Nemaska Lithium Up 18 Percent on Updated Whabouchi Feasibility

Nemaska Lithium (TSXV:NMX,OTCQX:NMKEF) saw a jump in share price Monday morning following the release of an updated feasibility study for its Whabouchi hard-rock lithium mine and concentrator in Quebec.
Shares of Nemaska were up as much as 18 percent during Monday trading hours, at $0.78. Approximately 3.3 million shares of the company traded hands, about three times the average daily trading volume.
The new feasibility study indicates a 100-percent increase in after-tax net present value (NPV) to $1.19 billion, a 44-percent increase in after-tax internal rate of return (IRR) to 30.3 percent and a payback period of 2.4 years, down from 3.7 years previously.
Capital costs have risen 10 percent, to $549 million, but projected life-of-mine revenues have also increased 33 percent, from C$6.9 billion to C$9.2 billion.
Those increases are the result of a number of changes from Nemaska’s May 2014 feasibility study for Whabouchi. First, there’s the change in location for the project’s hydromet plant from Salaberry-de-Valleyfield to Shawnigan, a switch that’s expected to save the company roughly $20 million. The site is serviced by CN Rail (TSX:CNR), and is close to Hydro-Quebec and natural gas networks.

Improved production costs

Nemaska has also been working hard to optimize its processes for producing lithium end products, bringing production costs down 22 percent, to C$2,693 per tonne (US$2,154 per tonne), for lithium hydroxide and 18 percent, to C$3,441 per tonne (US$2,753 per tonne), for 99.99 percent purity lithium carbonate. As Nemaska CEO Guy Bourassa stated in a conference call held Monday afternoon, that puts the company at “the lowest cost globally,” according to market analysis from Roskill.
“Our new and improved cost of production is the highlight of this report,” said Bourassa in an emailed statement. “We are projecting to be the lowest cost producer of the highest quality lithium compound products.”
While many lithium makers produce lithium carbonate as an initial product, Nemaska has taken a different approach, and is focusing on lithium hydroxide first.
“Lithium hydroxide is emerging as a new chemistry of choice for battery cathode manufacturers because it creates a battery with better power density, longer lifecycle and enhanced safety features,” Bourassa stated. “Our decision to directly produce lithium hydroxide, rather than take the traditional route of producing lithium carbonate and then transforming it into hydroxide gives us a leading cost advantage in the fastest growing segment of all the lithium compounds.”

Lithium price updates

The updated study looks at changes to projected lithium prices as per a report from Roskill. The firm expects lithium hydroxide prices to increase to US$13,210 by 2025, with lithium carbonate prices anticipated to reach US$8,640 per tonne over the same period. However, Bourassa noted during the conference call that Nemaska used more conservative price projections of US$9,500 per tonne FOB for hydroxide and US$7,000 per tonne FOB for carbonate. Still, that amounts to an increase of 19 percent in the price of lithium hydroxide and 40 percent in the price of lithium carbonate used in the 2014 study.
Those numbers are not out of line either. Indeed, some market watchers see prices rising past those levels even faster.
Finally, the feasibility study also considers a more favorable exchange rate for the Canadian dollar, changing to 80 cents to the US dollar versus a rate of 90 cents to the greenback in the 2014 study. Certainly, that contributed to the increase in life-of-mine revenues for the project, since Nemaska intends to sell its end products in US dollars.

What’s next?

Looking ahead, Nemaska will aim to finalize its agreement with Johnson Matthey Battery Materials (JBMM); it will include an upfront payment of US$12 million for Nemaska’s Phase 1 plant. The company has already ordered long lead items and partially completed engineering for the Phase 1 plant.
“This project will launch once the JMBM Deal has closed,” Bourassa said. Nemaska is also looking to sign an offtake agreement with JBMM for product from its commercial plant.
“Finally we are looking to secure additional offtake this year with at least one more large end user,” he added. “This should help us secure better terms for our commercial project financing.” Nemaska still needs to raise $549 million to build the Whabouchi mine. It’s anticipating some support from the Quebec government, but the majority of the project financing is expected to come from private capital.
At close of day on Monday, shares of Nemaska were up 15 percent, at $0.76. The company has traded within a 52-week range of $0.15 to $0.80 and has a market cap of approximately $153 million. Nemaska has gained 72.73 percent year-to-date and 347 percent in the past year.
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Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 
Editorial Disclosure: Nemaska Lithium is a client of the Investing News Network. This article is not paid-for content.