Painting a rosy picture of lithium and tantalum

In August the lithium market was set alight when chemical company Rockwood made a generous bid for Australia’s Talison Lithium, world No. 2 producer of the mineral.

What gave lithium observers and investors even more confidence in the future of the industry was that the Toronto-listed firm could reject that bid in favour of an even fatter offer from a Chinese company which was willing to pay a whopping 77% premium to get its hands on Talison.

Jean-Sébastien Lavallée, president and CEO of Critical Elements Corporation (TSX-V: CRE), says the main driver for the deal was that Rockwood and the Chinese manufacturer which sealed the deal in December wanted access to hard rock lithium supply.

Hard rock lithium deposits provide much higher purity and are therefore much cheaper and easier to process than the more common brine deposits.

Critical Elements’ Rose Tantalum and Lithium project in northern Quebec is one of just five hard rock deposits worldwide with purity ratings of 99.9% which makes it suitable for lithium ion batteries.

Jean-Sébastien Lavallée, CEO Critical Elements Corporation

Lithium extracted from brine deposits often as a byproduct — primarily in South America — usually end up being used in grease, ovenware or industrial desiccants and not in the electrical storage industry.

Lithium today is used in batteries for everything from cellphones to hybrid vehicles — the electric vehicle market is destined to grow by nearly 40% per annum for the rest of the decade.

The greatest growth in demand will come from smart grid technology, says Lavallée. China alone poured $50 billion into energy storage technology for its rapidly expanding electricity grid last year and the country still only accounts for a small percentage of the total global investment in the sector.

The growing demand for lithium is being reflected in the price. The current spot price for battery-grade lithium carbonate is $6,600 a tonne, that’s up from $5,500 a couple of years ago and a projected high of $8,500 by the end of the decade, according to researcher Roskill.

Just yesterday Talison Lithium announced that it has signed deals with customers for the first half of 2013 at between 10% – 15% above last year.

Critical Elements won’t have the market outside of the traditional sources — Argentina, Chile and Australia — completely to itself however. Peer Canada Lithium Corp will this year open a mine and processing plant in Quebec.

Critical Elements is not only relying on lithium to make money from Rose — tantalum is another in-demand metal that is enjoying a rising price.

At the moment the metal used for capacitors and alloys is trading at $125 – $130 a pound, up from $100 a year ago.

Mine supply accounts for 75% of the total market with scrap making up the bulk of the rest. What has made the price of tantalum so volatile — prices collapsed in 2009 following the financial crisis — is the ‘swing’ supply from central Africa, particularly the Congo, and Nigeria.

While conventional tantalum mines in Canada and Australia sign long-term supply contracts, artisanal mining in central Africa and Brazil accounts for a full 50% of total mining output.

These producers operate in almost a spot market which can lead to periods of oversupply.

Nevertheless analysts predict 5% per annum growth rate to 2020, while many including Lavallée predict much stronger pricing in the medium-to-longer term of closer to $300.

Lavallée says while the so-called conflict mineral provisions under the US Dodd-Frank legislation have now been laid out, continuing skepticism about its effectiveness will favour producers like Critical Elements over supply from strife-torn regions.

Lavallée expects a bankable pre-feasibility and technical report for the Rose mine and processing plant by mid-year and the company has already signed a pre-development deal with the local Cree first nation.

Lavallée says the Rose project should come in at a cost of roughly $280 million to $300 million and could be in production as early as next year with a mine life of 17 years.

While the Rose project is definitely a “company-making” venture for Critical Elements, the company is also advancing rare earth projects in Quebec and BC and owns a gold property in Quebec.