SQM and Lithium Americas announce Argentinian JV

By Kasia Patel, Myles McCormick
Published: Monday, 25 April 2016

First supporting of a junior by a senior market player SQM paid $25m for 50% stake Focus now on completing updated DFS

Chile’s Sociedad de Quimica y Minera SA (SQM) and TSX-listed Lithium Americas Corp. entered into a 50:50 joint venture (JV) agreement to develop the Cauchari Olaroz lithium project in northern Argentina at the end of March.

SQM paid $25m in exchange for a 50% stake in Minera Exar SA, a wholly owned subsidiary of Lithium Americas – which recently completed a rebranding process from Western Lithium Inc.

$15m of this will be used to pay off loans between Minera Exar and Lithium Americas, while the remaining $10m will be used to develop Cauchari Olaroz.

SQM’s backing of the Cauchari Olaroz project marks the first explicit supporting of a junior by a senior market player in the lithium business and SQM’s first move into lithium production beyond the Chilean border. Its stamp of approval will be welcomed by Lithium Americas, as juniors jostle to prove the viability of their projects amid a crowded field.

Patricio de Solminihac, SQM CEO, said that as Cauchari Olaroz is is located "just a few hundred kilometres" from its operation at the Salar de Atacama in Chile, adding that he expects to have "similar production processes at both sites" and "benefit from operating synergies".

Tom Hodgson, Lithium Americas CEO, meanwhile cited SQM’s "decades of development and operating experience", "strong team of technical and commercial talent" and "track record of success as a partner in many global joint ventures" as motivating factors in the agreement.

The companies will move to advance a work and engineering plans, completing an updated definitive feasibility study (DFS) based on an existing study completed by Minera Exar in 2012.

The DFS will evaluate the economic feasibility of a 40,000 tpa lithium carbonate equivalent (LCE) project.

Price tag

Lithium Americas CEO Tom Hodgson said during the company’s general meeting call that it has had "very, very positive feedback on [its JV with SQM] from some major players in the industry and major institutional investors".

Hodgson also addressed the issue of selling a 50% stake in what is seen as a valuable project for $25m.

"The answer is we believe the effect that this transaction has on the value of our remaining 50% is enormous. It gets us on to the path to production and gets us on to that path to cash flow in a very, very low risk way," he said.

The original definitive feasibility study (DFS), which was conducted in 2012, outlined that the company would bring the project online in two tranches of 20,000 tonnes. The 2012 DFS will be updated over the next few months with a view to producing 40,000 tonnes with potential technological changes reflecting process improvements SQM has made over the last few years. 

The companies may decide to start with 20,000 tonnes lithium. There is a 2:1 potash ratio and at full production the JV would supply 80,000 tpa potash.

Processing

Lithium will be processed on site in Argentina, with part of the project including the building of an industrial facility.

Lithium Americas will benefit from SQM’s marketing network but will have the ability to directly deal with clients for specific products and applications if necessary.

Hodgson said that some have also questioned SQM’s motives as part of the JV, with concerns that the company will keep the project on ice to prevent additional competition in the market.

"We are 100% certain that’s not the case. This represents a very major growth opportunity for SQM as it does for us," Hodgson said.

The next steps will be for Lithium Americas and SQM to agree a detailed business plan and for both companies to arrange financing respectfully.

There is a dispute resolution mechanism built into the agreement should the companies struggle to reach consensus on financing, although Hodgson said this is a worst case scenario rather than an expected outcome.

Extraction

Lithium Americas had been working with Korean battery maker POSCO on the use of direction extraction technology at the salar, a process which skips the evaporation stage associated with the traditional methods for extracting lithium from brines.

SQM’s expertise, however, is in the area of  traditional evaporation processing, which it has accumulated over the past decades.

The new process is said to offer quicker extraction and leave less of an environmental footprint. But while a number of companies are testing it on a small scale, it is as yet untried on a large scale brine operation, meaning its costs remain uncertain.

It remains unclear which process the partners will opt for at Cauchari.