebec lithium project is located in one of the most mining-friendly provinces in the world. A past producer, the deposit was first mined between 1955 and 1965 and supplied both spodumene and and lithium carbonate products to the North American market. Commercial production is slated to commence in the first quarter of this year. The company expects to be in full production by October 2013, with a planned annual production rate of 20,000 metric tons (MT) of battery-grade lithium carbonate — nearly 12 percent of global supply.
Canada Lithium began construction of the project in September 2011 and initiated operations at its lithium carbonate processing facility last month. A feasibility study on the project shows a pretax net present value (NPV) of $190 million and an internal rate of return (IRR) of 22 percent. Proven and probable reserves are estimated at 17.1 million MT of lithium carbonate.
The project’s North American location gives it a premiere position in Canadian and US battery markets, but for now its products are destined for Asia. In November, Canada Lithium signed a five-year offtake agreement with Tewoo-ERDC, one of China’s largest commodities traders, for the majority of its lithium production.
Given Rockwood Holdings’ (NYSE:ROC) failed acquisition bid for Talison Lithium (TSX:TLH), Dundee Capital analyst Mansur Khan believes Canada Lithium could be a prime alternative takeover target for the industry major as it looks to geographically diversify its holdings, Mineweb’s Kip Keen reported.
Orocobre’s Olaroz project
Orocobre’s Olaroz lithium-potash project is located in Argentina’s Puna region — a hotspot for lithium brine reserves. The Olaroz project is a joint venture between Orocobre (66.5 percent), Toyota Tsusho (TSE:8015) (25 percent) and the Jujuy government (8.5 percent). In July 2012, Orocobre received final governmental approval to commence construction of the project.
A definitive feasibility study (DFS) completed in May 2011 shows an after-tax NPV of $449 million (at a discount rate of 7.5 percent) when the value of the potash by-product is included. Cash operating costs are projected at $1,230 per MT of lithium carbonate when potash is included as a by-product. The DFS also includes a resource estimate of 6.4 million MT of lithium carbonate and shows a mine life of more than 40 years based on a previously planned annual production rate of 16,400 MT per year (mtpa). The planned annual production rate was recently revised to 17,500 MT of battery-grade lithium carbonate due to an increase in the expected brine grade.
Last month, Orocobre’s Japanese partner helped the joint venture secure $192 million in debt financing from Mizuho Corporate Bank. With funding in place, construction commenced at the end of 2012 and Orocobre has targeted the second quarter of 2014 for first production.
Lithium Americas’ Cauchari-Olaroz project
Lithium Americas’ Cauchari-Olaroz lithium-potash project neighbors that of Orocobre in Argentina. In December, the company received final approval from the Jujuy provincial government for the project’s development, including a 20,000-mtpa lithium carbonate processing facility and a 40,000-mtpa potash processing facility.
A company press release notes that the Cauchari-Olaroz deposit hosts enough proven and provable reserves (more than 2.7 million MT of lithium carbonate) to operate at an annual production rate of 40,000 MT for 40 years. A DFS on the project shows net cash operating costs of $1,332 per MT of lithium carbonate (when potash is included as a by-product), giving it the potential to be one of the lowest-cost operations in the industry. The DFS has also determined a pretax NPV of $738 million with an IRR of 23 percent.
Currently, Lithium Americas is working toward securing project financing and offtake agreements in order to commence construction this year. Mitsubishi (TSE:8058) and Magna International (NYSE:MGA) account for about 17 percent of outstanding shares in the company and have offtake arrangements for the option to purchase up to 37.5 percent of the project’s lithium production — contingent on financing up to 37.5 percent of capital costs. If all goes well, Lithium Americas plans to bring the brine mine — believed to be the world’s third-largest lithium brine resource — into production by 2015, with an annual production rate of 20,000 MT.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company or commodity mentioned in this article.
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