Lithium One Inc.
Lithium is already a major player in the industry of lightweight and paper-thin electronics that tuck neatly into pockets, purses and cases. But the real lithium boom is still approaching according to an informal industry consensus. Many say 2015 will be the real coming out party for this lightweight metal used to make lithium-ion batteries that power cutting-edge technologies such as smart phones and tablet computers.
It’s also used to power hybrid and electric vehicles, which is a market that is popular in name, but still developing and expected to mature over the next decade. Lithium also has exciting new applications in non-traditional energy, such as backup and storage batteries for solar panels and wind turbines. For all these reasons, Lithium One Inc., a Canadian-listed junior mining company, plans to begin large-scale lithium production in 2015 to capitalize on the already-thriving but still developing lithium market. The company has two lithium-laden properties, including their flagship project in Argentina, which is also rich in potash.
Sal de Vida
The Argentinian property is in the country’s northwest side on the Salar del Hombre Muerto (“salar” is Spanish slang for dry lake bed). In 2009, Lithium One acquired the eastern half of the lakebed, which it calls Sal de Vida – Spanish for “salt of life.” The western part of the salar is owned by FMC Corp. and has been producing lithium since 1997. This is the only commercial lithium producing salar in Argentina and accounts for more than 12 percent of global lithium production annually. As the industry saying goes, the best place to find a good mine is next to an already producing mine; such is the case with Sal de Vida.
“We are currently in the prefeasibility stages,” says Patrick Highsmith, president and COO. “We and our partners have invested approximately $16 million so far in this project, and it is one of the largest resources of potash and lithium on the planet. Just to put it into perspective, we have drill tested 170 square kilometers down to approximately 120 meters depth. In that area, we have identified an inferred resource containing about 5.4 million tons of lithium carbonate equivalent, which is about 50 years worth of the current global demand.”
The company released its independently authored preliminary economic assessment (PEA) in October 2011. The PEA reported a $1.066 billion net present value and a 28 percent internal rate of return, on a pre-tax basis at an 8 percent discount rate. Lithium carbonate, which priced around $2,000 per ton in 2000, is now around $5,000 per ton. The property also holds 21.3 million tons of potash equivalent, which will be an important co-product. However, as Highsmith explains, the lithium is the main draw of the project, not only to Lithium One, but to its Korean partners, as well.
“An important element of what we’ve done at Sal De Vida is the partnership we have formed with a South Korean consortium, who will earn 30 percent equity in the project,” Highsmith explains. “They will own no stock in Lithium One itself, only project equity; and they are earning their interest by funding the $15 million budget to complete the feasibility study.”
The consortium is headed by KORES, the South Korean government’s mining company, which scouts natural resources to fuel the country’s economy. LG International and GS Caltex round out the consortium. LG International specializes in natural resources exploration and development projects and is the trading company for the LG Group, including leading global lithium battery maker LG Chem. GS Caltex is one of the largest energy companies in Korea and is jointly owned by the Korean conglomerate GS Holdings Corp. and Chevron.
“So far, these companies have injected about $10 million of the $15 million budget into Argentina,” Highsmith says. “The partnership is about stability of supply. Korea recently surpassed Japan as the leading manufacturer of lithium batteries. They need lithium for making batteries, and they are sourcing raw material for their supply chain. This led them to look for a partner, and we first met almost two years ago.”
Lithium One and its partners are intent on building and operating its mine at Sal de Vida. Not only will its international partners fund their share of construction, but the Korean consortium will also assist the junior company by securing a debt facility for project construction. Perhaps most importantly, the Korean companies will also be purchasing 30 to 50 percent of the lithium production. According to the PEA, the project makes real economic sense because of its ability to produce low-cost lithium and potash, coupled with their expected value increases
“We are very much focused on developing this resource,” Highsmith says. “It’s not like we are proposing a giant copper mine where the capital expense may be well over a billion dollars. The capital cost here is $356 million, including a 20 percent contingency, to build a lithium and potash mine. We are confident that this quality project with such quality partners is a winning formula for future production.”
Sal De Vida is unusual because the lithium and potash is hosted in a brine, which means it’s a liquid resource; so in many ways it’s more akin to producing oil rather than hard minerals such as copper. The brine is pumped from shallow depths and allowed to bake under the Argentinian sun, evaporating most of the water. The production includes little drilling, no blasting, and lower energy costs. It is a greener mining method that has caught the eye of some green and new energy-focused investment funds that typically shun the mining industry.
As it refines its process for commercial scale, the company has been producing small amounts of lithium and potash from a pilot-scale plant on the property. The overall timeline has construction beginning in 2013, commissioning and possible early production in late 2014 and the first major production year in 2015.
James Bay
Very much to the north of Sal de Vida, located in Canada’s Quebec, Lithium One owns a lithium-pegmatite property that it acquired in 2007. It contains 12 million tons of 1.3 percent lithium oxide in the indicated category and 11 million tons of 1.2 percent lithium oxide in inferred resources. Unlike Sal de Vida, the James Bay deposit sits in hard rock that requires conventional mining.
The near surface deposits at James Bay will require drilling, blasting, and crushing to extract the lithium from pegmatite, a crystalline rock similar to granite. The higher cost comes in part from the power and natural gas needed to heat the lithium concentrate to high temperatures. However, Highsmith explains Quebec has great potential for hard rock lithium production because of its excellent infrastructure and low-cost electrical power.
Though the process is more involved, it has caught the eye of the Australian-based Galaxy Resources Ltd., who has joined as Lithium One’s earn-in joint venture partner. Galaxy is funding the feasibility stage, which began in earnest in summer 2011. This will earn Galaxy, who successfully operates a lithium mine similar to James Bay, a 70 percent interest in the project. The feasibility study is expected to finish by late 2012 and will most likely outline an open-pit mine. Highsmith explains that James Bay is not its flagship property, but because the lithium market may surge, it is a good investment for the company.
“Most of our investors invest because of our brine property and they view the hard rock property as a bonus on top of everything else, so our priority is definitely going to be on the low cost production – Sal de Vida,” Highsmith says. “But our preliminary view is that James Bay can still be profitable. You have to think that if the projected rise in the demand for lithium comes to pass, then the world will need lithium from many of these new projects. Can the leading current producers meet all that new demand? We believe there is room for a couple of new mines to come in, especially quality assets like ours.”