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Eyeing battery grade lithium in the Americas: Q&A with American Lithium Corp. CEO Simon Clarke

18 July 2022 Amena Saiyid

With the shortage of minerals critical to electric vehicle (EV) batteries and grid storage like lithium only expected to grow, S&P Global Commodity Insights' Net-Zero Business Daily spoke to Simon Clarke, CEO of Vancouver, Canada-based American Lithium about plans to boost production in the US and Peru.

Clarke envisions the battery-grade lithium American Lithium expects to supply will be a key piece in alleviating US reliance on China, which dominates global production and refinement of the lightweight metal.

On the sidelines of the 2022 Battery Gigafactories conference in late June, Clarke made a case for why the US should rely more on countries like Peru when "it cannot meet all of the demand domestically." According to S&P Global Market Intelligence data, the US has only one operating lithium mine and 63 lithium projects in various stages of development.

American Lithium is advancing development of the TLC Project from a claystone deposit in Nevada and the Falchani hard-rock project in southern Peru. It plans to have both projects operational as early as late 2025 though Clarke said the uncertain permitting timeline could lead to potential delays, especially in the US.

Net-Zero Business Daily: What is your vision for American Lithium?

Clarke: I think it's taken a long time for the US and its allies to wake up to the fact that the supply of critical minerals is now so dominated by China that if we don't start to develop domestic and allied supply chains, it's going to be really very difficult for us to compete. And, ultimately, we could be held hostage to that, which could have major potential impacts on energy security. So, American Lithium, as the name suggests, was founded with a vision of supplying lithium to the supply chains of North America and its allies.

Net-Zero Business Daily: You have two major lithium projects, one in Nevada and one in Peru. Are they both operational?

Clarke: No, neither is operational yet.

At the TLC project in Nevada, we've discovered a major lithium deposit and have done a lot of early metallurgical work that proves we can extract lithium from this claystone deposit which is part of the large Esmeralda Trend.

We are now permitted for a large drill program at TLC, which is now close to 50% complete. This program will further expand our already large-scale resource and provide us with detailed information, such as where the higher-grade sections are. This in turn will enable us to plan where to focus our mine plan, etc. We also are in the process of finalizing an economic assessment (EA), which will demonstrate the ability to produce lithium economically from this project.

Net-Zero Business Daily: How much time will the EA and subsequent permitting and construction take?

Clarke: The problem in the US is you don't know exactly how long the permitting process will take, but ideally three-to-four years.

We'd like to have the permitting done and be building the [TLC] mine and be close to production by either the end of 2025 or early 2026. We're probably looking at 2026 for first production.

Net-Zero Business Daily: Companies say permitting takes long and have been asking the US government to "streamline" the process." Any thoughts?

Clarke: It takes too long. It took us over 12 months to secure permits for our current drill program in Nevada. Admittedly it's a large one because we decided we will do all the drilling that we need on this project for feasibility and beyond, but ours was still a straightforward process that should not have taken 12 months.

Australia and Canada manage to issue permits under significantly faster timelines without compromising environmental or cultural issues. It seems to me we need to run more of the various elements of the process in parallel rather than sequentially, but that would require additional staffing.

Everyone wants to see this new energy paradigm, reduce carbon emissions, and get rid of internal combustion engines, but you're not going to do it without the minerals or mining.

We need new mines coming online in the next few years not in 10 years.

However, the reality is the industry does recognize the need to implement best practices on the environmental side and I don't believe that anyone is asking for that to be compromised. The simple reality is we can streamline permitting and make the process more efficient and keep environmental standards high. We need to make the changes to clean up transportation and make our energy generation more sustainable and I believe this is widely accepted, we just need the tools to make it happen.

Net-Zero Business Daily: Did you face any local opposition as some other companies have faced over mining in Nevada?

Clarke: We've studied and learned from the environmental and cultural problems that several surrounding lithium projects in Nevada have faced. We are very fortunate that our lithium resources in Nevada are in the high desert, so we don't have any endangered species of plants or animals on our lands.

We also believe we have minimal cultural issues from a Native American perspective. There are several tribes in the surrounding areas, and we've been proactive in consulting with them about our project and involving them early in the process.

Net-Zero Business Daily: Where does the Peruvian project stand and when do you expect to start production?

Clarke: We have completed a robust preliminary EA on Falchani and have commenced work on the feasibility phase. We have kicked off the environmental impact assessment, which is an integral part of feasibility studies. We've already proven that we can produce battery-grade lithium from this project. So, Falchani is more advanced compared with TLC. We do also need to reclassify some of our resources to provide the reserves needed for feasibility. And then we will pilot it and then move in towards production. Falchani is probably six-to-12 months ahead of where our Nevada asset is currently.

As per our preliminary EA, Falchani has the potential to ramp up to over 80,000 metric tons (mt) of lithium carbonate production a year. I think in our Phase Three, we're looking at 85,000 mt of lithium carbonate annually. We believe this project has additional expansion potential as the deposit is open in several directions and we will add to the resource through extension drilling at the same time we reclassify the resource. We also believe that the Macusani Plateau, where Falchani is located, is a likely source of several other deposits like Falchani.

We ultimately believe that Falchani has the potential to yield 100,000 mt of lithium carbonate annually, which would make it one of the biggest lithium projects on the planet.

Net-Zero Business Daily: There have been reports about water-related issues involving indigenous people near Peru's copper mines. Have you faced similar problems with your project?

