Lithium Americas Completes Definitive Feasibility Study

Lithium Americas (TSX:LAC) released a definitive feasibility study for its main property, the Cauchari-Olaroz in Jujuy, Argentina. The Cauchari-Olaroz property, located on the Puna Plateau, covers approximately 82,500 hectares and includes a portion of two adjacent salars, Cauchari and Olaroz.  

Juan Marcelo Paz, a mining surveyor based in Argentina, told Lithium Investing News that the country’s political context may be a challenge in the future, commenting, “they have a pilot plant and have been successful [in the] recovery of lithium. I think the technique is not a problem, the only difficulty is the policy of the country where the [government] can change the rules of the game.”

Excluding Bolivia, the Cauchari-Olaroz is considered the third-largest lithium brine resource in the world, following the Salar de Atacama in Chile and the Salar del Hombre Muerto in Argentina. Lithium Americas has 30-year land use agreements with aboriginal communities under which it will provide these communities with employment priority and training programs, create joint environmental monitoring programs, and help develop local service providers.

Production

Production of lithium carbonate at Cauchari-Olaroz is expected to begin in 2015. For the purposes of the feasibility study, Lithium Americas segmented the development into a two-stage process. In the first stage, a lithium carbonate facility and a potash facility will be constructed. Potash is considered a very important revenue source for the project’s economic feasibility and will be produced as a by-product of lithium brine processing.

At the end of 2016, when the initial production stage is complete, lithium carbonate is anticipated to represent approximately 88 percent of the project’s total revenue, with potash contributing the remaining 12 percent. The second stage is not expected to commence until 2018, and will be the subject of a separate study that Lithium Americas plans to undertake.

Results

The project indicates proven and probable reserves sufficient to operate at a production rate of up to 40,000 tonnes of lithium carbonate per year and up to 80,000 tonnes of potash per year for 40 years. While the total projected cash costs for the lithium carbonate are estimated at $1,876 per tonne, the operating margin benefits of potash reduce the net cash operating costs to approximately $1,332 per tonne.

The relatively low costs are a function of beneficial infrastructure, logistics, and reasonably close proximity to a natural gas pipeline. Energy represents one of the largest cost elements in lithium carbonate production, and access to an inexpensive energy source is considered a significant benefit.

Potential impact

Even as Lithium Americas is progressing on its advanced-stage project, other brine and hard-rock lithium projects may also become dynamic parts of the evolving lithium production marketplace. Investors will note that the existing four-company lithium production oligopoly has the capacity to increase its output, and other advanced-level global lithium projects are developing lithium resources. Rio Tinto’s (LSE:RIO,NYSE:RIO,ASX:RIO) Jadar deposit in Serbia might also merit consideration. It is one of the largest undeveloped hard-rock lithium sources in the world, and Rio Tinto believes it has the “potential to supply more than 20 percent of global [lithium] demand.”

The addition of a new brine producer with significant reserves will be of interest to all industry stakeholders. Lithium is a global commodity, although Lithium Americas’ feasibility study indicates that it is expecting to market primarily within Argentina and Brazil. Lithium price is a critical factor as it invariably determines which projects are commercially viable and able to attract investment. Yet supply is as relevant to price as demand is. As global demand is currently approximately 150,000 tonnes and expected to grow, it will be interesting for investors to observe the supply and demand relationship after Lithium Americas begins production.

Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.