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Quebec lithium mine's bankruptcy flags Canadian market obstacles, analysts say

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Quebec lithium mine's bankruptcy flags Canadian market obstacles, analysts say

In Nemaska Lithium Inc.'s failure to launch a lithium mine in Quebec, analysts see some of Canada's disadvantages in the global lithium market coming to bear. The company headed into creditor protection in late 2019 after spending about C$411.4 million on the C$1.27 billion Whabouchi lithium project as of Dec. 31, 2019.

Remote project locations lacking infrastructure and proximity to end markets, in particular China, along with weak lithium prices remain obstacles for the budding sector in Quebec and other parts of North America, according to analysts.

Benchmark Mineral Intelligence lithium analyst Andrew Miller said many factors have played a role in holding back some of Quebec's potential lithium supply to the global market. Key among them is the relative cost advantage of projects in mature lithium-producing regions such as Australia, South America and China compared to Canada's more remote offerings.

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In Australia's case, its mines are closer to end markets, while they also may have better access to transportation infrastructure, Miller said. "They have the infrastructure and they've been able to quickly ramp up to scale," Miller said. "And, you know, in a lot of cases they have ... lower costs for development of some new projects."

Exploration Insights partner and analyst Joe Mazumdar, who has invested in the lithium sector, took a similar view, saying major producers have also made clear geographic choices about up-and-coming projects. U.S.-based Albemarle Corp. has invested heavily in Australian production rather than turning to North America for potential supply, Mazumdar noted.

"The preference ended up going to Australia because Australia was on China's doorstep," Mazumdar said.

While lithium mines and projects worldwide have felt the bite of weak lithium prices in recent years, Australian production growth has outpaced other regions. Australia's lithium production grew from about 24.7% of global lithium supply in 2008 to about 60% of the market in 2018, according to Reuters.

Much of the rest of the world's lithium supply comes from brine operations in South America, especially Chile. The U.S. Geological Survey has estimated that Australia produced about 42,000 tonnes of lithium in 2019, followed by Chile with 18,000 tonnes and China with 7,500 tonnes.

Despite the growing pains Quebec has suffered in trying to break into the lithium market in a major way, Miller said he expects projects in the province, and more broadly in North America, to one day supply more lithium to the market. "North American projects will play a big role, and you're going to see a lot of that in the next few years," Miller said.

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Growth will depend in part on supply chains in the battery sector expanding in North America, which in turn will make having mined production from Canada, the U.S. and Mexico more attractive, according to Miller. "As our supply chain grows, it's going to be a very favorable part of the world to source lithium,"

Meanwhile, lithium prices dragging near multiyear lows have not helped would-be producers such as Nemaska, Mazumdar noted. The company might have succeeded in finishing construction of Whabouchi if lithium prices had not fallen so heavily in 2018 and 2019, Mazumdar said.

"If there was a lithium market, they might have still have built it as planned but not made a lot of money," Mazumdar said.

Benchmark Mineral Intelligence's lithium index, which tracks lithium carbonate and hydroxide prices, was down 40.4% year over year as of its last price assessment in April and down 9.5% year-to-date.

The price pain has not been limited to smaller developers. In 2019, Albemarle slashed US$1.5 billion from planned capital expenditures over a five-year period, delaying projects that would have added about 125,000 tonnes of lithium carbonate equivalent product to the market. More recently, Chilean lithium producer Sociedad Quimica y Minera de Chile SA said it could delay some spending in the sector with demand falling in the wake of the coronavirus pandemic.

Still, Miller said North American projects may eventually eke out an advantage in the lithium business by focusing on value-added products for the battery sector.

"There's a lot more to be seen out of Canada, that's for sure," Miller said.