Other people’s money. Not only does Lithium One (TSXV:LI) have what might be one of the purest sources of lithium in the world; the company recently reported what it described as favorably low magnesium and sulphate content at their Sal de Vida brine project in Argentina, but some well timed agreements have minimized the company’s requirements for additional fund raising to capitalize on the project.
In early June of last year Lithium One entered into a joint venture earn in agreement with Korea Resources Corporation (KORES) to develop their Argentinian Project. The arrangement required KORES to fund up to US$15 million to complete a Definitive Feasibility Study and to provide a completion guarantee for Lithium One’s share of the debt portion of project development. KORES then brought more to the table when it entered into a consortium with GS Caltex and LG International, two leading battery and energy companies in Korea, to share equally in the 30% ownership stake.
With things in full swing, Lithium One, early last month, reported its first independent lithium and potassium resource statement for its flagship Argentinian project. The inferred resource estimate, prepared by E.L. Montgomery and Associates, includes 5.44 million tonnes of lithium carbonate equivalent and 21.3 million tonnes of potash equivalent. Lithium One’s property is adjacent to FMC Corp.’s lithium brine operation, the source of more than 15% of the world’s production of lithium, in the eastern part of the same Salar.
Lithium One’s second project, a spodumene hard rock project in James Bay, Quebec exhibits a spread-the-risk methodology similar to the one used on their Argentinian property. In February, the company announced a joint venture agreement with Galaxy Resources (ASX: GXY), an Australian listed mining company, whereby Galaxy can acquire up to a 70% interest in project in Quebec through earn-in conditions including $6 million in payments and the completion of a feasibility report. Galaxy owns and operates the Mount Cattlin mine in Western Australia which is currently producing spodumene concentrate. The MiningFeeds.com connected with Lithium One’s President and CEO Patrick Highsmith recently to discuss the company’s future.
You have two projects, your flagship brine project in Argentina and a “hardrock” project in Canada, can you share with us some of the key points about each project and what makes them attractive from a development perspective?
Our flagship Sal de Vida brine project is located at Salar del Hombre Muerto in north-western Argentina. This area of South America produces about 60% of the world’s lithium annually, from two commercially productive lithium salars: Salar de Atacama in Chile and Salar del Hombre Muerto where our neighbour, FMC Corporation, produces about 15% of the world’s lithium. So we are developing the eastern half of this dry lake bed, while FMC expands their producing operation the western half.
From our work to date, the Sal de Vida brine is emerging with all the positive characteristics of the world-class commercial brine deposits in the region, including a large volume of near-surface brine containing high concentrations of lithium and potassium, with low concentrations of impurities such as magnesium and sulphate. This was quantified in our recently announced NI 43-101 compliant inferred resource estimate, totaling 5,440,000 tonnes of lithium carbonate equivalent and 21,300,000 tonnes of potash equivalent, placing the project as one of the largest and highest grade undeveloped lithium and potash projects in the world. Furthermore, the resource covers only about two-thirds of the project area known to contain high-grade brines at surface, so we have significant expansion potential to the north and south, as well as at depth. The project is road-accessible with a gas pipeline, rail, and power line nearby. Importantly, we also have joint venture partners who are funding up to US$15M to complete the bankable feasibility study in the next year, plus securing the project debt facility for mine construction including Lithium One’s share, and who have committed to purchasing at least 30% and up to 50% of lithium production.
Our James Bay project is a spodumene pegmatite lithium deposit in north-western Quebec. Last fall we announced our first open pittable resource estimate including indicated resources of 11.75 million tonnes at 1.30% lithium oxide and inferred resources of 10.47 million tonnes at 1.20% lithium oxide. While the project has significant growth potential, the indicated resource is already similar in size and grade to Galaxy Resources’ Mt. Cattlin lithium pegmatite deposit in Australia, which recently began producing lithium concentrates and selling them into the rapidly growing Chinese market. In fact, the similarities between the deposits and the success Galaxy has had in developing Mt. Cattlin led us to form a joint venture that sees Galaxy earning a 70% interest in James Bay in exchange for both cash and funding the project through bankable feasibility within two years. Galaxy are aggressively expanding their operations to include lithium carbonate production in China and potentially even lithium battery production, so we believe they will make for strong partners in the development of James Bay, which will allow us to focus even more attention on our Sal de Vida project.
Your Sal de Vida brine project in Argentina is adjacent to FMC Corporation’s Fenix operation – how does your project compare?
