Lithium

Why the lithium bear market doesn’t phase us: Lithium Universe

Fri 08 Dec 23, 11:31am (AEDT)
A photograph of a spodumene processing plant at an unknown location in WA
Source: iStock

Key Points

  • Lithium Universe aims to establish a Quebec Lithium Processing Hub in Canada's James Bay region, partnering with local producers for spodumene supply and lithium carbonate production
  • The hub seeks to fill the North American downstream gap and counter China's dominance in lithium refining
  • Chairman Iggy Tan successfully developed Galaxy Resources’ Mt Cattlin Spodumene Mine and the Jiangsu Lithium Carbonate plant in the midst of previous lithium bear markets

Lithium prices have hit two-year lows but this might be the comfort zone for Lithium Universe (ASX: LU7) chairman Iggy Tan, who built Galaxy Resources’ Mt Cattlin Spodumene Mine and the Jiangsu Lithium Carbonate plant when prices were trading at a fraction of what they are today. 

Lithium Universe has ambitious plans to develop a Lithium Processing Hub in the prolific James Bay region in Canada. The hub seeks to partner with regional lithium producers to supply spodumene for a 1Mt per annum concentrator and a 16,000tpa battery-grade lithium carbonate refinery.

The region is home to many explorers and a massive lithium resource but less development and downstream experience, according to chief executive Alex Hanly.

“Quebec will have a global resource of around 500Mt across 8 different projects once Winsome’s Adina maiden resource is declared,” said Hanly.

“As we said in our presentation, there are many lithium explorers but not many have the expertise to build lithium projects. That is the skillset of our Lithium Dream Team and the opportunity for Lithium Universe.”

Two successful lithium start-ups

Tan was the managing director at Galaxy Resources between 2008 and 2013. During this time, he led the development of:

  • Mt Cattlin mine in WA: A 1Mtpa mining and 137,000tpa concentrate spodumene project. It was built on time and within budget in October 2010 – when spodumene prices were trading around US$260 a tonne

  • Jiangsu Lithium Carbonate plant in China: A 17,000tpa lithium carbonate plant, it was the world’s largest of its kind at the time. It was built in late 2011 when lithium carbonate prices were trading at US$6,000 a tonne. The plant was sold to Tianqi in 2014 for US$230 million. 

This experience matters because “projects need input from experienced operational personnel from the design stage. The technical experience drives the design which is more likely to lead to successful construction, commissioning and operation,” said Hanly.

The Quebec Lithium Processing Hub

An engineering study for the Quebec Lithium Processing Hub (QLPH) is currently underway and led by Primero Group, which is a resource engineering company. With a breadth of experience in the lithium space, Primero’s work history includes development and construction work for Pilbara Minerals’ Pilgangoora Project, Core Lithium’s Finniss Project and the Aurora Lithium Hydroxide Refinery Project in Portugal.

“The benefit the Company has is that we are not redesigning the wheel, we are taking our embedded knowledge of the Mt Cattlin Spodumene Concentrator and the Jiangsu Lithium Carbonate Refinery and aligning it for operation in Quebec,” said Hanly.

He says this refinery strategy will provide a strong foundation to replicate the success of the above two projects and build out upstream elements.

2023-12-08 08 18 19-6A1183135.pdf
Source: Lithium Universe

QLPH plans to buy run-of-mine material from several partners within the region. To elaborate on this, there have been two main types of arrangements used in the downstream industry:

  • Tolling: The mine owner retains ownership of the lithium concentrate until it is converted into the final product, such as lithium carbonate or hydroxide. The tolling company is simply paid a toll or fee for processing. Pilbara Minerals had a tolling agreement in place earlier this year to capture more value-added margin.

  • ROM purchase: The mine owner sells the ROM ore directly to the buyer, who then assumes ownership and responsibility for processing it into a final product.

“This approach not only secures spodumene offtake for the refinery but also brings an experienced team into the region to make many of these small projects viable."

Hanly says the company will also be actively engaging with a number of exploration and make strategic investments where appropriate.

The benefits of downstream

Downstream margins are attractive in both a high and low lithium price environment, according to Hanly.

“The most appropriate comparison to draw is with the plant that Non-Executive Director Dr Jingyuan and Iggy had built and the basis of our design for the refinery in Quebec,” he said.

Gross Margin 2022

Gross Margin 2021

Lithium Concentrates

83.9%

62.0%

Lithium Compounds

85.7%

61.5%

Filling the downstream gap

China accounts for almost two-thirds of the world’s lithium refining capacity, according to the Institute of Energy Research.

Earlier this year, Tesla announced plans to invest at least US$375 million to develop a Texas lithium refining facility to produce enough lithium for more than 1 million EVs per annum. “We’re doing it because we have to, not because we want to,” Musk said previously.

“There is a strong strategy within North America to build out the supply chain to remove the reliance on the Chinese refineries. Currently, there are no operational lithium refineries in North America, which presents a major opportunity for the Company,” said Hanly.

He said there are around 30 battery manufacturing plants planned or proposed for the eastern seaboard of North America by 2029, demonstrating a significant incoming demand for cathode materials.

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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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