For a brief window of time, after Nemaska Lithium Inc.’s cafeteria went up in flames last week and the company halted construction of its mine in Quebec, questions swirled about what would happen next.
By Thursday, however, Nemaska’s workers were eating in a new cafeteria, operations resumed and the company’s investors were hardly burned — its stock barely down and trading at 60 cents — compared to everyone else in the lithium market.
Lithium — a key component in the batteries used in electric vehicles — started 2018 on a high note as prices for the metal drove investments in dozens of junior explorers. But after months of price declines amid supply and demand questions, excitement has cooled. Now, most Canadian explorers are battling massive share price declines and difficulties raising financing, essentially putting their projects out of reach.
Nemaska’s chief executive Guy Bourassa, however, arranged a roughly $1-billion financing package that included a streaming deal, bonds and an investment from Japan’s SoftBank to build the Whabouchi mine and conversion plant in Quebec. If completed later this year, it will be the only lithium mine in Canada to emerge from the recent boom.
“There’s no significant money raised by anyone in the lithium space outside of June last year,” said Bourassa. “Honestly, if we had waited a week or 10 days, we would not have been able to close.”
The other major Canadian company to raise money for production, Lithium Americas Corp., is partnering with China’s Gangfeng Lithium to construct a lithium brine project in Argentina. It’s scheduled to start production in 2020.
Otherwise, the vast majority of Canadian lithium explorers were hammered in 2018. Between March and December, the combined market capitalization of all primary lithium explorers listed on the junior TSX-Venture dropped nearly 60 per cent from $2.77 billion to $1.1 billion according to TMX data.
In the first six months of 2018, lithium companies on the TSX and TSX-V raised approximately $828 million versus $49.6 million in the second half.
The number of primary lithium explorers on the TSX-V also declined from over 70 to about 60 as some companies, such as Lithium X Energy Corp, were purchased; and other companies, such as Bacanora Minerals Ltd., delisted from the TSX-V, while others changed their focus.
“My own personal bet is that we’re in this malaise for much of 2019,” said Chris Berry, an industry consultant and advisor to Lithium Americas. “I just don’t think a lot of these guys are going to find the money to build their projects.”
My own personal bet is that we’re in this malaise for much of 2019
Chris Berry, industry consultant
The souring on lithium is often blamed on a confluence of events. In February 2018, Morgan Stanley analysts predicted prices would drop 45 per cent by 2021 because of oversupply. Many questioned the report’s assumptions, but few deny that it deterred new investments by highlighting how difficult it is to track supply and demand for lithium, which occurs in various grades and chemical forms.
Bourassa and others noted that in June, China also shifted its subsidies for electric vehicle batteries in a way that caused prices for lithium to drop.
In a rough tracker of that price decline, spodumene, a type of lithium ore precursor to battery grade material, is trading as low as around $600 per tonne compared to around $900 one year ago,according to Metal Bulletin.
“The interesting thing is the demand side of this whole equation hasn’t wavered one bit, not one iota,” said Berry, who believes eventually the growth of electric vehicle sales will cause demand for lithium to catch up with supply.
Nonetheless, the lack of financing available for lithium explorers means many companies must conserve any cash until they can be assured of raising more funds.
Michael Dehn, vice president of exploration at Jourdan Resources Inc., which has several lithium exploration properties, said he thinks it may take two to three years for lithium demand to catch up with supply, and for capital markets to open again.
“I hardly even look at the share price anymore,” said Dehn. “I have a project and it looks very economic, so I’m just waiting on market conditions.”
Meanwhile, Nemaska’s Bourassa, who hopes to begin producing lithium concentrates this year, said he is keenly aware that a handful of large companies dominate the lithium market, and his company is one of the last without any affiliation to a major player.
“If you look around, there are no other real projects besides us and Lithium Americas,” he said. “The more we advance the project, the more we do build, the closer we become to being a nice target.”