FMC’s Fenix operation is a fully permitted lithium operation. The western half of the Salar del Hombre Muerto basin has been host to the Fénix lithium brine operation for about fifteen years. Our Sal de Vida project occupies the eastern half of the salar basin, in a 100% controlled land package of about 385 square kilometers. And while our side of the basin differs somewhat geologically from the FMC side, we are seeing the chemistry and scale of the brine emerge as very similar. The average grade of 695 mg/l lithium reported in our recent resource estimate is very close to the average reported by FMC, and while they have estimated reserves of approximately 4 million tonnes of lithium carbonate equivalent, we currently have an inferred resource of just over 5.4 million tonnes contained lithium carbonate equivalent. We have confidence that as we further define the key economic parameters this year they will continue to be similar to this neighboring project.
It’s obviously a little premature to try and determine the exact cost of production for each project but could you comment on the economics?
All indications to date are that the Sal de Vida Project will have very positive economics due to its favourable chemistry, large scale, and strong jurisdiction. Our plans for Sal de Vida are to recover lithium carbonate and potash from the brine using a solar evaporation circuit, which is typically the lowest cost method of commercial lithium production and allows for the recovery of by-product potash. The adjacent Fénix operation historically recovered only lithium and therefore used an ion-exchange method; however it is now adding evaporation ponds that will allow the recovery of potash.
We recently announced the start-up of the year-long on-site evaporation testing to produce lithium carbonate at a pilot scale and validate the process as designed by our consulting engineers. We have already recovered several batches of lithium carbonate and potash from the pilot plant. Results show that we are well on the way to matching the bench-scale tests that indicated our evaporation circuit could result in concentrations of 2% lithium and more than 4% potassium in the evaporation ponds, well beyond that necessary to recover lithium carbonate and potash from conventional commercial processing plants. The pilot plant is also achieving good separation of the waste products, including magnesium, sending a good signal that the evaporation upgrading will exceed expectations and result in a low-cost process design. It’s important to note that some the world’s largest lithium deposits are uneconomic mainly due to very high concentrations of magnesium relative to those of lithium, but at Sal de Vida we are fortunate to have much lower concentrations of magnesium. In fact, Salar del Hombre Muerto is known for having one of the lowest magnesium to lithium ratios of any salar in South America. And finally, our high concentration of potassium in the brine translates to the recovery of potash (as potassium chloride) which we will look to market locally to achieve a significant by-product credit. Given the considerable size and quality of the potash resource, we are even examining the potential economics of larger-scale potash production.
For hard rock projects like James Bay the processing, and therefore the economics, are completely different. These deposits use fairly conventional mining and milling to produce a concentrate, which then requires several steps including roasting and leaching to produce lithium carbonate. The results are that total costs to market as lithium carbonate can be as much as twice those from brine operations. However, with a good combination of low-cost attributes, the right hard rock project can certainly be economic; and at James Bay we believe we have many of these attributes. To start with, the project lies in one of the most favourable mining jurisdictions in the world. Quebec is a world leader in incentivizing mineral exploration and development and it boasts some of the lowest cost power and best infrastructure in the mining world. James Bay is located on a paved highway and cross-cut by a major power line. The deposit is at surface and amenable to open-pit mining, and the large grain size of the lithium minerals and lack of penalty elements contribute to lower-cost processing. The deposit is also higher grade than others recently going through feasibility. In addition, our new partners, Galaxy Resources, have demonstrated that the James Bay deposit may be amenable to lower cost dense media separation instead of flotation. We have already produced battery grade lithium carbonate from James Bay samples at the lab scale, and we are taking advantage of a wide array of expertise and Galaxy’s recent lithium mine commissioning experience to aggressively focus this project on commercial success.
All the stakeholders in the project, including the First Nations communities, are taking a keen interest in nurturing us to success. Given such broad support and favourable technical characteristics, we are confident the James Bay Project can be commercially successful.
What are the estimated capital costs associated with building a lithium brine processing facility in the area?
Well, FMC built the neighboring Fénix Project in the mid 1990’s with somewhat different technology, and with less infrastructure in the area, for approximately US $150 million. An evaporation based processing plant for recovering lithium and potash, similar to Salar de Atamaca in Chile or Silver Peak in Nevada, would function differently than FMC’s lithium-selective ion exchange process, but we believe the capital costs would be similar. We have seen capital cost estimates for other lithium and potash brine projects ranging from US $140 million to US $250 million. We haven’t published a PEA or Scoping Study yet but we expect to issue guidance on capital cost estimates for Sal de Vida towards the middle of the year and we believe the numbers will be consistent with that range.
