Nemaska Lithium Gets Best Girl at the Dance
In the mining space these days there are announcements and there are announcements. Some are forced on companies by regulatory bodies that require any sort of agreement to be announced, no matter how skeletal (this is particularly the case in Australia and the UK), some are genuine announcements with fleshed out details that move forward the market’s knowledge and perceptions of a company’s position and some are mere non-announcements designed to fill the otherwise vacant airwaves around a company that doesn’t have much to say for itself. The latter are the market’s cotton candy.
The latest announcement from Nemaska Lithium (TSXV: NMX | OTCQX: NMKEF) ranks in the second group of announcements with oomph. Unlike those wooly announcements (so prevalent in the REE space) of offtakes that are little more than a wink and a nod, Nemaska has managed to secure a deal involving real cash, and a lot of it, with one of the most-storied names in the metals refining space, none other than Johnson Matthey. While better known for its precious metals refining activities (most notably Platinum and Palladium), Johnson Matthey is also rising in the Lithium and battery materials space. The deal with Nemaska announced this week weds the two companies together in a much closer matrix.
The pace of deals in the Lithium space has been hotting up and it’s this phenomenon that has keep lithium bubbling while other specialty metals wallow in a sea of misery. In this specific case Nemaska has signed a Memorandum of Understanding with Johnson Matthey Battery Materials Ltd of Candiac, Quebec, a wholly owned subsidiary of Johnson Matthey Plc (LSE:JMAT).
Johnson Matthey is a global speciality chemicals company with operations in over 30 countries and employs around 13,000 people. Its products and services are sold across the world to a wide range of advanced technology industries.
The MOU includes an up-front payment of CAD$12 million by Johnson Matthey in exchange for “services and products of the same value” from the Nemaska Lithium Phase 1 Plant and the subsequent commercial plant to be located in Shawinigan, Quebec. The MOU also includes provisions for the signing of a long term supply agreement for lithium salts (lithium hydroxide and lithium carbonate) for future expected demand for the UK company’s battery material products. The lithium salts will be produced from the commercial hydromet plant which Nemaska Lithium also intends to build in Shawinigan. The collaboration is subject to final due diligence by the offtaker and completion of the required final agreements.
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In contrast to the vague outbursts of some miners these days with regard to their offtakers the Nemaska deal is real. So real in fact that it had to be announced in the middle of the night to catch the London market open (where John Matthey is listed).
The company regards the JMBM agreement as a non-dilutive approach project financing of the Phase 1 Plant and it should act as a stimulus to secure the financing to finally pull the trigger on the plant build. Nemaska’s CEO said he expected the financing to be closed by February 2016. The Phase 1 plant will be built in the recently acquired Laurentide plant. Back in early September, Nemaska signed an agreement in principle with the City of Shawinigan for the acquisition of part of the land and part of existing manufacturing facilities (Produits forestiers Résolu’s former Laurentide plant) in Shawinigan, Quebec.
The facility will house Nemaska Lithium’s Phase 1 plant and the future commercial Hydromet plant that will convert into high purity lithium hydroxide and lithium carbonate the spodumene concentrate produced at the Whabouchi Mine. When retooled, the plant will have a capacity to produce about 500 tpa of high purity lithium hydroxide and lithium carbonate.
The agreement in principle with the city provides that Nemaska will become owner as of January 1, 2016. The company has the right to occupy and use the buildings required for the Phase 1 plant, as of early October.
The main suppliers and long lead items for the plant have been identified and the company expects to be producing from the Phase 1 Plant within twelve months of the closing of the financing. This short-time frame is obviously a draw for an offtaker as no-one wants to commit so much money for an overly long period.
It was a relief to see the company going with brownfield over greenfield and that sends a message to all those companies still wedded to big capex “shiny new objects”. Nemaska Lithium had originally planned to build its Phase 1 Plant and Hydromet Plant in Salaberry-de-Valleyfield, Quebec. However the decision to build these plants in Shawinigan was made based on several key factors including:
- reduced construction time for both the Phase 1 Plant and Hydromet Plant because of the high quality and state of the existing buildings, significantly reducing capital costs
- existing and ready to use infrastructure required for the operation, including natural gas, electric power station and railway
- the fact that Shawinigan is closer to the Whabouchi mine site, thereby reducing concentrate transportation costs.
The prospect of a plant that will be functional earlier obviously proved a tempting prospect to Johnson Matthey and that has loosened up the purse strings of the offtaker, which in turn makes the financing more doable. A virtuous circle has started to be formed. It certainly helps that the prospects for lithium are looking so good when most else in specialty metals looks like scorched earth.
In terms of possible pairings in the Lithium miner/offtaker space are concerned Nemaska seems to have attracted one of the prettiest girls at the ball.
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>