Lithium Hydroxide Production in Quebec: Interview with Nemaska Lithium

Lithium Investing News (LIN) recently spoke with Guy Bourassa, president and CEO of Nemaska Lithium (TSXV:NMX). In the interview below, Bourassa discusses the company’s Whabouchi deposit and the emerging market of lithium hydroxide for the rechargeable battery industry.

LIN: What makes Whabouchi a world-class lithium deposit?

Guy Bourassa: The grades, the unique lateral extension and the size of the deposit. We’re talking about more than 25 million tonnes of measured and indicated resources at 1.49-percent lithium oxide. It’s the largest measured resource in the world, second only to the Greenbushes operation in Australia.

The big difference in the Whabouchi deposit is that unlike usual pegmatites, it is a very continuous lateral extension that extends for over 1.2 kilometers. Globally, pegmatites around the world are usually small, scattered dikes that have lateral extensions of no more than 70 meters, maybe 100 meters at the most, and a thickness averaging not more than 10 meters — so a lot of dilution and a high stripping ratio when you mine. In the case of Whabouchi, we have one large main dike that is over 1.2 kilometers long with a thickness of about 85 meters at the center, and at 520 meters at depth, it is still 45 meters thick. In addition, it is purely a spodumene deposit, with 96 percent of the lithium oxide within spodumene — so simple metallurgy with very high recovery rates. Of course, it’s going to be an open-pit operation and there is not more than 1 to 1.5 meters of overburden. That’s what makes it unique: easy access, easy mining, low stripping ratio and no dilution.

LIN: A common misconception amongst resource investors is that brine deposits are far more economical than hard-rock deposits, but I’ve heard you say otherwise. Can you explain to our investor audience the upside of spodumene over brine?

GB: At first glance, someone might think that because of the natural evaporation process it’s obviously cheaper to obtain lithium from brine; however, natural evaporation is a long process that can take between two and four years to go from deciding you want to produce one tonne of additional material to being able to sell that additional tonne to your client. So, the brines cannot react rapidly to emerging markets or unexpected increases in demand. To give you an example, last year FMC (NYSE:FMC)) missed its target production by over 52 percent because of inclement weather and technical problems. They don’t know how generous nature has been until the end of the year when they do their harvesting.

When you look at the statistics, between 2009 and 2011, brine producers together had over 70 percent of the overall supply of lithium compound. In two years, they lost 15 percent of their market share to spodumene deposits because they were not ready to increase their capacity of supply. So they forever lost that market share because the hard-rock operations, mainly the Greenbushes operation expansion, were able to rapidly react to the global increase in lithium demand. Obviously a hard-rock mine is not affected by temperature, and at a mine you can rapidly increase production by adding some loaders and crushers, so within, say, six months, you can answer additional demand from your client.

A brine deposit is a live thing, so it’s not as easy as it may seem to harvest the lithium unit. The concentration of lithium in a specific salar varies laterally and in depth, and it moves with the water that flows into the salar. With a spodumene deposit, when you’ve done your drilling, you know it’s not going to move. If the grade is 1.4 percent, it’s going to be 1.4 percent when you extract it, and the contaminants are no different from one meter to another, so it’s a lot easier to do your planning.

All the brines have different chemistries and it’s a very long production process. If you are addressing added demand for battery-grade lithium, then you have to add polishing steps to your production process. So the initial costs associated with getting lithium out of the brine might be lower, but when you need to improve the quality and remove the impurities, then you’re nearing the same price as a spodumene deposit.

If it is that much easier and cost effective to obtain lithium from brines over hard rock, why would Rockwood Lithium (NYSE:ROC), the second-largest supplier of lithium compound from brine, make an offer to purchase a spodumene deposit from Talison Lithium (TSX:TLH)? The takeover bid unveiled their understanding of the lithium world: if you want to be a leading supplier, you need to secure a supply that is easy to control, easy to increase and has a constant, known quality of the product.

LIN: The lithium market is highly competitive, with a handful of companies controlling much of global supply. How are you working to position yourself to compete in such a space?

GB: In 2010, we realized that all of the processing facilities for making compounds out of spodumene are concentrated in China, with one single large source of spodumene being Australia. Obviously the market and the clients are looking to geographically diversify their sources, and that’s why we decided to develop our Quebec-based project. We asked ourselves, “what’s the real market?” We decided to enter that really tight market to specifically address the emerging high demand for lithium hydroxide. In order to be competitive with the Chinese we needed to have an advantage over companies in China, in Australia and South America. And the most evident advantage is reliable, low-cost hydroelectricity in Quebec.

We decided to look at ways of making lithium hydroxide directly from spodumene — the conventional method involves making lithium carbonate first and then retransforming that it into lithium hydroxide. We have developed a new, innovative process using membrane electrolysis to make lithium hydroxide directly from the lithium in the spodumene. We have better cost controls for production because we have replaced soda ash as a reagent — which has a highly unpredictable market price — with more stable, long-term priced electricity. So we have a good control on the price of lithium hydroxide production, making our production costs cheaper than most of the producers around the world. That’s how we are positioning ourselves as a world-class leader in the lithium hydroxide market.

