Anyone looking for evidence of the green economy in Canada would do well to drive about six hours north of Montreal to the town of La Corne in the Abitibi region of Quebec, where the first — and for now the only — large-scale lithium mine in North America has begun operating.

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Last week, Sayona Quebec, a joint venture between Australia’s Sayona Mining Ltd. and North Carolina’s Piedmont Lithium Inc., restarted North American Lithium’s mine, which shuttered four years ago when lithium prices crashed.

But the world has changed dramatically in those four years. Most big countries have set out plans to neutralize carbon emissions over the next few decades and the United States and its democratic allies are moving aggressively to orient supply chains away from China. The new owners of the La Corne mine estimate the mine will produce 120,000 tonnes of hard rock lithium spodumene this year, and 226,000 tonnes per year once it is in full swing. Tesla Inc. and South Korea’s LG Chem Ltd. have already lined up as buyers.

Sayona and Piedmont say many things have changed since the previous owners gave up. Lithium prices have multiplied roughly eight times since hitting a low in late 2020, and the electric vehicle (EV) market is taking off. They see a bright future for lithium, a soft metal whose light weight, relative abundance and conductive properties have made it a primary component of EV batteries.

“Among the wonderful achievements here is this (mine) is on time and on budget, which is fantastic — and very unusual,” Keith Phillips, chief executive of Piedmont, said with a chuckle. “We couldn’t be happier with how it’s gone.”

It’s good to be alone

Technically, Sayona has company in the market for North American lithium. A closely held Chinese company known as Tanco operates a mine in Manitoba, but Phillips and various analysts insist it produces a negligible amount.

Phillips said he believes North America’s last large scale lithium mines operated in North Carolina and closed in the 1990s, long before the energy transition.

But over the next two decades, Phillips said lithium will complete its transformation from an esoteric speciality chemical — used primarily as a lubricant and for medical purposes — to one of the most used commodities in the world, with a handful of incumbent producers operating around the world.

Even before the United States passed the Inflation Reduction Act, legislation that’s laden with climate incentives; and before the Canadian government began doling out billions of dollars from its Strategic Innovation Fund to lure automakers and battery companies to build plants here, the run-up in lithium prices during the last two years had whet the appetite of entrepreneurs such as Phillips. He described an unprecedented opportunity to build a business around a commodity that has moved from obscurity to centre stage in a matter of years.

“Lithium is a small business that’s growing exponentially,” said Phillips. “I mean, we’re literally doubling the size of business every two or three years and I’m not sure if that’s ever happened before to any commodity.”

Lithium is a small business that’s growing exponentially

Keith Phillips, chief executive, Piedmont

Phillips grew up in Ontario and obtained his undergraduate degree in Sudbury, the capital of Canada’s mining sector. He said his company, Piedmont, has big plans to be one of the “incumbent producers” of lithium that emerges in the next two decades. In 2025, Piedmont hopes to open a second lithium mine in Ghana; in 2026, it plans to open a plant in Tennessee that can convert hard rock lithium spodumene into lithium hydroxide — the chemical form used in current battery chemistries. And in 2027, Piedmont aims to open a mine and conversion plant in North Carolina.

Somewhere in that time period, it may also look to build a conversion plant for its mine in Quebec. Along with a lack of supply, Phillips said that conversion plants could form a second bottleneck that help keep prices elevated for years to come.

“The big issue is it takes so long for capacity to come online,” he said, adding, “we’ll have shortages for decades to come.”

Rules don’t apply

Most commodity prices are set by what economists call the lowest marginal cost producer: Whoever can produce the commodity at the lowest price can afford to sell it at the lowest price, setting a ceiling for what customers will pay.

Those rules don’t apply in the lithium market, at least for now. Phillips said supply and demand are ramping up so quickly that buyers are willing to pay above the marginal cost in order to be sure they have a secure supply.

By all accounts, rapid growth has made lithium prices volatile. Unlike commodities traded at higher volumes, much of the lithium supply is still bought and sold in private contracts where there is less visibility on price.

Though opinions vary, and lithium prices have been sliding in recent months, Fastmarkets, a London-based commodity market research firm, projected last week that the lithium market will remain mostly in deficit through at least 2026, keeping prices elevated until then. Between now and 2030, Fastmarkets projects battery electric vehicle markets will experience 20 per cent annual compound growth, underpinning demand for lithium carbonate equivalent, a key metric, that will cause a 10-fold increase in production to 3.5 million tonnes by 2035.

Phillips said prices can shoot up or down by 40 per cent in a matter of months, but even the highest cost producers are still making money.

“We’re now at a point where prices are strong, and they’re generally considerably higher than marginal cost of production,” he said. ”So you’re in this Never Neverland.”

Hopes dashed

Of course, the previous owners of the mine in La Corne had similarly high hopes.

