Patriot Battery Metals Corp changed the name of its Corvette lithium project in Quebec to "Shaakichiuwaanaan" on July 31 ahead of releasing a PEA on August 21, 2024. Its phonetic pronunciation is as follows: SHAA-GI-CHI-WAA-NAAN which is not quite what you would come up with applying English pronunciation to the syllables as spelled. The 5 syllables are gibberish to me; I stall at about 3 syllables and end up with a JackieChoo. In Cree, however, the parts break down into meaningful words. Shaakichiuwaanaan means climbing a hill or a mountain and refers to three hills in the vicinity of the project. If they renamed it "A BigHilltoClimb" I would remember it in a heartbeat. But unlike management and employees of PMET I am not being paid to spend time memorizing it so for me it will remain the Corvette or perhaps the JackieChoo project. I do understand the purpose behind renaming the project in the Cree language. With the publication of the PEA, which envisions a two stage open pit and underground mining operation, the project shifts into the permitting and feasibility study stage. PMET believes it can have the feasibility study done by September 2025. The speed with which Canada's regulatory system issues a mining permit does depend on the extent local stakeholders, in particular First Nations, support development. The name change shows respect for the Eeyou Itchee Cree people.
However, the PEA suggests a better name might be "kâ-pîkiskwęcik ękosi" (Ka Pee Kisk Wechick Ecozy) which according to the online translation service Rephrasely means "Dead in the Water". The stock has now sunk below $4 even though at an 8% discount rate the project has an after-tax NPV of USD $2.23 billion or at a 0.76 exchange rate and 143 million fully diluted a value of CAD $20.50 per share. The IRR which is not affected by the discount rate came in at 34%. Initial CapEx came in at USD $578 million and the expansion CapEx to allow underground mining of the high grade Nova Zone (200-500 m depth) to begin in the third year came in at USD $383 million for a total of USD $961 million. This number assumes the project will not be eligible for a USD $165 million investment tax credit. But the base case economic outcome clears key development hurdles such as NPV matching or exceeding CapEx and the IRR matching or exceeding 15%.
The stock is sinking because the base case price of $1,500 per tonne 6% spodumene concentrate is nearly double the current spot price which has sunk to $785 per tonne after nearly touching $6,000 per tonne in 2022, a level that was never sustainable in the long run. PMET included an NPV sensitivity bar chart in its PEA release which shows that at $800 per tonne Corvette has a negative NPV of USD $165 million. That is why Ka Pee Kisk Wechick Ecozy or Dead in the Water may be a more appropriate name (see Rephrasely).
The company chose $1,500 as its base case price because that is what is needed to make energy transition goals that include EV adoption rates by 2030 a reality. The PEA news release included a chart which shows that JackieChoo is the 8th largest pegmatite deposit in the world in terms of grade and tonnage. However, at the current spodumene concentrate spot price only Greenbushes is operating in the money, and barely so. If you accept the current spot price as the long term reality there will be no future pegmatite lithium-sourced supply. What reasons might one have to believe that the current lithium spot price is the new long term reality?
One reason is optimism that research into Direct Lithium Extraction applied to oilfield brines by the likes of Exxon will achieve a breakthrough that allows the NZE projected requirements of 5-10 times current lithium supply to be mobilized profitably and quickly at the current price. The car makers would love that because they are becoming aware of the hideous development timelines for hardrock deposits in secure jurisdictions such as Canada and the United States (forget Europe, eternity does not qualify as a timeline).
Another reason is that apart from China the EV revolution that accelerated in 2021 has stalled. The western car sector is folding its EV hand in the face of cheap Chinese EV supply potential where the price makes those cars "good enough" for the mass market because the western car makers' product is just not good enough for the masses at their price. Toyota made the right choice in sitting out the EV revolution while both expanding its hybrid models and doing leapfrog R&D on a solid state lithium ion battery which will be good enough for western mass markets in terms of range, charging time and safety. Global West nations are erecting tariffs to block Chinese imports, but the outcome will be that the car makers go back to producing ICE cars. Even Volvo has ditched its goal to produce only EVs by 2030. In this line of reasoning the EV sector is dead in the water. Ideally they all join Toyota back at the R&D drawing board.
Yet another reason is the prospect pushed by Chinese battery maker CATL that the lithium ion battery will be replaced by a battery that does not require lithium, such as the sodium based one it is developing. This would be a technology disruptor that crashes the lithium price and turns all lithium mines into writeoffs.
And then there is the possibility that Trump becomes the president in 2025 and not only pulls the plug on all energy transition goals but goes the extra mile to create obstacles to the adoption of clean energy technologies and measures. However, capitulation could happen regardless of the election outcome. All we need is to witness climate change worsening every year, to the extent that chasing energy transition goals ends up being seen as hopeless in making a difference, so why bother? China would keep expanding its EV fleet because its oil import dependency is a strategic vulnerability. But the rest of the world might just settle into an End Times mentality where praying for divine intervention does not cost anything, and which nobody can refute as worthless because there is always tomorrow.
There is also the potential for the geopolitical conflict between Global West and East to turn hot, where globalized trade collapses because autocracies like China and Russia succeed in annexing their backyards, Taiwan and Ukraine for starters, and the Global West led by the United States chooses not to acquiesce. When the great power game gets seriously underway, perhaps not just Global West versus East but MAGAmerica against everybody, climate change and energy transition goals will become the least of everybody's worries.
These are not necessary outcomes. It is possible that Trump, Putin and Xi disappear into the sunset, taking their power goals with them and letting the world get back to the goal enjoying life and creating prosperity. It is possible that Toyota commercializes a solid state lithium ion battery that gives the ordinary consumer a 1,200 km range on a 10 minute charge at the cost of a Corolla or Camry much sooner than 2030. The lithium ion battery thanks to physics is the best battery solution so that would kill off cheaper but inferior new technologies. It is possible that DLE of oilfield brines ends up with a high unit cost and never scales to feed the 5-10 fold supply expansion needed to make mass adoption of LiB based EVs a reality during the 2030s.
The lithium space is in an air pocket that could change dramatically on the upside in 2025. The market has a hard time grasping the idea that the spot price in the case of lithium does not matter. That is no surprise because the world has never seen demand for a metal expand so quickly thanks to a new technology backed by existential necessity.
At last year's average $16.89/lb LCE price the global lithium output of 185,600 tonnes lithium metal equivalent was worth $37 billion. If we assume $10/lb as the long term reality that value would be $20 billion, 3 times the value of 2023 uranium supply. If pegmatite is supposed to provide the bulk of the future lithium supply we need a future price of $10/lb as a minimum, which is roughly indicated by the spodumene concentrate base case price used by PMET. However, if the EV revolution is back on track in a couple years, that means that in a half dozen years the annual market for this element would be worth $100-$200 billion. This has never happened in history. It was the premise for Lithium Mania 1.0 (2015-2018) and Lithium Mania 2.0 (2021-2023). The human brain does not want to compute such radical change, especially in view of the negatives hanging over the market about the future of energy transition goals. The next four months are going to be rough for PMET and the lithium juniors, but it is reasonable to expect Lithium Mania 3.0 to emerge from the latest lithium winter by 2026. Meanwhile lithium juniors will suffer from the poor lithium spot price optics and the lost momentum of the EV growth trajectory. |
