Volt Lithium’s cost cuts help Alberta project weather metal price crash

Volt Lithium (TSXV: VLT) has cut nearly two-thirds of its lithium production cost as it prepares to start the low-grade Rainbow Lake brine project in northwest Alberta next year.

Testing in February of brine associated with privately-held Cabot Energy and Cenovus Energy (TSX: CVE) oil wells dating from the 1960s showed a cost of US$2,885 per tonne of lithium carbonate equivalent (LCE) versus US$8,057 in May.

The company produced 90% LCE from 34 parts per million (ppm) lithium brine through its proprietary direct lithium extraction process, president and CEO Alex Wylie said in an interview.

“We’ve developed a compound, or most people call them media, that is really agnostic to things like magnesium and other items, other minerals that might cause interference in the process,” Wylie said by phone from Calgary. “We can get to a purity with our process without doing final concentration steps and that I would say is pretty novel.”

 

While the lithium price has crashed by two-thirds from a year ago, Volt is vying to produce the battery metals by staking out a low-cost, low-grade operation that can be scaled up. By the end of next year, the company plans to decide whether it would be less expensive to build its own plant to process lithium carbonate into battery-grade metal or ship it to refiners in the United States.

Along the way it wants to start its first plant by mid next year for about US$20 million to produce around 1,000 tonnes of LCE a year. It will tap the brine produced by some 1,300 wells on Volt’s 1,750-sq.-km of lithium rights agreements with Cabot and Cenovus.

Lithium price

Annual production would shift to more than 23,000 tonnes of battery-grade lithium hydroxide monohydrate (LHM) over a 19-year period, according to a preliminary economic assessment (PEA) issued in December. The study assumed a price of US$25,000 per tonne LHM, although it was US$13,900 per tonne last week, according to The Wall St. Journal.

Shares in Volt Lithium rose 38% over the last month to close at 28¢ apiece on Thursday, valuing the company at $35.8 million. They’ve traded in a range of 16¢ to 55¢ over the past 52 weeks.

Getting the funds to expand – US$242 million for a second stage in the PEA – would depend on early cash flow success. Volt would also need to attract an investor such as a large oil producer and backers like the Alberta government and the Canada Infrastructure Bank, a Crown Corporation that backs revenue-generating infrastructure projects. Working with the Dene Tha First Nation may help access to government funds, the CEO said.

“Our goal is not to start off with a huge plant. We’d start smaller and then basically repeat these units as opposed to going straight off from a higher construction unit,” Wylie said. “My sense is, if we started off with a plant trying to do 20,000 tonnes a year, it’s just harder.”

The project, with 4.3 million inferred tonnes LCE, has an after-tax net present value of $1.1 billion at an 8% discount rate for an internal rate of return of 35%, according to the PEA. But its early development so far is making institutional investors take a wait-and-see approach for Rainbow Lake to make money first and get a partner, Wylie said.

“The oil and gas industry is a natural group to start lithium extraction in North America because they already have so much brine,” Wylie said. “What happens with older fields is you get a lot of water produced. The water cut on these wells is in the 90% range, 5% oil cut, so it’s ripe for an opportunity for a lithium company.”

Correction: A previous version of this story said Volt is working with Coterra Energy (NYSE: CTRA). It is actually Cabot Energy. Coterra was formerly known as Cabot Oil and Gas, a different company than Cabot Energy.