You have already assembled some impressive partners for the Sal de Vida project – could you talk a little bit about these relationships and what they mean to Lithium 1?
A key component of the economics of any new lithium production is securing a buyer. Lithium is not traded on an open market; like many industrial minerals it is sold by contract. Therefore, without having customers arranged a project is unlikely to move forward. Historically there has been a very small group of large companies controlling the production and sale of lithium products. However, there is a forecast increase in demand for lithium in 2020 of between 2 and 5 times that of today, driven mainly by the growing lithium battery market. There appears to be a lack of confidence in the current supply chain with respect to its ability to adapt to a world with large scale lithium powered electric vehicles and still provide lithium when and how it is needed. As a result, several major end-users of lithium sought us out to explore a relationship that could give them stability of supply while at the same time deferring risk for our shareholders. These types of relationships open the door to this complex closed market for potential new producers by entering into off-take agreements in exchange for funding at the resource and feasibility stages.
In June we announced just that kind of strategic partnership for the Sal de Vida project with three Korean companies: LG International, Korea Resources Corporation (KORES), and GS Caltex. Korea has committed to the aggressive development of its lithium battery industry, so we are thrilled to be partnering directly with the government and leading international battery and energy players. LG International is the trading arm of the giant LG Group, which includes one of the largest batter makers in the world, LG Chem. GS Caltex is a 50% Chevron owned joint venture company with the Goldstar group; they are one of Korea’s leading energy companies and have recently announced direct entry into the lithium battery sector themselves.
The earn-in agreement includes an estimated US $15 million to advance Sal de Vida to feasibility, which means we don’t have to go to the market for those dollars. More importantly, we have structured an off-take agreement for a minimum of 30% and up to 50% of our lithium products, which as I mentioned is a key component of moving the project forward. Furthermore, our agreement includes a provision for securing the debt financing when we get to the mine construction phase. Being able to secure these high-caliber partners under these terms for only a 30% stake in the project, at a time when we hadn’t yet completed a resource estimate, spoke volumes about the quality of the Sal de Vida project. With this agreement in place we are able focus on advancing the project with the confidence that given a positive feasibility study, we will be able to develop the project and market our product.
Are you standing pat in 2011 or are you looking at any additional partnerships in 2011 for either of your projects?
We aren’t a big enough company to “stand pat” on anything. We are moving faster and faster every day it seems. But, in regards to the project partnerships, we believe the stakeholders in the Company and the projects are well served by the existing relationships. Both projects are funded all the way through feasibility. We have secured off-take of up to 50% of the lithium production from Sal de Vida, and we have excellent market access for the James Bay lithium through Galaxy Resources. Our focus is now on delivering the results at Sal de Vida, where we are the operator and will maintain 70% project ownership, and lending support to Galaxy as they get their feet on the ground in Quebec.
It is true, though, that we always have our eyes on the market. It is not many junior companies that are on the cusp of mine building decisions on two of their projects almost simultaneously. I would say that some of the most exciting opportunities for us may be with regard to the potash production from Sal de Vida. We have already been approached by some groups with interest in our potential low-cost potash production. We retain all the marketing rights for the potash component of production, so we will certainly be looking at the best way to extract value from the world’s need for fertilizer. We are also continuously looking at new opportunities in the so-called energy metals, but so far, we have elected to stay focused on these two sector-leading projects.
How is the feasibility study progressing at Sal de Vida?
When you ask yourself, what constitutes a successful feasibility study; you have to say we are faring very well. We’ve made exceptional progress over the last 18 months. We have defined high-grade lithium and potash in near-surface brines over an area of more than 260 square kilometres. We subsequently delineated one of the largest and highest grade lithium and potash resources in the world – potentially economic in grade and scale – over just two thirds of that area. We have demonstrated the amenability of that resource to conventional processing technology. We have even completed a small scale “test mine” by pumping a continuous bulk sample from one of our wells into our pilot plant, which is producing both lithium carbonate and potash at a small scale. That will continue through the third quarter, providing information on lithium and potash recoveries and product quality. Over the next quarter, the pump tests will provide critical information on the behavior of the aquifer and constitute our large-scale test of extractability of this brine, which will be used to model the long-term production scenario. Given success there, we will have all the major technical components required to accurately assess the engineering and costs of a major mine development. The preliminary economic assessment and/or scoping study due in the next three to four months will be a good progress report for us, and we expect to see very “good marks” when that progress report comes out.
This article appeared in 5 Lithium Stocks to Watch in 2011 – Part 1 – CLICK HERE for the article.