Canada Lithium secures $92M vote of confidence

Vancouver – While investor confidence hasn’t necessarily returned to Canada Lithium (CLQ-T), the company has been given stamps of approval by Scotiabank and Caterpillar Financial Services in separate financing deals.

Scotiabank has committed to provide a $75-million, 5-year debt financing to Canada Lithium as it moves ahead with development of its open-pit lithium mine and processing plant near Val d’Or, Quebec, while Cat Financial has agreed to provide up to US$17-million in lease financing for the mining fleet. Investissement Quebec, a provincial economic development agency, has partially guaranteed the $75-million financing.

The money is dependent on meeting standard conditions such as permitting, legal documentation, and notably, filling the remaining $25-million hole in the company’s project financing. Canada Lithium had earlier stated it was looking for as much as $100-million in debt financing, and so is evidently still on the hunt for the rest.

Meanwhile the other half of the US$207-million total project financing was filled thanks to the $126.5 million Canada Lithium raised in January and February of 2011 in a bought deal financing at $1.50 while its stock was still riding high.

Soon after that financing, however, the company’s stock took a significant hit after it was forced to revise its resource estimate after major errors were found in the original estimate.

When news broke of the resource controversy, the company’s stock fell as quickly as it had risen months earlier. Trading around 70¢ in early October 2010, the company’s stock price climbed rapidly to a brief high of $2.23 at the very end of 2010 before quickly falling back to around 70¢ in early March when the company announced it was looking into discrepancies in the resource model.

Since the debacle, the Canada Lithium has been working to advance the project and put the resource issue behind it. The company started construction in August with plans to commission the mine in late 2012 and reach full production reached in late 2013. The company is still in off-take talks, largely with Asian buyers, for the 20,000 tonnes of battery grade lithium carbonate it expects to produce annually once it reaches full production.

Current reserves for the porject stand at 17 million tonnes grading 0.94% lithium oxide, while the company will also stockpile low-grade reserves of 3.2 million tonnes at 0.38% lithium oxide to process from year 13 to the end of the mine’s life.

In December 2011 the company released an updated resource based on just over 10,000 metres of drilling. The update established 33.2 million measured and indicated tonnes grading 1.19% lithium oxide plus 13.8 million inferred tonnes grading 1.21% lithium oxide, both using a 0.8% cut-off. The update added roughly 4 million tonnes of measured and indicated resources compared with the May, 2011 estimate. Inferred resources, meanwhile, decreased from roughly 21 million tonnes to the 13.8 million tonnes in the latest resource, though the grade increased from 1.15% to 1.21% lithium oxide.

Both resource updates, however, are a far cry from the October 2011 resource estimate that was later proved to have significant flaws. That resource outlined some 46.7 million measured and indicated tonnes at 1.19% lithium oxide and 57.6 million inferred tonnes grading 1.18% lithium oxide.

An updated feasibility study released in June 2010, based on the May resource, outlined a 15-year mine life with a net present value of roughly US$190-million at an 8% discount, a reduction of US$80-million compared with the previous study thanks to increased operating costs from higher dilution and ore loss. The internal rate of return dropped from 24% to 22%, while the pre-tax payback period stayed at four years.

The company is still facing a class-action lawsuit in the Ontario Superior Court of Justice related to the resource discrepancies.

On news of the financing, the company’s share price closed up 6¢ at 75¢, the highest Canada Lithium’s stock price has been since last July. The company’s share price has hovered between 45¢ and 75¢ for most of the past year.