Lithium Universe (ASX: LU7) has defied market trends to post an upbeat prefeasibility study (PFS) for its Bécancour lithium carbonate refinery in the Canadian city of Québec, delivering a pre-tax net present value (NPV) of US$779 million (AU$1.17 billion) and an annual EBITDA of US$147 million (AU$221 million) in its bid to service the growing North American market and fill the conversion gap by reducing the need for Chinese product.
In establishing an internal rate of return (IRR) of 23.5 per cent, capital costs of US$494 million (AU$742 million) and a payback period of 3.5 years for the 20-year operation, the company has assumed a medium price assumption of US$1170 (AU$1759) per tonne for spodumene concentrate and US$20,970 (AU$31,500) per tonne for battery-grade lithium carbonate for a refinery expected to produce 18,270 tonnes of lithium carbonate a year.
With operating costs pegged at US$3976 (AU$5978) per tonne of lithium carbonate, the refinery will be supplied with low-cost, green hydroelectric power provided by Hydro Québec, which is expected to reduce greenhouse gas emissions by 95 per cent.
The project design has leveraged proven technology from the Jiangsu lithium refinery, reducing construction risk and ensuring a reliable production process. It will focus on producing lithium carbonate, a key component for the lithium iron phosphate (LFP) batteries that are becoming a more popular option due to their stability, safety and cost effectiveness.
The company’s strategy is counter-cyclical, with a plan to move its project forward during market downturns in order to complete it in time to capitalise on future market recoveries. With feedstock sourced from North America, Brazil and Africa, the Bécancour refinery is being positioned to contribute significantly to the North American lithium supply chain, addressing the lithium conversion gap and reducing dependency on Chinese converters.
Early on, we recognised that bridging the lithium conversion gap in North America, leveraging our accumulated lithium expertise and the proven technology from Jiangsu, was a clear and strategic path forward. We are dedicated to funding and constructing a proven, low-risk lithium conversion refinery in Québec, marking the first step toward establishing Québec as the lithium conversion hub for the Transatlantic region.
Lithium Universe Chairman Iggy Tan
Tan says he is confident the Bécancour refinery will emerge as a leader in producing green, battery-grade lithium carbonate.
Lithium Universe will now move towards the completion of a definitive feasibility study (DFS), which will provide detailed technical, financial and operational insights into the project, refining cost estimates, engineering designs and operational strategies. Once finalised, it will pave the way for funding and the construction of the refinery.
Since the launch of the PFS 12 months ago, the company has sought to stamp itself as a key player in the global lithium conversion market by picking Québec – which is emerging as a potential hub to rival China’s dominance – for the site of its refinery. Progress is already being made at the Bécancour Industrial Park site where management is preparing the necessary land and infrastructure.
The company has also been in active discussions with original equipment manufacturers (OEMs) to lock in long-term supply agreements for lithium conversion, particularly targeting North American and European electric vehicle (EV) supply chains.
Lithium carbonate prices have plunged in the past two years from a high of US$84,000 (AU$126,000) a tonne to US$10,000 (AU$15,400) a tonne – the lowest prices since 2019, excluding the 2020 COVID low, leaving a trail of destruction behind it.
But there have been recent predictions from leading market analysts that the bottom is now in, with both Mineral Resources and Pilbara Minerals adamant that a recovery is on the horizon.
That sentiment has been largely prompted by the sudden admission of China’s leading producer CATL that it would be forced to close some of its mines due to the depressed lithium price. According to Union Bank of Switzerland (UBS), CATL’s cash cost has been higher than the spot price for more than a year now.
There has also been some conjecture about the increasing grey market supply coming from Africa, although worries appear to be easing as the logistics of transport are far more complex and costly than from Australia.
As with any cyclical commodity-driven market, the imbalance between supply and demand is the chief driving force of prices. If a few more mines are forced onto on care and maintenance before the end of the year, the supply will start to dry up, excess inventory will drain and a balance will reappear.
As Lithium Universe has pointed out, it has one eye on the counter-cyclical nature of its project and the timeline to construction. With the market starting to see green shoots appearing, the company may well have timed its run to perfection.
Now, time will tell.
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