blowshigh wrote: Finally got some of my notes cleaned up over the last while. Trying to understand more about what partnering/financing/construction will look like as the implications will be
the most catalytic event for the s.p. when she blowshigh! It's actually b-low-s-high but stockhouse would not let me use the dashes in my handle when i set the account up over 17 years ago.
Folks these are simply my views and somewhat biased opinions, I am a shareholder after all!
No big agenda, just thought some might find the observations interesting -
while we wait!.
First up Peers - Can we learn anything from successes and failures of comparable peers.
As the post is exceedingly lengthy leaving out my notes on Sigma for now.
Sigma (The Good)
NAL (The bad)
Nemaska (The Ugly)
plus a look at Renard - I think it's important
Allkem - James Bay Lithium Project. A merger of equals Orocobre and Galaxy became Allkem, a large chemical company! We are further ahead on project development, they are currently working through the permitting process so I left off my list not much to say really.
Nemaska - The Ugly. Over the years JSL from time to time has been asked about the Nemaska saga!
We've had to deal with Nemaska's legacy and the overhang created on our project for a few years and likely still are. JSL would always sternly reply
"We are not Nemaska!" I always felt that was true but I wanted to understand why we are not Nemaska in more detail. Over time I had gathered notes but never compiled it or spent much thought analyzing it! What an interesting exercise this was!
An integrated mine/concentrator/convertor
(with proprietary process) requiring
a massive 1.1 billion financing package (454 million equity, 350 million US secured bonds (this money was escrowed based on certain conditions being met, 150 million secured streaming then the oops, additional 375 million required. Minister Fitz claimed it was a Capital structure disaster that should have never happened.
In reviewing the build, you will find they were
over spending on CAPEX from the very start of construction
dipping into contingency at both sites. Didn't make it a year before realizing their engineering was finally catching up to reality requiring the extra 375 million additional CAPEX.
Now stuck,
915 fully diluted shares, 350 million in debt @11.25 interest rate (that's 51 million in interest payments/year),
s.p. tanked to around .30, market cap just 250 million. How could they possibly raise another 375 million. To make matters worse the market turned down in 2018 and as we know got an extra push over the cliff by Organ Stanley.
July 2019 - Along with the 375 million extra needed to complete construction, Nemaska then released a revised construction estimate and completion would not occur in June 2021 that triggered a breach in the 350 million bond covenents In additon 1/2 of the streaming deal would be withheld. When Nemaska's announced 375 million dollar short fall number but
assumed they would still have access to the bond money and the streaming money -
mistake
At this point they would ultimately need 830 million re-financed to complete construction. Nemaska's integrated strategy to build mine/concentrator/chemical plant -
mistake one massive financing package -
mistake Large debt component - high interest rate -
mistake Proprietary process -
big mistake Watch the CAPEX as the project works it's way through the development cycle process:
43-101 Resource estimate July 2010
PEA >> March 2011 (mine/concentrator)
CAPEX Whabouchi 86 million -
hydro met testing done to produce carbonate using off the shelf techniques Tech Report and PEA>> Nov 2012 (mine/concentrator/hydroment plant at Valleyfield)
CAPEX Whabouchi 159, Valleyfield 277 = 454 The conclusions of this report from 2012 state. The process to produce spodumene concentrate is also well known and should not be problematic. However the processes of making lithium hydroxide monohydrate from spodumene concentrate by electro dialyse and lithium carbonate from lithium hydroxide in solution, have been developed by Nemaska with the assistance of SGS Minerals. These processes, for which Nemaska has filed 2 patent applications,
have not been used on a commercial basis and therefore there are risks that the production and capital costs related to this portion of the processes differ from the ones used in the economic analysis which could have a direct impact on the economics of the Project. Met testing using Electro dialysis using Bipolar Membranes (EDBM) to produce Lithium Hydroxide and EDBM
appears to be a good technology for a large scale LiOH production facility.
Big difference between the above 2 PEA's. They went from producing carbonate by off the shelf methods to specifying a chemical plant producing carbonate from Lithium hydroxide and the hydroxide was going to be produced using an unproven method
and they were warned about CAPEX related to this new process. Revised Tech and PEA Report >> Feb 2013 (mine/concentrator/hydroment plant at Valleyfield)
Updated mineral report -CAPEX Whabouchi 159, Valleyfield 277
CAPEX= 454 F.S. (mine/concentrator/Hydromet plant) June 2014 CAPEX Whabouche 190, Valleyfield 309
CAPEX = 520 Revised F.S. (mine/concentrator/Hydroment ) Jan 2016 CAPEX Whabouche 190, Valleyfield 309
CAPEX = 520 Updated F.S. (mine/concentrator/Hydroment) May 2016
moved Hydromet Plant from Valleyfield to Shawinigan, updated Hydromet process CAPEX Whabouche 239 , Shawinigan 310
CAPEX = 549 Revised Updated F.S (mine/concentrator/Hydromet) June 2016 Updated mineral report
Completed the 1.1 billion financing in May 2018 then Updated F.S again 1 month after the financing (mine/concentrator/Hydromet) June 2018
CAPEX Whabouche 333 , Shawinigan 541 = 874 In this study they state "For the Electrochemical Plant, engineering is not as advanced as for the mine site."