LIN: What are the differences between lithium hydroxide and lithium carbonate in terms of applications and market demand?

GB: Talking with potential clients, mainly cathode manufacturers, we learned that they prefer to use lithium hydroxide. The new chemistry commercialized in the past years is evolving towards lithium-iron-phosphate (LFP) cathode material, which has a higher density and a longer life cycle for the same amount of lithium used. I would say the best way of explaining it is if you look through a microscope, the lithium ion obtained in hydroxide is a sphere and the lithium ion in the form of carbonate is a flake with sharp angles. So hydroxide is more suitable for rechargeable batteries because the lithium ions as spheres can more easily move from the cathode to the anode when discharged, and back to the cathode when recharged. The sharp angles of the carbonate tend to break when in motion, shortening the life cycle of the battery. Using lithium in the form of hydroxide increases the life cycle of the battery. Secondly, when you compress all of these ions in a specific volume, it’s easier to fill the gaps between the ions when they are circular than it is when they are sharp, angled plates; that means you have higher density with hydroxide versus carbonate. So the new LFP cathode requires hydroxide and the manufacturers of other cathode chemistries would prefer to use hydroxide if available at the same price as carbonate, which we will be able to provide because we have a lower cost of production.

LIN: What’s your long-term outlook for the lithium battery industry?

GB: It may be taking longer than initially expected, but we are very positive about the growth in the market. As far as hydroxide materials for the battery cathode market are concerned, for the next 10 years we see a 30-percent annual growth rate based on two different market studies. Last week, I was at the fifth World Cobalt & Lithium Forum and I’m more convinced than ever that there is an interesting market evolving for lithium hydroxide. All of this is backed by the increase in the demand for rechargeable batteries for all types of applications.

People tend to look at this market only from the North American perspective, but in China, the market is dictated by politicians. I like to say that because last year, for the first time, more electric cars were sold in China than in the United States. In 2009 and 2010, they sold close to 30 million e-bikes per year in China. If you visit a major Chinese city, there are no scooters with blue smoke polluting the air; they are all riding electric bikes and scooters instead. Do you think e-bikes sold at this level because Chinese consumers are concerned about the environment? No. It’s because somebody at a high level in government decided they would take care of pollution by banning the use of scooters with combustion engines. Market demand was dictated by politicians removing the right to use a scooter with a combustion engine. So, when you consider that the Chinese government has decided that they must have 1 million electric vehicles on the road by 2015, the market cannot do anything but adapt and grow.

LIN: How well do the production commencement timelines coincide for the chemical plant and the Whabouchi mine?

GB: We have decided to build a 500-ton-per-year Phase 1 demonstration plant that we hope to have commissioned in the first quarter of 2014. We are in the middle of the permitting process for the mine and the concentrator. We plan to de-risk the overall capex of the project by building this demonstration plant and have signed an initial sales and collaboration agreement with Phostech Lithium, a Clariant company. We hope to start the construction of the mine in the second half of 2014.

The Phase 1 plant will allow us to make initial sales to Phostech and to have samples to share with potential clients. The intent of the samples is to confirm that our process allows for a homogenous and constant quality of product through normal, continuous operation. We have had discussions with major end users about their needs and specifications. By the end of Q2 2014, we hope to have demonstrated the quality of our product to the major end users around the world to obtain offtake agreements or firm letters of intent for the purchase of product from the large commercial plant. Then we’ll be able to finalize the plants for the larger commercial plant. We are targeting the fall of 2015 to start production at the commercial plant.

LIN: You recently traveled to Taiwan and China. Can you explain the significance of this trip and what positive outcomes you see going forward?

GB: The trip confirmed for us that there is a very interesting market for lithium hydroxide and there are only a few players producing lithium hydroxide. Hydroxide end users have a difficult time obtaining offtake agreements. The reason is very simple. There are only four real producers of hydroxide globally, and two of them, Rockwood and SQM, control the market. These two companies are constrained by the nature of the evaporation process; they do not know how many tonnes nature will have generously given them by the end of the year, so they will not commit to the quantity of product that they can supply a client. The other producers use the conventional process of transforming spodumene into lithium carbonate and then to hydroxide using soda ash — for which costs are unpredictable — as a reagent. So, these producers cannot guarantee sales prices for long-term agreements.

Hence, none of the hydroxide end users are able to obtain guaranteed long-term prices or supply of a certain quantity. This poses a problem for cathode manufactures because they cannot determine how much volume they can produce or at what prices. Now you understand why all of these end users we have met are eager for us to commission the chemical plant. Because we are a spodumene operation as opposed to a brine operation, we can guarantee quantity and because we are using a transformation process that involves reliable, affordable hydroelectricity on long-term contracts as opposed to soda ash, we can give them a price for a given period. So we will be the only supplier willing and able to sign long-term supply agreements with end users. That’s how we believe we will play an important role in that emerging market.

LIN: Thank you for taking the time to speak with me today, Guy.

GB: Yes. Thank you as well.

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

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Lithium Deposit Types: Brine, Pegmatite and Sedimentary