Critical Elements positions strong in the ‘Lithium Stakes’ run
We have oft likened the Rare Earths space to a horse-race and the analogy was well suited. It gave us the chance to have some of the nags end up sent to the metaphorical glue factory. Now however, there is an awful lot of glue and very little substance left in the Rare Earth Handicap. We might use the same analogy for the Lithium space though hopefully with a better outcome at the finishing line.
Things have worked out better in this other race so far. The field was not overcrowded and there were less nags in the running. Hardly any Lithium players have departed the scene, with most having been eclipsed by sexier themes (dare I say “fads”) and the managements just got on with what they had to do. In the case of Critical Elements, it really did prove to be a “dark horse” which scarcely even featured in most Lithium commentary over the intervening years. When it surfaced recently we did not recognize it at first but then realized that we had included it in a Lithium Review published back in 2009 when it was known under its old guise as First Gold Exploration. It was truly in the first flush of Lithium players but got eclipsed by sassier movers, but meanwhile persevered with what it was doing.
Now that Lithium is again, deservedly, in the spotlight the work Critical Elements (TSXV:CRE | OTCQX:CRECF) did in the interim is standing it in good stead and it has managed to capture for itself the attentions of a major chemicals group, which for now, shall go unnamed.
With the starting bell for the rerun of the Lithium Stakes being run its worth revisiting the story of Critical’s project to see just why it may “have form” to end up in the Winner’s Circle.
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The main target is the Rose property which covers a total of 174 km2 in Quebec. The Rose deposit is a flat lying and thick multi structure located near the surface. The deposit is located in the northeast part of the Archean Superior Province of the Canadian Shield craton, more precisely within the southern portion of the Middle and Lower Eastmain Greenstone Belt.
Most of the property is covered by syntectonic intrusions though late- to post-tectonic intrusions are also present to a lesser extent. Mineralization recognized to date includes rare-element LCT-type pegmatites (Block A) and Molybdenum occurrences (Block A). An Iron occurrence (Block B) is also mentioned in the government database. The Rose deposit is the most significant mineralization to date on the property with mineralization hosted within outcropping pegmatite dykes subparallel to the surface. The dykes and grades correlate well and show good continuity throughout the sections.
Critical Elements started work at the Rose property in late 2009. A total of 181 drill holes totalling 26,500 metres have been drilled to date. Prospecting was limited to the immediate vicinities of the known Pivert showing and the Rose deposit. The work consisted of a visual reconnaissance of pegmatites and sample collection, in addition to outcrop mapping at the Rose deposit only. Out of the 181 drill holes, 175 returned significant mineralized values for Li, Ta, Rb, Cs, Ga or Be.
The resource for Rose was calculated by InnovExplo. A minimum mining width of 2 metres (true width) and a cut-off grade of 0.75% LI2O were employed resulting in:
- an estimate of 26.5mn tonnes of Indicated Resource containing 1.30% Li2O Eq (or 0.98% Li2O – 259,700 tonnes of Li2O or 642,238 tonnes of Li2CO3 Eq), 163 ppm of Ta2O5 (9,514,317 pounds of Ta2O5)
- an estimate of 10,700,000 tonnes of inferred resources containing 1.14% Li2O Equivalent (Eq) or 0.86% Li2O (92,020 tonnes of Li2O or 227,565 tonnes of Li2CO3 Eq), 145 ppm Ta2O5 (3,417,400 pounds of Ta2O5)
The resource was compiled using a cut-off grade of $41/t for the open pit model and $66/t for the underground model (taking Li and Ta recovery into consideration).
The company published a PEA on the Rose property back in late 2011. The parameters used for the PEA were:
- a 1,500,000 tpa open-pit mine using diesel hydraulic equipment
- a concentrator at the mine site (crushing, grinding, flotation circuits) with a nominal capacity of 4,600 tpd of ore at 90% availability
- a lithium bicarbonatation plant at the mine site to convert the lithium oxide ore (Li2O) to lithium carbonate (Li2CO3)
The ore will be mined using a conventional open-pit approach to a depth of 200 metres. The stripping ratio is a rather daunting 7:1. Pre-production capital costs for the Rose Project were estimated at CAD$268.6mn though ironically this may have gone down with the passage of time and the changed circumstances in the mining world.
The key thing to remember is that no less than two Hydro-Quebec transmission lines run across the property. This makes the property significantly cheaper to build than other projects that maybe appear more centrally located but are not so well endowed.
InnovExplo’s preliminary data compilation and review of historical reports concerning the Rose property revealed significant potential for the discovery of new lithium and rare-element pegmatites over the entire property. The property is strategically positioned in an area known to be associated with this type of mineralization. Although the Rose deposit is at an advanced stage of exploration, the sheer size of the dominantly unexplored remainder of the property lead the consultants to consider the Rose property as having potential to discovering additional mineralization.
The Mystery Partner
We have to admit we are not great fans of surprises and Critical Element certainly has set up a mystery for watchers of the stock with its elusive references to a “major chemical company” with which it has established a partnership. This element is key. While the deal with the partner is a take or pay arrangement it is felt that the player will ultimately want to have a stake in the operating subsidiary, which gives the advantage to Critical Element’s shareholders of potentially minimizing dilution.
In our array of starters in the Lithium Stakes, Critical Elements was not even on the bookmarkers’ boards until recently. Its 2011 PEA came out when no-one much was interested in Lithium anymore and shinier objects attracted the investor’s eye. Management doggedly carried on with their commitment to the project and in mid-2015 Critical started to appear on radar screens again and has gained further momentum through its deal with the mystery partner that includes take or pay off-take for all products produced from the Rose Lithium-Tantalum project. The feasibility study will be completed in collaboration with this partner. Finally, should the feasibility study support the technical feasibility and economic viability of the project then the Strategic Partner will also have the option of participating in the project by providing equity in the project financing for an interest of up to 25%.
This type of news helps close the gap with other Lithium players that have been more consistently in the field of vision over recent years. A key next step will be the revelation of who/what this partner’s name is and then the market will be able to assess the extent to which the partner will be able to help move the financing along. Critical Element have ensured that they are in the race.
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>