Interesting choice of words used here and no mention of % completion on engineering. In the Sept 2018 Sedar filing shows Whabouchi detailed engineering 76% completed, Shawinigin 20% electrical 0%, 5 months
after the first big financing. After another 5 months of detailed engineering in Feb 2019 the big mia-culpa another 375 million required.
In the court filings as at Dec 2019, the monitor states that management estimates for construction at
Shawinigan was only at 4% complete. That last F.S. update in 2018 they made even more changes adding more equipment for producing carbonate, and
"updating various equipment to make the process more reliable", much of the increased CAPEX seems to be addressing changing technical issues. It appears at this stage they still hadn't nailed down the commercial scale final engineering.
Why did this happen? The ever changing processes and ever increasing capex should have raised concerns. They new it was a novel process and were warned in 2012? In 2017 Bourassa said in an interview the
F.S. was set and no need to update or change the production profile. At that time CAPEX was 549. Yet in 2018 they did exactly what he said they would not do. Increased carbonate production from 3,000 t to 10,000t and total of 28,000 t LCE to 33,000 t LCE.
The CEO claimed the 375 million was a normal part of the process as details were further refined. Was the DFS flawed? There are many stories in the mining world of what not to do that lead to disaster. Many people here are probably Gold and Silver investors so may be familiar with Rubicon. They decided to jump straight from PEA to construction. Raised 750 million, built a mine, turned it on and right from the first pour couldn't get an economical head grade because the ore body was very narrow veined and too complex. They hadn't done the proper home work to figure out how to process it.
No PFS, no DFS, management were in a real hurry. Bankruptcy is in an even bigger hurry when you mess up. Good project, bad management.
Interesting to note that it was also the PEA where Nemaska made the BIG decision to switch from standard processing of carbonate to proprietary process.
Mining projects are big and complex and each step through the process from the PEA onward is supposed to give you more confidence and validity in the accuracy of your numbers. A
good DFS should get you to a CAPEX number within a reasonable margin of error, I think around +/- 15 percent. Then FEED(front end engineering and design) and detailed engineering dig deeper confirming your numbers. Smaller deviations get corrected (that's what contingency is for)
before mistakes are made during construction.
The Proprietary Process - The expertise on the hydroment plant process lay with the tech team 3 levels down from the C-Suite. Inititially this team was assisted early on by SGS. I doubt anyone in the C-Suite or V-Suite really had the depth of knowledge to fully comprehend the technical challenges.-
mistake Proprietary process also implies, Expert consultants brought in to do studies are
not experts in your proprietary process and may miss things.
They had appox. 20 people in the C-Suite, V-Suite, Tech and Ops management structure. The C-Suite and V-Suite had lots and lots of mining experience based on bios i reviewed but, they had
Zero Lithium Experience and Zero Chemical Plant Experience. Was this the biggest mistake? What about The Directors - Any Lithium Experience here! The last group of directors had None, but they did have the former President of Bombardier's recreational products division! From a 2015 presentation. One director from Tianqi Lithium - Corporate business development and none technical. At the time Tianqi held 8% stake in Nemaska. In addition,
karma appears in full display as the
former CEO of RB Energy sat on the board of Nemaska. The
former COO and President of Stornoway Diamonds was also on the board. Not making this up folks! They say real life is stranger than fiction!
They had an NPV between of 1.8 billion or so. They had signed agreements for 90% of production, all the off-takes you could want or need, in the end none of this mattered!
Imagine where they be if they had simply focused on the mine and concentrator. The 2012 PEA conclusions.
"The process to produce spodumene concentrate is also well known and should not be problematic" They would have been leading SIGMA's production timeline by 30 months. The latest production cost estimates were an average cost for SC6 of US 257 t cif shawinigan, would have been even less fob whabouchi. Even with the 2018 - 2020 downturn the lowest pricing data shows SC6 falling to about US 425 t they would have had plenty of balance sheet wiggle room
to get through this rough period.
