Critical Elements Lithium (CRE) - Re-rating Large Advanced Project

Critical Elements Lithium is a junior mining company in advance exploration stage. The company’s flagship project is the Rose Lithium-Tantalum project located in James-Bay, Quebec with a good geographic location and on-site access to infrastructure such as powerline, roads, airport, railway access and camp.

The company vision is to become a large responsible supplier of Lithium to the flourishing energy storage and electric vehicle industry. They are keen to advance the high-purity Rose project as their first project but they also have 700km2 of highly prospective ground in an area that already has demonstrable Lithium mineralisation.

We met with Eric Zaunscherb, Chairman of Critical Elements Lithium Corp. which is a new story to us, as part of our ‘Lithium week’.

Company Overview

Critical Elements Lithium is listed on the TSX-V, ticker CRE and they were recently recognized as one of the 2021 US OTCQX Best 50. Their vision is to become a large, responsible supplier of Lithium to the flourishing energy storage system and electric vehicle industry. They have the high-purity Rose Lithium project in Northern Quebec, which they want to advance as their first project, but they also have 700km2 of highly prospective ground in that area that already has eveident Lithium mineralisation. In 2017, they completed a robust Feasibility Study (FS) for the Rose project, phase 1, which is for a concentrator and mine and the capex and operating numbers were confirmed in 2019 by the Primero group.

Phase 2 will be a conversion plant looking at converting the Spodumene Concentrate from Rose into Lithium Hydroxide. Quebec is extremely important from a strategic perspective with great access to the US market and the EU market and both have declared Lithium a critical material for their plans going forward, so Critical Elements are well positioned there. Another advantage of being in Quebec is the grid, as Critical Elements are literally underneath the power line where 93% of the power is generated via hydroelectricity.

Team Experience & Background 

The CEO Jean-Sébastien Lavallé is a multi-generational Quebecois on the technical side. He's a geologist and his parents and grandparents were engineers and metallurgists. He well versed in operating from a mining perspective in Quebec and has extremely strong relationships with the First Nations in the area and for Critical Elements, that relationship was formalised in 2019 with the First Nations and they are all set to go.

The company President is Dr. Steffen Haber, who is a chemist and was the former president and CEO of Rockwood Lithium, which was sold for USD$6.2Bn to Albemarle to create their Lithium division. 

Business Plan: The Journey so far 

Lithium has been tough for the past 3 years but now Lithium prices have started to increase and Lithium companies and the equities are benefiting from that at last. Critical Elements has a USD$200M market cap now, a significant move from last year, and they will be able to have conversations now that they wouldn't have been able to have a year ago. During that time they have delivered the Feasibility Study and are advanced with the First Nations component which is significant achievement. 

Critical Elements has gone through the technical studies for Phase 1, and has the IPA with their partners ready to go. Now, with a higher market cap and a more robust equity market, Critical Elements has more options when looking for a strategic partner. They want to be recognized for their high ESG score and borrow money on that basis which will give them more options.

Getting Financed: Importance of the ESG & 0-Carbon Components

The power line directly runs over the top of the Rose deposit, so it's going to cost about USD$3m to run a power connection to site. Critical Elements has access to electricity on a grid that is 93% hydroelectricity which gives them competitive advantage, from an ESG perspective, and from a cost perspective as power is approximately CAD$0.04.5c/ kwh, compared to diesel generated at CAD$0.20-30c. Critical Elements has recently raised USD$15M and they have found that financing is more easily accessible to companies with an ESG component. 

Permits & Studies; Completed & Awaiting

In Quebec there is a provincial permitting process and the federal national level permitting process. Both processes take time and patience, and includes working with the First Nations. Critical Elements says it is in the final stages now and the committee will make its final recommendation to the minister for a certificate of authorisation hopefully by mid-year. They will then be fully permitted which is an important milestone for a lot of these potential strategic partners.

Approach to Vertical Integration: Grades, Market, & Competition 

Phase 1 is to produce the concentrate, get the mine running, get the concentrator running and then use funding from that to get into phase 2, the conversion of the concentrate to become a fully integrated Lithium hydroxide producer. Critical Elements will start by selling the concentrate and have the option to produce technical grade concentrate which is technically superior due to its high purity and will be supplied to the glass and ceramics industry.  

Looking at Metso Outotec: Technology & Progress

Outotec is an industry leader in processing across the board and a number of years ago they started looking at historical processing solutions for Lithium. Outotec has been working on a sulphate-free process and has done the piloting work for Critical Elements, both for carbonate and hydroxide. It's a very clean process, environmentally benign, which is important, and it gives great recoveries for Lithium to first concentrate and then from concentrate to hydroxide. 

Growing Shareholder Value: Conversations & Potential Partners

When looking at the next stage and towards potentially bringing in a new partner, It’s a dynamic situation. At the moment, Critical Elements is having multiple conversations with different potential strategic partners all of whom have a different risk profile and a different vision as to what they need. How's that for optionality! An OEM, for example, wants to ensure the product is in the system and getting to their battery and cathode supplier vs a private equity fund, who wants to ensure that they're going to make money on their investment. There are other parties who want to build a conversion capacity, whether it's in Europe or the Middle East, so all they want is the off-take. Critical Elements wants to produce and bring maximum value to the province of Quebec and as long as the province of Quebec is supportive as a host, then that can be done.

They are keen to help create a battery hub in Quebec and take advantage of the competitive advantages that are there such as power, human capital, financial capital, etc. It's all about shareholder value, so, if a strategic investor makes a great opportunity available, they will take advantage of that opportunity to increase shareholder value.

The OEMs are beginning to realise where their risk lies. Not long ago, for them to look at an exploration and development company was too high-risk whereas now, they realise that the biggest risk to the plans of going 100% EV is the availability of battery materials. There is an abundance of Lithium all over the world but there is a shortage of economic, clean battery materials available in low-risk jurisdictions. Critical Elements has a low-risk jurisdiction and the ability to produce a clean, high-purity product which is very appealing to an OEM, a battery or a cathode manufacturer.

The Future: Timing it Right & Changing the Narrative

Critical Elements is remaining focused on getting permitted for now, which can then be a catalyst for conversations on commercial production, finding a strategic partner and raising the capex.  

The construction period will take about 2 years, so they want to make a final investment decision on phase 1 in 2021 and ramp up to production in 2023. The conversion plant construction will also take about 2 years, the timing and cost of which will be determined by technical studies later on this year.

The conversations with the market are changing as the narrative is changing and Critical Elements are telling the chemical story vs the mining story as they've reached a level where they are being taken seriously.

It was good to hear the new story of Critical Elements Lithium who have done a lot of the hard work and are now starting to get the recognition from the market that they deserve. We look forward to seeing how they progress going forward towards construction and production. 

To find out more, go to the Critical Elements Lithium Website.