Investment Opportunity: Canadian Lithium Production Just Getting Started
Apr 04, 2023
Apr 04, 2023
Further Development of the Critical Mineral is a Priority for the Government
Lithium is perhaps the most in-demand mineral on the planet. Batteries that store energy for electric vehicles and alternative power sources rely on lithium and are essential to meet global clean energy goals. The supply/demand equation is further impacted by the globally dominant role China plays in the lithium supply chain, controlling much of the world’s mining and processing capacity.
In response, Western governments are prioritizing the development of domestic and friendly sources of lithium and other critical minerals. Last year several nations signed the Minerals Security Partnership, committing to publicly invest in and privately incentivize environmentally responsible resource development. Participating countries include Canada, the United States, Germany, Japan, the UK, and many others.
Most of these countries don’t have significant deposits of lithium, but they provide a ready and committed market for those that do. Canada is primed for the opportunity, with high grade lithium deposits that remain virtually untapped. According to Reuters, Jose Fernandez, under secretary for economic growth, energy and the environment at the US State Department, stated "You will need six times more lithium by 2050 than you use today in order to meet the clean energy goals.” He added that Canada “is an important supplier of critical minerals.” Critical minerals are "a generational economic opportunity for Canada if we get it right," Canada's natural resources minister, Jonathan Wilkinson, said in a phone interview. He spoke from Toronto's annual mining gathering, called the Prospectors & Developers Association of Canada conference.
With Canada’s natural resources minister talking about critical mineral resource development at the leading mining investment conference, now might be a good time to look at the state of lithium mining in the country, from operational mines to projects expected to come online to prospective deposits.
Operational Lithium Mines
This is a pretty small category, indicating the need for more development. Sayona Mining Limited (ASX:SYA) (OTCQB:SYAXF) recently reopened the past producing North American Lithium (NAL) Mine in Québec. The mine has a processing facility onsite, and the company produced its first saleable batch of commercial grade lithium concentrate in March, 2023. Sayona has other projects in Canada that are more speculative, and is engaged in drilling around the NAL site to expand the resource there. Importantly, the company is looking to maximize the productivity of its concentrator operations by processing lithium ore from other sources in the region that are yet to be permitted.
Sayona owns 75% of the NAL mine, with Piedmont Lithium Inc. (NASDAQ: PLL) (ASX:PLL) owning the remaining 25%.
Piedmont’s current market capitalization is around $1 billion, while Sayona is in the $1.2 billion neighborhood.
The other currently operating lithium mine in Canada is the Tanco mine in Manitoba, owned by Chinese-listed Sinomine Resource Group. The Tanco mine has been operating for 50 years and is mostly known for producing tantalum, cesium, and pollucite. Sinomine restarted lithium production there in 2021 and small quantities of lithium concentrate from the mine have so far been shipped to China. Of note, late last year the Canadian government forced Sinomine (and two other Chinese companies) to divest from Canadian critical minerals investments in a national security related move. As of now, Sinomine is still allowed to operate the Tanco mine.
Proposed Lithium Mines
The Canadian government very recently approved the James Bay Lithium Mine Project in Québec, owned and operated by Allkem Limited (ASX: AKE) (TSX: AKE) (OTC: OROCF). There is no currently announced timetable for the opening of the mine. Allkem was recently created as a merger between Orocobre and Galaxy Resources, resulting in the world’s 5th largest lithium producer. Its market capitalization is approximately $5 billion.
The Whabouchi Mine in Québec has had its share of ups and downs. Originally approved in 2015, the mine’s operator Nemaska Lithium ran into financial difficulties due to massive cost overruns in the construction of a production facility on site. Bankruptcy ensued, and the company was sold in 2020. The new Nemaska Lithium Inc. is now owned jointly (50% each) by the Québec government’s Investissement Québec and Livent Corporation (NYSE: LTHM). Livent is a leading multinational manufacturer and supplier of lithium products. The investment is reflective of a trend in the industry where non-mining companies directly invest in mines in order to secure a supply of the mineral for their own needs. There is currently no publicly announced timetable for the opening of the Whabouchi Mine.
Exploration Stage Lithium Projects
Considering the fact that Sayona’s NAL mine is coming online and its processing facility is in need of ore beyond what the mine itself can provide, it should be no surprise that exploration surrounding the NAL mine is an immediate focus. Jourdan Resources Inc. (TSXV: JOR) (OTCQB: JORF) holds claims adjacent to the NAL mine, and is working under a joint venture with Sayona to define a viable lithium resource on those claims. The JV also involves further drilling on the NAL property itself in hopes of expanding that resource. The existing infrastructure and proximity to the mine make this arrangement a natural fit, and potentially a more direct path to mine approval (should the resource prove out) than more remote properties. Jourdan Resources currently sports an approximately $12 million market capitalization.
FE Battery Metals Corp. (CSE: FE) (OTCQB: FEMFF) is currently working on the company’s Augustus Property which is located directly adjacent and west of the NAL mine. Previous historic exploration at Augustus, as well as more recent geologic mapping by the Quebec government, indicate the presence of both lithium-bearing pegmatites and the same geologic units that host the NAL mine at Augustus. The company has completed the re-drilling of the historic areas and is now embarking on a more comprehensive drill program with the goal of expanding the extent of the historic resource. The company has also been aggressively adding other prospective properties to an extensive land package throughout Québec and Ontario. FE Battery Metals is currently valued in the neighborhood of $17 million.
Vision Lithium Inc. (TSX.V – VLI) (OTCQB – ABEPF) is an explorer with a multi-metallic approach, including lithium, copper, and nickel. Its most advanced prospect is the lithium-bearing Sirmac Property in Quebec. Vision acquired the property in 2017 from the old Nemaska Lithium prior to its bankruptcy. Vision expanded on the promising work done by Nemaska and recently filed an NI 43-101 Preliminary Economic Assessment for the property, showing the potential for a profitable lithium mine on the site. The PEA warrants more exploration to further define the resource. Vision Lithium’s market capitalization is currently in the $20 million range.
There is a wide range of opportunities for investors looking to capitalize on the potential of Canadian lithium mine development. One thing is for sure - Canada’s government, and those of its allies, are committed to bringing more projects online in the coming years. Lithium demand is projected to continue rising and China is not going to loosen its grip on the sector any time soon. These are unusual dynamics in the resource industry, most akin historically to a wartime footing. Keep an eye out for further developments.