Prolog - New-Nemaska(Livent) after taking over has announced a significant milestone recently selecting Becancour industrial park for the Hydroxide plant. What I find interesting is that no where that I could find do they explain what process it will use. In the announcement Livent did say this:
Becancour allows plant design, construction and operation to be carried out without the constratints associated with pre-existing buildings. Shawinigan was not usable for anything Livent has in mind? Given the last F.S and the extra 375 million, the Chemical plant alone must have been close to 850-900 million dollars. Perhaps Becancour will not use that Proprietary process and it just might be spec'd to accept feed stock from other mines? Fascinating!
One of our newer directors, Vanessa Laplante
was a director and chair of Audit and Risk management at Nemaska...Kinda of bothered me when I first read this given all of the above. However it appears she was hired in late 2018, her LinkedIn bio says Feb 2019. The 375 million short fall was announced same month she was hired.
I'd say she got blind-sided day one on the job. In fact it looks like she stayed around to help clean up the mess.
Must have taken some guts to do that. Hopefully during her tenure she learned some things, knows where the bodies are buried and types of pitfalls to avoid. Some of those 20 executives at Nemaska carry a lot of responsiblity, either being asleep at the wheel or worse. This may sound harsh, I really don't want to see any Nemaska exec's that were there leading upto the big financing and subsequent train wreck end up at CRE as we build out our team going forward.
North American Lithium (NAL) -The Bad What a tangled web this is. Initally this was RB energy. RB failed because it couldn't raise the 60 million it needed to finish the mine. Investment Quebec was involved by providing a guarentee to the senior secured lenders debt up to 60 million dollars. After 200 million investment. RB's technical challenge was they could not reliably produce battery grade material. The Ministry also had to intervene twice as a waste water leak and tailings pond accidents 2 in 1 year spilled million of litres. This project was turning into one of those contaminated abandoned mines...where the gov't would be on the hook to clean it up. When the senior lenders pulled the plug Investment Quebec's guarantee kick-ed in and Invest Quebec had to pay 60 million to the bankers, but also got control of the asset.
Along comes NAL, a joint venture between Jien International and Invest Quebec then add CATL to the party. Intitially was to produce Spod and Carbonate they started production in 2017 and suspended in 2019 filing for Bankruptcy. They only ever sold spodumene and did not produce carbonate. At time of filing Jien shareholders owned 52%, CATL 43%, Invest Quebec 5% Jien where nickel copper miners specializing in turning around failing projects with access to the specialized Lithium convert market in China and used Chinese Lithium Experts to get things going.
In 2017 they produced only 114,000 t concentrate against 180,000 t only 63% of nameplate capacity. They needed lots of additional capital to optimize production and finish the carbonate plant. Prices of Spod and Carbonate soon fell as Autralian miners output came online. They couldn't operate at a profit. In 2018 selling Spod at $750 t recorded losses of 7 million dollars, with pre-vailing prices for the balance of 2018 at $470 they where expected to lose 52 million. They only had 2 customers Transamine Holdings and CATL buying product and major disputes arose with customers about "honouring contracts". In Feb 2019 they were put in default by MERN (ministry of environment) as they failed to pay their installment on their 23.5 million dollar reclaimation process. MERN demanded immediate payment for the full amount with threat to revoke their mining lease. GG Entrepeneur General Miner also filed proceedings against the company. GG was the major sub-contractor at the mine with 200 employee's under contract.
Sayona/Piedmont paid 200 million as the successful bidder for NAL assets. Interestingly with this deal CATL as a senior secured lender got it's debt paid back and Sayona assumed the Investment Quebec senior debt of about 100 million. Stornoway's Renard Mine I wanted to look at Stornoway's Renard in some detail to understand mistakes leading the bankruptcy and while not a Li Peer, for those who don't know Renard (a diamond mine ) is in close proximity to the Rose mine, i think about 200km to the east.
I'm actually much more interested in the build so just a quick summary of the Bankruptcy! Matt Manson - CEO seems similar to Nemaska CEO, hell bent on getting financing and proud of the comprehensive big deal. Renard was a big financing 1 billion with 260 million debt.
Had some ramp up issues with diamond breakage that finally got corrected, Then suffered a cash crunch after as the rough diamond maket got depressed. They also did have a challenge transitioning from open pit to under ground mining encountering lower grades than expected. This caused them to modify some finances with the lenders. After some Q's of negative Cash Flow, they reported 365 million loss (signifcant write downs). It ended with them having 36 million in monetary assets to 59 million in monetary liabilities they couldn't cover.
They ran out of working capital and backers (
senior lenders) pulled the plug. The price deck assumptions were for average prices to be US147 /ct when they could only achieve about US76 /ct. so
50% lower prices than expected.