Clarke: In Peru, it's different than the US. You must get community agreements in place before you can do any work. We have six communities around our projects in southern Peru. Plateau Energy, which we acquired last year, did a great job with the communities and we have continued to build on that platform. In fact, the communities sent their leaders down to Lima to meet the president and ask for his support to help move our project forward as quickly as possible.

This contrasts with a number of high-profile cases such as the Las Bambas copper mine, which is Chinese-controlled and had major issues with proximal communities. Our experience was the opposite, with the communities being onboard with us.

We're also lucky that our Falchani project is located where there's abundant rainfall and hydro-electric power, and we've got the Interoceanic Highway that connects Peru and Brazil through the Andes and links up with the deep ports on the Pacific coast and which is just 14 kilometers from our site. More importantly, we have a project that can produce battery-grade lithium without the need for additional refining. What will be produced from Falchani can go straight to a giga factory or cathode plant.

Net-Zero Business Daily: Will the Nevada mine also produce battery-grade lithium?

Clarke: Our goal in Nevada also is to precipitate battery-grade material, or at least high technical- grade, that we can process ourselves to battery-grade levels. However, a lot of lithium projects globally don't produce battery-grade products so they end up in China or elsewhere for upgrading/refining.

Net-Zero Business Daily: Have you received any potential offtake interest in either project?

Clarke: We have interested parties in the US and Peru, but we haven't locked-in anything yet. I think we're too early in relation to TLC in Nevada. Once we publish our preliminary EA for TLC, which we expect at the end of the third quarter of this year, it will catalyze interest among investors and potential strategic partners.

Net-Zero Business Daily: Is the Peruvian Falchani project designed to meet demand in North America?

Clarke: Our vision for the company when it was set up in 2015 was to be a key supplier to the supply chain of the US and its allies (the so-called Western supply chain).

I would submit that Africa is now largely the domain of the Chinese. You've seen the Democratic Republic of Congo, where most of the world's cobalt originates, is locked up by China. And China is currently doing the same in South America. Moreover, many large lithium projects in Argentina and Mexico have been acquired by Chinese purchasers.

And I think the US—as part of its focus on critical minerals—must look at its allies because it's never going to be able to produce enough domestically. Instead, it must bring its allies into the tent; it must work closely with governments like Peru, which have historically had a great relationship with America.

Right now, you are seeing the Chinese controlling some of the copper in Peru. When we acquired Plateau Energy, and with it Falchani, there was Chinese interest as well, but fortunately we were able to win that battle.

I think what we are seeing in the Ukraine is that being highly dependent on regimes not allied with our way of thinking or our goals is ultimately a very dangerous strategy. Having security of supply over critical minerals that will drive our industry and energy security going forward must be a key priority of this administration.

Net-Zero Business Daily: Are you considering partnering with Chinese companies too?

Clarke: It's a fair question. Our vision, as I said earlier, is to supply the domestic markets and the Western supply chain. In addition, clearly Chinese companies have not been able to acquire or have material ownership in projects in North America so TLC would be off the table for them.

In relation to Peru, I think if the American and allied governments really make an effort to bring in countries like Peru as key allies for sourcing critical minerals then it will make our job that much easier. The Chinese have done a very strong job in extracting and refining lithium, and there's no doubt a number of major Chinese companies are very active in acquiring and partnering on projects across South America.

Ultimately, our goal is to create value for American Lithium and its shareholders as these are capital intensive projects.

Net-Zero Business Daily: If Chinese backing is off the table, are you looking to tap into government loans, such as those available from the US Department of Energy's Loan Program Office, or other federal sources for financing TLC?

Clarke: At the right time, yes. We are well-capitalized currently with $47 million on the balance sheet, and commitments in the form of warrants that could bring in another $70 million of capital if needed. We don't urgently need cash right now. We've got sufficient capital to take these projects through piloting in both Nevada and Peru. But as you get into pilot production, permitting, and mine construction, the process gets more expensive. So, down the road, yes.

And yes, another potential off-taker could be the US Department of Defense (DOD), which has more opportunities now for companies like ours to receive sale contracts/offtake agreements and related funding. It is great to see these meaningful additional sources of capital and the DOD deeming lithium as a metal of national security etc.

[EDITOR'S NOTE: The $40 billion Ukraine supplemental funding legislation enacted in May included $600 million for the US Department of Defense to use the Defense Production Act to expand domestic sources of critical minerals, such as lithium].

Net-Zero Business Daily: What other types of financing are you thinking about?

Clarke: The challenge with producing lithium is that it involves complicated chemical processes that go well beyond the actual process of mining.

That said, there are several major players in the world who understand and have developed expertise in these processes. Although the sector is still in its infancy, there are more traders starting to trade lithium. So, securing offtake agreements, which you mentioned earlier, is one way to raise capital. There will also be mainstream debt available as the sector further evolves and matures. Certainly, we have strong institutional support that could provide funds through equity as well although you don't want to over-dilute a company by raising all project financing through equity. Then as you mention US government funding and loan guarantees will be important as well.

So, what I'm saying is I don't think it's necessarily one source of capital stream, its likely a mix of these sources.

Another option would also be to choose to partner with one of the big majors that can supply a lot of the capital and expertise to build a mine and plant. Ultimately, the sector has a very strong acquisition market. And it's not just the Chinese. A lot of mining majors like Rio Tinto and automakers like Tesla, and even GM and Volkswagen, are among these groups. They are not just looking at investments but potentially buying upstream operations. For us it may make most sense to sell the company to one of those groups in a year or two. Obviously, our primary goal is to do the right thing by all our stakeholders and creating value for them is at the top of our list and so our focus remains to continue to develop and build value in our projects.

Posted 18 July 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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