We are excited to present this interview with Guy Bourassa, CEO of Nemaska Lithium. Nemaska Lithium will be one of the next junior miners to enter full-scale production. As such, we were particularly interested to learn more about Guy’s views on Supply, Demand, Electric Vehicles, China and much more!
The Lithium Spot: Much has been said on your site and from investors about your patented process for converting Lithium concentrate to Hydroxide and Carbonate. Can you talk to a little bit more about the risks of this process?
Guy Bourassa: While this is a new process for the lithium industry. Using electrolysis to produce industrial chemicals has actually been done commercially for the past several decades. We have modified the process slightly to produce lithium hydroxide from lithium sulfate. We have also done a considerable amount of work on the purification system. This process allows us to produce a very high purity lithium hydroxide at a cost which is projected to be lower than anyone in the industry. We have opted to build a phase 1 Plant which is using commercial scale electrolyser. The phase 1 Plant is now commissioned and we have begun producing lithium hydroxide from sulfate. These samples will be sent to customers globally over the next 6 months. This will enable us to qualify Nemaska Lithium as a new producer but also qualify our products with clients. In addition to qualifying our product the Phase 1 Plant allows us to fully demonstrate the process and our method of producing lithium hydroxide. The Phase 1 Plant is performing exceptionally well, it also serves as an excellent training tool for our employees both on the operations side but also provided valuable operational date which has been used in the design of our commercial scale chemical plant. I perceive the risk as being very low at this point given we have already produced lithium hydroxide and will be engaging customers with product in the coming months. In addition we have already signed offtake agreements for approximately 50% of our current planned production. Our two offtake customers are Johnson Matthey and FMC. Both have advanced money with the signing of the contracts. JM forward paid $12M for the construction of Phase 1 Plant and FMC paid a signing bonus of $10M. Both contracts are take or pay type agreements.
The Lithium Spot: For those investors that are concerned about your process and for those who have said it may not work, what can we share with them in response to these concerns?
Guy Bourassa: The Phase 1 Plant is currently working very well. The core of the system (electrolysis, purification and crystallization) is performing exceptionally well and I am very pleased with the performance to date. The electrolysis membranes are performing as planned and the system is operating well inside acceptable parameters. For those who doubt our process I would just say the proof is in the client acceptance of our product. We already delivered over 25 tonnes of high purity lithium hydroxide to JM over the last 6 months and all that material was at or exceeding the battery specs. We expect to start delivering samples to other clients over the next few months.
The Lithium Spot: The first year of operations will be primarily focused on selling spodumene into the marketplace, can you talk to what you anticipate prices will be like for Spodumene and what if any floor or ceiling you have in place for your sales to the market?
Guy Bourassa: We are currently in discussions with potential customers for spodumene concentrate and the market for this product is quite tight. We have consistently produced a very high grade concentrate (6.3% Li2O). This is better than most Australian producers have been able to produce. Current market for Spodumene concentrate is between $750USD and $1000 USD and I anticipate selling in that range, while our production cost for concentrate will approximately $200 USD delivered to the port.
The Lithium Spot: At the onset, you’re predicting that Nemaska will be one of the lowest cost producers of Spodumene as well as Hydroxide and Carbonate once you get to that process. Do you believe that this can begin from the onset? Should there be any concerns about costs beginning at a higher range?
Guy Bourassa: Of course we expect a ramp up in production and our cost maybe slightly higher in the beginning as we ramp up to full capacity. I don’t expect these costs to be materially different from those stated when at full capacity.
The Lithium Spot: What are the benefits and challenges of being located in Quebec as compared to Australia and South America where many of the other newest producers are coming online?
Guy Bourassa: First of all Quebec is and always has been a very favorable district to do business. No risk of nationalization of projects as we have seen in South America in particular Argentina. Chile has recently levied 40% tax on lithium products and have limited exploration and production permits, virtually handcuffing current producers and explorers. By contrast the Quebec Government has been very supportive of our project and invested in Nemaska Lithium over the years. Permitting has been very transparent and has gone well. Finally, we are able to take advantage of abundant and low cost green hydroelectricity which in Quebec is available over long-term contracts at an average cost of $0.045/kWh. Electricity is a major cost component of our end product and we have a very firm handle on our pricing there.
The Lithium Spot: Much has been said about the China EV boom and China investing in Lithium companies. You and your team were recently over there, what insights could you share with our readers about the latest developments there in China now?
Guy Bourassa: China is definitely a major driver in the EV space with world adoption rates predicted to be the highest in China. Recently the Chinese Government announced their intent to implement a total ban of internal combustion engines. A date has yet to be set but the industry is expecting a target date in the near future. Currently China has committed to build an infrastructure that would support 5 million EVs per year. The Chinese view lithium as a strategic mineral and they have been very active in the M&A space. I expect that to continue. Nemaska has been approached by several Chinese Companies and discussions are on-going.
The Lithium Spot: What are your views on the Supply and Demand balance over the next few years?
Guy Bourassa: We expect there to be a significant imbalance looking out past 2025. The reality is there are a number of people discussing new production coming from Australia. One has to remember these are not fully integrated projects but rather concentrate producers. This concentrate must be transformed into battery chemicals and I don’t believe transformation capacity will come on line as quickly as some market analysts predict. These are complicated projects and there again we have benefited significantly from our phase 1 Plant. All this learning should shorten our commissioning time and improve our capacity to be recognized as a reliable supplier of battery grade material.
The Lithium Spot: We believe that a solid management team is very important and are impressed by the company’s background, can you explain what you see as your management and board’s competitive advantage compared to other Lithium Junior Miners?
Guy Bourassa: We are not new comers to the lithium space having started developing our project in 2009. Being in the space so early has given us a significant lead in project development but also in attracting talent to the company. Very early on I was able to bring Gary Pearce a world pegmatite specialist. I also added Jean Francois Magnan. JF is the author of the lithium ion LFP cathode and as such brings a deep understanding of the battery materials space and our customer base. He built a fantastic technical team that has perfected our process and our unique approach to lithium salts production. In 2016 we added all of the administrative and production support needed to move our project through construction and operation. I would say that the main difference between Nemaska and its peers is that we have developed in house expertise from the onset of the project. Currently we have over 70 employees, all top of their class.
The Lithium Spot: Regarding competitive advantage, seeing as there are so few competitive advantages in the Lithium mining industry, can you elaborate on your patents that set you apart from your competitors?
Guy Bourassa: Our patents are a barrier to entry in countries that respect patent law and we are diligently evaluating the industry for potential patent infringements. Equally important, I would say is our jurisdiction and deposit which give us access to low cost affordable electricity as well as a high quality low cost concentrate. These are our two largest costs and competitive advantages. Finally I would say our time to market is a key differentiator for Nemaska Lithium as a near term producer we are able to enter the chain of supply in this critical tight supply environment.
The Lithium Spot: Can you discuss the current environment for financing in the lithium industry? Is it becoming easier for potential new entrants to raise money for pre-production capex?
Guy Bourassa: We have witnessed a lot of money coming into the lithium supply chain for earlier stage projects. However the large investments needed for project financing is a much longer and more difficult process. The reality is that the industry needs an injection of several billions of dollars for new projects and supply to come on line. This has been slow in coming. Lithium is an opaque market and investors are still relatively new to the space. I believe that this is changing but it takes time. Nemaska Lithium is forging new ground here with our project financing.
We are still in the process of bringing in debt and strategic equity for the project financing. We are in the fortunate position of having a number of options and will be announcing our project financing very shorty.
Disclaimer: We currently own shares in Nemaska Lithium.