In January 2019, the same mine that Piedmont now co-owns lost $174 for every tonne of ore it mined — thanks to a 60 per cent drop in lithium prices over the course of eight months, according to its May 28, 2019 Companies’ Creditors Arrangement Act filing.

The problem back then was that all demand for lithium came from China, according to the CCAA filing.

Global production of lithium spodumene — meaning hard rock ore as opposed to lithium derived from brine ponds — had doubled as Australian mines with “lower extraction costs” that were “much closer in proximity to the Chinese markets” came online, the CCAA filings show.

“The Chinese purchasers of (North American Lithium’s ore) have put pressure on spodumene suppliers in order to raise their bottom lines,” the owners wrote in the petition.

In February 2019, the previous owners shut their mine in the face of millions of dollars of losses and nearly $210 million in liabilities — including two loans from its largest shareholder, China’s Contemporary Amperex Technology Canada Ltd., that totalled $56 million, plus two loans from Investissement Quebec totalling $99 million.

In June 2021, a Quebec Superior Court approved the deal for Sayona Quebec — a joint venture 75 per cent owned by Sayona and 25 per cent by Piedmont — to purchase North American Lithium’s former assets, including the mine in La Corne, for $94 million in cash plus a range of conditions.

That worked out to pennies on the dollar given that Sayona said the previous owners invested around $400 million. Piedmont has described the restart as a USmine will produce 120,000 tonnes.

‘It’s nosediving right now’

Naysayers insist that the lithium market is not nearly as rosy as optimists say, noting another commodities research firm, United Kingdom-based Benchmark Minerals indicates a roughly 24 per cent drop in lithium prices since January.

“Look at the lithium price chart, it’s nosediving right now,” Ken Hoffman, head of battery raw materials at consulting firm McKinsey & Co., said in a keynote speech at the Prospectors and Developers Association of Canada convention in Toronto, on March 5.

Hoffman said the problem was that lithium prices were too high: Because it’s found in countries around the world, higher prices tend to incentivize too much supply, leading to high peaks followed by steep corrections, he said.

But he also acknowledged that lithium may be the only mineral that’s an essential ingredient of batteries, and for which there is no obvious alternative. Hoffman contends that only lithium producers at the lowest quartile of the cost curve have a strong shot of surviving the inherent volatility that lies ahead. He noted that around 2018 and 2019, many lithium explorers and upstart producers wound up filing for bankruptcy or selling their assets at bargain prices.

In Quebec, North American Lithium filed for CCAA, as did Nemaska Lithium Corp., which was in the process of constructing its Whabouchi mine when cost overruns forced it to halt plans.

Piedmont and Sayona have many advantages that the previous owner of the La Corne mine did not. The primary one might be the Inflation Reduction Act includes generous tax credits for automakers that source lithium from U.S. allies such as Canada, which means producers such as Piedmont could receive a premium price for their product.

Phillips is banking on it.

“Domestic clean lithium is a premium product,” he said. “I think we’ll certainly see that in the middle of the back half of this decade.”

‘They were unfortunate’

Piedmont, as a minority owner in the joint venture Sayona Quebec, is both a buyer and a seller of lithium: It has an agreement with its partner, Sayona Mining, to purchase 113,000 tonnes or 50 per cent of the output from the mine, for between $500 and $900 per tonne.

According to a Piedmont press release, it agreed to provide LG Chem with about 200,000 tonnes of lithium spodumene over the next four years. LG, in turn, will buy spodumene from Piedmont based on a formula linked to market prices determined by Fastmarkets. Similarly, the company’s agreement to supply Tesla with 125,000 metric tonnes of spodumene between mid-2023 and 2025 is linked to a market price formula.

Phillips said that his company aims to avoid the pitfalls of failed lithium producers by carefully managing its debt. (It listed $17.6 million in liabilities on its balance sheet at the end of last year.) The company is waiting to launch other projects until it builds a cash flow from the La Corne mine, he said.

Still there could be new challenges ahead. Sayona Quebec owns several other exploration properties including the Tansim project near the Long Point First Nation, where leaders are concerned about the company’s plans for an open pit mine, including potential impact on water supplies.

And eventually, within the next two decades, the lithium market will moderate once enough electric vehicles have been produced and more reliable supply comes online.

But Phillips said he was nothing but confident that lithium shortages would persist into the future and keep lithium prices elevated. The producers who failed in 2018 and 2019 were in part just unlucky, he said. Today, there are more investors willing to back projects, and more demand in North America.

“They were unfortunate in their timing,” he said. “That’s just the way markets work.”

• Email: gfriedman@postmedia.com | Twitter: GabeFriedz

Correction: An earlier version of this story said Piedmont described the restart of the mine as an $80-million project. The value should have been denoted in U.S. dollars.