Avalon’s lithium project moves to center stage
Avalon Advanced Materials Inc. (TSX: AVL | OTCQX: AVLNF) is something prismatic as, if one looks at it from different angles at different times, one sees different things. Management cannot be accused of not being nimble, neither can they be accused of short-termism. The company’s main three targets it has had since last decade or before with the three foci being long-terms cultivars of the company, Nechalacho in the REE space, East Kemptville in the Tin space and Separation Rapids in the Lithium space.
When the latter project was just a twinkle in Avalon’s eye late last century (sounds a long time ago!) the goal was the mining of Petalite as Lithium ion batteries were around but were not moving the needle in investors’ Moodometers. Now the sex has been put into the Lithium equation it is timely for Avalon to breathe life into a project that had migrated to the backburner. The action here has been intense since last year and the project is now centre-stage at Avalon so we shall give it a look here and see what has been going on.
Petalite is the preferred lithium mineral feedstock for certain specialty glass-ceramic products. Petalite is preferred over other lithium alternatives in glass-ceramic products for technical reasons, notably its consistently low impurity levels.
The petalite found at the Separation Rapids deposit contains very low levels of impurities, also offering potential for a high purity lithium chemical product at a relatively low-cost, to serve the needs of lithium ion re-chargeable battery manufacturers. A PEA was completed in September 2016, confirming a technically viable process and that the recovery of a battery-grade lithium hydroxide product from Separation Rapids’ petalite was a viable option.
Get our daily investorintel update
The Separation Rapids deposit is one of the largest “complex-type” lithium-cesium-tantalum pegmatite deposits in the world, unusual in its enrichment in the rare, high-purity Lithium mineral petalite.
The 100%-owned Separation Rapids property is situated approximately 70 km by road north of Kenora, Ontario. The property consists of 15 Mineral Claims and one Mining Lease covering approximately 2,421 hectares. Tenure for the mineral resource is held under a 421 hectare, 21-year Mining Lease. Avalon also added three claims to the property covering 28 units (448 hectares), covering a corridor over the property access road.
Since acquiring the property in 1996, Avalon has expended approximately CAD$10mn on exploration and development work. Initial exploration work conducted in 1997-2001 included geological mapping, trenching, ground magnetic surveys, mineralogical studies and diamond drilling totalling 10,152 m in 69 holes. Subsequent work focused on tantalum potential and other potential industrial mineral products.
Early exploration work culminated in 1999 with the completion of a comprehensive Pre-Feasibility Study on the viability of producing petalite with by-product feldspars, by independent consultant Micon International Inc.
Back in March 2017 Avalon announced it had closed a transaction with GoldON Resources Ltd. to acquire a 100% interest in the seven-claim, 1,008 hectare, Paterson Lake property (shown in blue abve) located adjacent to the north and west of the Separation Rapids Lithium Project.
The Paterson Lake claims host three known lithium pegmatite occurrences known as the Glitter, Wolf and Rattler, along with a number of other, smaller, under-explored lithium – tantalum – rubidium – tin bearing pegmatites. These have never been drilled. These lithium pegmatite occurrences are between 5 and 6 kilometres away on trend with the Separation Rapids deposit along with a number of other, smaller less explored pegmatite occurrences. One of these, called the Glitter pegmatite, according to the Ontario Geological Survey, contains both petalite and lepidolite, has yielded assays of between 1.03 and 1.64% Li2O over five successive 1m samples.
At Separation Rapids the Measured and Indicated Mineral Resources are eight million tonnes averaging 1.29% lithium oxide and 39% feldspar. The Inferred Mineral Resources contribute an additional 1.63 million tonnes at 1.42% lithium oxide and 39% feldspar to a maximum vertical depth of 260 metres. The deposit is open to depth and along strike.
In September 2016 the results of Preliminary Economic Assessment on project were announced. The goal here was to investigate the potential for recovery of a lithium product suitable for the battery market. The results confirmed a technically viable process for the recovery of a battery-grade lithium hydroxide product.
The PEA development concept includes an open-pit mine, with milling onsite to produce a lithium mineral concentrate and by-product feldspar. The lithium mineral concentrate would then be processed in a hydrometallurgical plant (presently contemplated for Kenora) to produce lithium hydroxide for the battery industry or sold directly into the ceramics industry.
The metrics of the mooted operation were:
- 10 year mine life
- An average mining rate of 950,000 tonnes per year would yield an average annual production of 14,600 tonnes of lithium hydroxide for 10 years and 100,000 tonnes per year of feldspar mineral concentrate for 20 years (recovered from previously processed material for an additional 10 years)
- IRR of 19% on a pre-tax basis and a 16% IRR on an after-tax basis, assuming 100% equity financing.
- NPV at an 8% discount rate is CAD$343 million pre-tax and CAD$228 million after-tax.
- Total capital cost of $514mn, inclusive of $86 million in contingencies and $7 million in sustaining capital
- Average lithium hydroxide price assumption of US$11,000/tonne and the CAD:USD exchange rate assumption was US$1.00 = CDN$1.30.
The company is planning a follow-up drilling program in the second half of 2017 to continue testing the depth extension of the known resource. The deepest intersection to date in Hole SR98-57 encountered 1.47% Li2O over a true width of 31.7m at a depth of 180m to 270m. As a result a minimum of 2,000m in five deeper holes is currently planned, subject to financing.
In addition, a summer geological mapping, prospecting and sampling program has been carried out to begin evaluation of numerous other known lithium pegmatite occurrences on the western part of the property. This will include the new Paterson Lake claims.
As we have noted in these pages recently Lithium is “taking a breather”… indeed it’s been holding its breath for almost a year now. The underlying dynamic, if anything, gets better and yet the Lithium stocks are almost universally still wallowing in misery as the market tries to work out who is real and who is just following the fad. With Avalon having been involved in this project since the 1990s one could not accuse of Avalon of that.
The dilemma now is the size of the capex. This is still in the upper quartile of Lithium projects and financing just isn’t easy these days. That situation can turn on a dime though if an amenable offtaker walks in the door with a large chequebook and determination to see a project through to production. In the short term it would be good to see some scaled down production scenarios or at least a phased onset of production.
Most of the crop of 2016 Lithium wannabes don’t even have drilling results let alone a PEA or PFS so Avalon has set itself in a category apart. Now the task is to find a partner that might make this one of the few from this latest “go around” to move to the higher plane of actually having output of Lithium for a burgeoning marketplace.
Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>