The balance sheet couldn't handle that severe a turn in the market,
bad luck or bad management? Patrick Godin seems an interesting character as mentioned in the Nemaska review, was the COO at Stornoway, then CEO after Manson left. and just after the big Initial Nemaska financing was complete he was appointed to the Nemaska's board...
bad karma I guess!
I wondered if these projects have anything in common regarding the financings, turns out they do indeed.
Senior secured lenders pulled the plug in all RB, NAL, Nemaska, and Renard
Caisse de depot, Invest Quebec and Orion mine financing were knee deep in Renard and Nemaska
Invest Quebec was also in RB Energy and NAL. When projects encounter difficulties, the senior lenders determine what happens next could these guys be more Vulture in waiting than friendly lenders.
Curiously, Invest Quebec ends up with 50% ownership in Nemaska and will likely make a pile of money.
Invest Quebec was also able to transfer it's senior NAL debt over to Sayona when Sayona/Piedmont bought NAL so Invest Quebec is actaully still in Sayona/Piedmont. JSL if these guys come calling maybe just pretend your not home! Finacial conditions aside, the more relevant aspect of Renard is the construction of the project.
Renard is exactly the same jurisdiction as Rose, same mining regulations (CEAA2012) federal review guidlines, and of course
reviewed by our newest best friends at the COMEX. The government oversite during construction the process for permit amendments would all be identical.
Of note, we recently hired a new VP of Engineering Construction, Reliabilty
who over-saw the Renard build. In addition Huhes Perigny our new Senior Project Manager also worked on the Renard build.
I'm getting the feeling that the Renard construction team is being reconstituted for the Rose build! Everything I've manage to find on the build says it was tremendously successful. They partnered with Ministry of Transport to build a 240km road extension (Route 167) leading upto the mine and at one point Stornoway took control of the 3rd and 4th segments of the access road so they would have complete control of the mine construction schedule. Some innovative thinking on plant design, they decided to use LNG to power generators creating their own power.
It was built 5 months ahead of schedule and 37 million under budget. After 7 months of construction they were
consistentaly ahead of schedule showing 63% complete, and engineering 99% complete. The construction contractors,
all of whom are Cree or locally operated businesses. Given the proximity to Rose, alot of those locals and sub-contractors likely could be used in our project as well.
I can already hear Yves and Huges working the phones to see if their best people from Renard will be available.
My confidence in CRE management for the construction phase has gone up considerably and if we are indeed reconstituting the Renard team for our project, it's brilliant! What's the saying, Learn from others mistakes. CRE has a Simplified plan with mine/concentrator,
The initial PEA from 2011 contemplated CAPEX at 268 million
DFS in 2017 increased CAPEX +27% at 341 million.
The updated DFS (as at june 2022) 5 years later only has a slight increase in CAPEX +5% at 357 million relatively modest compared to Nemaska and Renard. Even though it expired in 2019 we had Primero do a guarantee'd price assessment on the engineering/procurement and construction of the project and confirmed the DFS CAPEX.
DFS is solid as the flow sheet has not changed and production profile only had a small change yet our NPV is 3 times higher.
Our timeline on the presentation shows detail engineering BEFORE financing and construction,
Back in Feb 22, 2022 FEED (front end engineering) was awarded to Bumigeme Inc, WSP and Golder Associates.
The goals here are
design review, gap anaylysis and risk mitigation of the F.S flow sheet
Get to 30-40% complete on FEED to allow procurment of long lead items.
FREEZE the design of the process plant and
update CAPEX. Given the permitting delay, the % completes on engineering may well be far advanced than goal stated in the press release and management may have updated CAPEX in hand which I'm sure they'd want to know before financing is complete!
Some detatiled engineering had also begun back in Feb. regarding the stacked tailing facility.
You can re-read that press release of the Corporate Update here!
Corporate Update Feb 22 2022 Our management team is in another galaxy compared to Nemaska in terms of Lithium Experience.
We also had David Buckley for a key couple of years, a Chemical Engineer, 25 years Li experience, ex Rockwood Lithium alum. Was our chief process engineer for 2 years who had done lab work, pilot plant work, F.S. and engineering for us between 2016-2018.
Our construction management team is looking like it will be stellar.
Mining start-ups become vulnerable for a period of time once financed because thats when the clock starts ticking. Everything our management team have done to date appears to have set us up well to get us through this period. So yes JSL - "We are not Nemaska", not in any way shape or form! During this exercise it also occured to me that he flag ship Lithium projects in Quebec have moved from weak hands and are all now in strong hands.
Galaxy >> Allkem
RB >> NAL >> Sayona/Piedmont
Nemaska >> Livent/Invest Quebec.
CRE >> CRE
Perhaps CRE has always been in strong hands from first discovery to today, we just didn't realize it at times.
Cheers