The last time RGN spoke to Nemaska Lithium, the TSX-listed miner had released an updated feasibility study for its Whabouchi project in Québec and was working hard to secure project financing for the globally significant source of lithium hydroxide and carbonate. Nemaska’s most notable achievements to date include the production of a large bulk sample of 1,100 tonnes of spodumene concentrate and the construction of a Phase 1 processing plant, which has been used to transform spodumene concentrate to high purity lithium hydroxide. The company has also produced over 50 tonnes of battery grade lithium hydroxide for one of its offtake partners in the battery chemicals space.
By the end of May 2018, the company was pleased to announce the completion of a C$1.1 billion financing package – a huge achievement considering the size of the package and current financier sentiments towards the lithium market.
The project financing is comprised of C$454 million in equity, which included a $280 million public offering through a bought deal, an $80 million private placement with Ressources Québec, and most notably, a $94 million private placement from world leading Japanese technology investor Softbank.
“This is the first time that this very high-profile group has invested in a mining project,” says Nemaska president and CEO Guy Bourassa. “They realise that it’s very important to secure a good source of supply in the battery chemicals industry and for us it’s a good stamp of approval of our process and the quality of the asset we are developing.”
Nemaska also signed a US$150 million streaming facility agreement with Orion Resources Partners, under which both parties will share 14.5% of future production of all lithium products. The remaining $350 million of the project financing is a senior secured bond offering on a five-year term that bears an 11.25% interest rate per annum.
Bourassa admits that undertaking project financing was a huge challenge from the outset, particularly as conventional banks and natural resource banks – the company’s first choice for project financing – continue to be cautious of the lithium market, believing it to be opaque.
“In the end we accepted a Nordic bond offering and had to go through about five different due diligence reviews by international third-party firms, which were all positive.
“Nevertheless, completing project financing was very challenging because you have to demonstrate to a lot of people that not only do you have a good natural resource and a good mine, but also that you can execute the project and sell the end product,” he says.
On that front, Nemaska has been able to sign a number of offtake agreements which have secured the sales of 94% of its expected capacity. One of these recent deals is with next generation lithium-ion battery manufacturer Northvolt, who will take up to 5,000 metric tonnes per year of lithium hydroxide from Nemaska’s commercial plant over five years.
“We were very impressed by Northvolt, who is building Europe’s largest Gigafactory. They were aware from the very start of their project of the need to have a solid supply of raw material to make the cathodes and batteries. They impressed us and likewise they were impressed with what we could offer.”
Nemaska’s ability to secure a string of offtake agreements is a direct consequence of the company’s decision three years ago to build a Phase 1 demonstration plant in Shawinigan, according to Bourassa.
“That is the only reason we were able to convince third parties and engineers of our capacity to fulfil offtake agreements and produce at the costs that we are projecting and the quality we say. The only way we convinced them was by the fact that we were already producing lithium hydroxide from spodumene concentrate at the Phase 1 plant.”
With project financing and offtake agreements with five partners secured, Nemaska has been able to move swiftly into the construction phase of the spodumene mine and the full-scale plant at Whabouchi.
The company had already raised over $125 million in equity between July 2016 and June 2017 to advance construction of the mine and detailed engineering of the project.
“We slowed down [construction work] during the winter waiting for the close of project financing at the end of May, but about 10 days later our construction teams were back onsite. Most of the long-lead items for both sites are now ordered and we fully expect to meet the schedule.”
Nemaska’s construction partners include ABB for electrical engineering services, DRA Met-Chem for engineering design of the mine and concentrator, tailings and waste advisors SNC-Lavalin and Hatch Engineering, who provide engineering design assistance for the electrochemical plant.
“We are very satisfied with our construction partners, they are very dedicated,” says Bourassa. “It’s a major project in Québec and a very major project in the lithium space around the world, so they are all very excited to have their name attached to us and the project and are all keen to make it a success.”
The construction team is currently working at full speed and the mine is on track to begin producing spodumene concentrate in the second half of 2019 with lithium salts production set to commence in the last half of 2020.
Nemaska’s ability to develop spodumene concentrate into lithium hydroxide and carbonate in-house through its processing plant provides a major cost advantage over its competitors in the lithium salts industry, particularly the Chinese producers.
A large majority of global spodumene concentrate is produced in Australia before being shipped to China for conversion into lithium chemicals, a trade which incurs escalating costs for the Chinese producers when you consider things such as export tax and shipping fees over such a long distance.
“Being vertically integrated in Canada means we are in the same taxation jurisdiction. There are no taxes between the mine and the conversion plant and our transportation costs are significantly lower, so our base cost for the raw material is much lower than the Chinese.”
Nemaska’s lithium hydroxide will also be cost-competitive with the major brine producers from the famous lithium triangle in Latin America.
The likes of SQM and Albermarle have long been recognised as amongst the world’s lowest cost producers, however to make lithium hydroxide they must first make lithium chloride extracted from the brine, before making lithium carbonate only to then re-process the material into lithium hydroxide.
“Our electrochemical process takes the product directly from lithium sulphate to lithium hydroxide. We save one step that for the brine producers costs between $1-2,000 a tonne. Our cost of producing carbonate is slightly higher than the cheapest brines, but our cost of hydroxide is roughly $500 to $1,000 cheaper than the cost of the brines.
“The process helps us compete with the low cost brine producers and of course the fact that we are integrated gives us an enormous advantage on the spodumene convertors.”
First Nation engagement
The Whabouchi project has been estimated to have an initial 33-year mine life by Nemaska, and as such the development is likely to have a lasting impact in the area where the mine is based. In fact, Whabouchi is the only mining project in the Eeyou Istchee James Bay region that is within driving distance from a Cree community.
Therefore, Nemaska has had to think very carefully about the potential environmental and social impact its project might have on the local First Nation community. As a result, the Cree Nation Government and Cree Nation of Nemaska have been actively involved in project proposals since 2009.
For example, after a public consultation Nemaska decided to relocate its tailing and waste rock pile facilities after the Crees expressed their concern about the effects of dust and noise on a nearby seasonal hunting and trapping camp.
“We have also been working with the Crees to try and develop business opportunities, but also offering training ahead of potential employment at the mine.”
Constraining lithium supply
Turning to the current outlook in the lithium market, increasing demand for lithium hydroxide and carbonate from the OEM battery and electric vehicle (EV) industries into the 2020s is not being matched with increasing supply, which is a cause for concern according to Bourassa.
Lithium stocks and the equity market has endured a difficult six months, which is likely to have a knock-on effect in terms of project financing.
“I think that several projects that were aligned to come online before 2025 are going to be delayed, and that leaves very few companies like us with full project financing trying to get to the finish line.”
Considering these potential headwinds in the industry, the importance of Nemaska’s project becomes further elevated, particularly as there is a lack of new lithium hydroxide production coming online.
With its fully funded Whabouchi project, Nemaska is set to provide some relief to a tightening lithium chemicals market in the early 2020s, nourishing the needs of a growing number of OEMs in the large-scale battery and EV industries.
“We definitely are going to be a large player in the short term as far as lithium hydroxide of battery grade is concerned,” says a confident Bourassa. “We will be the single largest hydroxide facility in the world with 36,000 tonnes of capacity. That will give us about 10% of the market for hydroxide and we intend to get that and keep it there.”