Lithium: Nemaska Lithium’s updated technical report confirms the increased capital cost for its integrated lithium hydroxide project

Whabouchi lithium mine

Nemaska Lithium is developing lithium operations in Canada including the Whabouchi lithium mine in Québec to produce a spodumene concentrate, and an electrochemical processing plant in Shawinigan to process that concentrate into 37.0ktpy lithium hydroxide. As announced in February 2019, however, following 8 months of construction, Nemaska required an additional C$375M (US$284M) in funds to complete construction of the project. This capital cost inflation was due, in part, to higher than anticipated construction costs and a requirement to improve the specification of the steel used within the processing plant. This revised capital budget has been confirmed by Nemaska’s latest technical report, which outlines that the capital cost for the project now stands at C$1,269M (US$960M) including contingency.

This is the latest in a series of capex increases for the project. Between the publication of the project’s initial preliminary economic assessment (PEA) for an integrated operation in 2012 and the February 2018 feasibility study (FS), the capital cost for the Whabouchi mine doubled from C$163M (US$123M) to C$333M (US$252M), albeit with an approximate 10% increase in lithium output. Meanwhile, the Shawinigan spodumene refining facility’s capital budget rose from C$277M (US$210M) to C$541M (US$409M), with C$231M (US$175M) of that gain occurring between 2016 and the 2018 FS. The latest release puts the capital cost for the two parts at C$448M (US$339M) for the mine and C$821M (US$621M) for the plant, an increase of 35% and 52% respectively since the 2018 FS.

Roskill View

In recent years, this trend of project capex inflation has been a common theme within the lithium sector. This shouldn’t be surprising due to the processing design complexity involved in producing a high-specification chemical product (such as battery-grade lithium carbonate or hydroxide), the often unique characteristics of individual projects and the general industry-wide lack of experience in lithium project development (prior to the lithium-ion battery revolution).

Furthermore, Nemaska’s example particularly highlights the technical risk involved in utilising proprietary processing technologies, and the hidden costs that can be unearthed as additional engineering studies and construction are undertaken. This outlines the importance of detailed and extensive engineering work on new lithium projects, and particularly the value in building and operating a pilot plant before financing and construction begin. Ultimately, capital cost increases during the construction phase can lead to parties having to raise additional finance to finish construction (as Nemaska has done), which often comes at the detriment of the company and its investors.

Capital cost inflation of Nemaska Lithium’s project

Capital cost inflation of Nemaska Lithium’s project

Source: Roskill, Greenfield Battery Raw Material Projects for the 2020s

Roskill’s NEW Lithium Market Outlook to 2028 report and NEW Greenfield Battery Raw Material Projects for the 2020s were published in June/July 2019.

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This article was written by Oliver Heathman. Please get in touch below if you wish to discuss further:

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