Canada lithium mining hopeful takes another big hit

Shares in Nemaska Lithium (TSE: NMX) announced on Monday it has terminated a multi-year supply agreement with Livent Corporation that would cost the Quebec company up to $20m to settle.

The deal with Livent, spun out of US lithium major FMC Corp last year, saw Nemaska provide up to 8,000 tonnes per year (28,000 tonnes in total during the term of the contract) of lithium carbonate starting in April this year.

According to a press released late on Monday, Nemaska told Livent it "might have no option but to terminate" the agreement and repay Livent the USD$10 million the it received in April 2017 "plus a similar amount as a termination fee".

Nemaska said "despite good faith negotiations, [it] was unable to reach a mutually satisfactory outcome with Livent" and that Livent "is seeking arbitration, which Nemaska "will vigorously defend."

North American equity markets were closed on Monday for a public holiday, but Nemaska investors could feel more pain when markets open on Tuesday. Last week shares in Nemaska plummeted after disclosing it had been forced to revise the budget for the Whabouchi hard rock lithium mine and Shawinigan electrochemical plant upward by C$375 million.

The company's "objective remains to close the required financing on time to stay on target to complete mine construction in October 2019, in order to make the first shipment in December 2019."

Nemaska, which has also received funding from the Quebec provincial and Canadian federal governments, is building the mine in the James Bay region and Shawinigan processing plant north of Montreal, aiming to put Canada on the global lithium production map.

Nemaska has already spent over $138 million on the Whabouchi mine which is targeting annual production of 213,000 tonnes of spodumene concentrate over a 33-year mine life. The plant in Shawinigan is capable of producing roughly 23,000 tonnes of lithium hydroxide and 11,000 tonnes of lithium carbonate a year.

The additional funding is largely related to installation and indirect costs and construction and purchasing at both sites are on schedule according to Nemaska.

President and CEO Guy Bourassa said at the time the company's "objective remains to close the required financing on time to stay on target to complete mine construction in October 2019, in order to make the first shipment in December 2019."

The Canadian developer arranged $1.1 billion financing for the lithium project last year. SoftBank's $100 billion Vision Fund entered the mining sphere for the first time in May 2018, buying up to 9.9% of Nemaska Lithium.

Lithium prices have been under pressure for the past six months. While demand continues to accelerate the supply response has been dramatic— pushing down prices for the battery raw material. Four new spodumene mines went into production last year. While spodumene traded either side of $900 a tonne for most of 2018, prices fell sharply in January.

While generally higher on the cost curve than brine operations, spodumene concentrate is converted into battery-grade lithium hydroxide which trades at around $16,000 per tonne ex-works in China, down from $20,000 six months ago.

Pumping and evaporating brine solution produces lithium carbonate which sometimes requires further refining or conversion to feed into the battery supply chain. Battery-grade lithium carbonate in China has halved in value over the past year and is now trading under $12,000 a tonne.