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As the price forecast for lithium continues to remain a hot-button topic – even while the necessity of this critical mineral has been long established – Canadian-focused company Lithium Universe Ltd (ASX:LU7) has developed a strategy to pull it through the current period of price downturn, looking ahead to becoming a key player in the North American supply market.
This was one of the main takeaways from the company’s announcement this week that it had completed a prefeasibility study (PFS) on its Bécancour lithium refinery in Québec, promising strong financials for a project which seeks to solve the problem of a ‘lithium refining gap’ within the continent.
Starting from a solid base
Even in an environment where the lithium price remains low – positioned at 75,500 Chinese yuan per tonne (CNY/t) today, after dipping to 72,500 CNY/t in September (its lowest point in over three years) – the parameters for development of Bécancour are strong.
This begins with its pre-tax net present value (NPV), which is set at US$779 milllion, with an internal rate of return (IRR) of 23.5% and payback of 3.5 years.
Lithium Universe is planning to construct and run a low-risk lithium refinery with an annual capacity of 18,270 tonnes, producing a final product of environmentally friendly, battery-grade lithium carbonate.
According to the PFS, the estimated capital cost of this project is US$494 million, which includes a contingency of US$68 million.
Starting from conservative forecasts of US$1,170 per tonne for spodumene concentrate (SC6) and US$20,970 per tonne for battery-grade lithium carbonate equivalent (LCE), Lithium Universe is anticipating the refinery project will have an annual revenue of US$383 million and EBITDA of US$147 million.
The ‘counter-cyclical strategy
Reaching the prefeasibility stage so quickly is an achievement in itself, according to chairman Iggy Tan.
“The successful completion of our Preliminary Feasibility Study is a significant milestone for the company, especially given that we only launched in August of last year,” he said.
“Early on, we recognized that bridging the lithium conversion gap in North America, leveraging our accumulated lithium expertise and the proven technology from Jiangsu, was a clear and strategic path forward.”
At the core of Lithium Universe’s approach is adoption of a ‘counter-cyclical’ strategy, which involves developing projects during times of downturn in the commodity price, so that when the latter recovers, the company will be ready to greet it with a ready-made project.
Underpinning this is a belief that the lithium price will bounce back, based on long-term demand bolstered by demand for electric vehicles and energy storage sectors.
“Our counter-cyclical strategy is centered on advancing projects during market downturns, allowing us to strategically position ourselves for growth as the market rebounds,” he said.
“We are dedicated to funding and constructing a proven, low-risk lithium conversion refinery in Québec, marking the first step toward establishing Québec as the lithium conversion hub for the Transatlantic region.”
Québec – a future trendsetter in lithium supply?
Lithium Universe’s greater goal is to build a lithium chemicals business in the Canadian province, where spodumene can be sourced from domestic suppliers and international markets – such as Brazil and Africa – with this then plugged into the North Atlantic supply chain.
Québec in particular has been chosen due to its critical cost benefits, which include cheap green power, transport savings due to strong infrastructure, US/Canada tariffs and a 95% GHG emission reduction with Hydro Québec’s green energy.
With the prolific James Bay area close by, there is no shortage of lithium projects from which Bécancour can draw.
Ideally, this would allow the province to become a hub for lithium conversion, comparable to China.
Iggy Tan said that with the PFS completed, the company could move further down the development pathway, with interest in the refinery project already piqued.
“There is significant interest from OEMs with spodumene offtake supply seeking conversion outside of China, and discussions are already underway,” he said.
“We are confident that the Bécancour lithium refinery, with an annual capacity of 18,270 tonnes, will emerge as a leader in producing green, battery-grade lithium carbonate.
“The Company will advance quickly to complete a Definitive Feasibility Study and finalise offtake partnerships.”
Addressing the lithium conversion gap
One driving motivator for the company is its desire to help close North America’s lithium conversion gap – defined as a growing demand for lithium carbonate equivalent (LCE) as a battery material which on present forecasts will not be met without greater efforts to enable lithium processing in the continent.
This problem is reflected in the reality of China accounting for 90% of global lithium iron phosphate (LFP) manufacturing, although movements by companies such as Ford, Tesla and LG Energy Solutions indicate that North American capacity is set to grow in the near future.
Altogether, the continent is set to add almost 1,000 GWh of battery manufacturing capacity by 2028, supporting the production of 10 to 13 million electric vehicles per year. In the US, this growth is expected to emerge from Georgia, Kentucky, and Michigan, while Canada is also attracting partnerships from Volkswagen, Stellantis, and others.
All this will require 850,000t of LCE per annum to satisfy demand by 2028 – and there is not nearly enough.
Solving the conversion challenge
Since several attempts to produce lithium within this continent have ended in failure – such as the North American Lithium Project and the Nemaska Lithium Project – the refinery at Bécancour needs to offer something to alleviate fears.
Luckily, Lithium Universe is coming to this project with a team of specialists in this metal, whose previous experience has included the successful development of the Jiangsu Lithium Carbonate Plant for Galaxy Resources Ltd.
This facility – which had an initial production capacity of 17,000 tonnes per annum of battery-grade lithium carbonate – quickly became a benchmark for lithium refineries worldwide, and now operates at a capacity of 20,000 tpa and produces some of the world’s best quality battery grade lithium carbonate.
Lithium Universe’s ‘dream team’ intends to bring their knowledge honed at Jiangsu to Bécancour, planning to construct a smaller off-the-shelf style plant instead of large, difficult-to-operate facilities.
As it steams towards full definitive feasibility (DFS) on the project, the company’s hopes for growing a lithium hub in Canada are clearly on the upside.
Lithium Universe is trading at 1 cent.
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