Dr. Waldo Perez, CEO of Lithium Americas (TSX:LAC) interviewed on Midas Letter Money
In the interview, Dr. Perez describes the pilot production status of the company and its ramp-up to full commercial production, and discusses in depth the partners they have in place to see the company transform into one of Latin America’s major new sources of lithium for lithium-ion batteries.
Transcript as follows:
James West: Hi, I’m James West and this is Midas Letter Money. My next guest is developing lithium resources in Latin America. Dr. Waldo Perez is the CEO of Lithium Americas Corp., trades under the symbol LAC on the Toronto Stock Exchange. Dr. Perez, welcome to the show.
Waldo Perez: Thank you very much.
James West: So you’ve got a large lithium project in Argentina. It sounds like you’re going to be in production soon. You are producing on a pilot basis. Now, why don’t you give us an overview of your project?
Waldo Perez: Absolutely. We started this project two years ago. I went through resource estimation, first in firm. Now, we completed our — we’re about to complete our full feasibility study. The final reserve will come out as well as the engineering. And basically this project has moved forward in two years from discovery to full feasibility, so we’re very excited. We are producing currently lithium carbonate that meets the specs of the very astringing automotive industry.
James West: Lithium ion batteries.
Waldo Perez: Exactly. And basically we’re distributing our product all over the world showing future customers what our product is.
James West: Okay.
Waldo Perez: So we are really advanced and very close to major milestones.
James West: So you’re producing on a pilot basis. You’re going into full commercial production when?
Waldo Perez: We have two partners, Mitsubishi and Magna. We both take agreements and basically we have to complete our financing arrangements with them and start my construction this year. Because this is brine, you have to take the brine out of the ground, have to build the ponds, evaporate the ponds and then start the economic cycle of the project. Therefore, it’s about two years until economic production.
But once you’re at that big event that brines have, you are at a very low operational cost. And that’s basically what makes brine deposits so good with respect to other kinds of deposits like for example hard rock.
James West: So you’re partnered with Mitsubishi and who’s the other partner?
Waldo Perez: Magna Corporation from Canada.
James West: Magna Corporation, okay.
Waldo Perez: Both of them have taken agreements with us and basically the financial arrangements have to be done at full feasibility which we are only a couple of months away.
James West: So they are off-take partners but they’re also shareholders in the company?
Waldo Perez: Absolutely. Jointly, they own about 17% of the company. So that’s what gives them the right to have an off-take and in exchange of that, they have to finance up to 50% to 70% of the mine construction as a loan. So basically, we are going through computations.
James West: Okay. So what’s the CAPEX requirement anticipated to be for the construction of the full commercial?
Waldo Perez: It’s about $220 million without the potash component. Our company will be also producing potash at a rate of about two tons of potash per ton of lithium carbonate.
James West: As a byproduct?
Waldo Perez: As a byproduct. When we completed the preliminary economic assessment, we did not include the potash. Now at full feasibility, we will include the potash and that will increase significantly our bottom line.
James West: So you’ve got the Mitsubishi and Magna to finance the debt component?
Waldo Perez: Yup.
James West: That’s great. And so a little bit of equity will be part of that as well?
Waldo Perez: Probably yes in every project. It’s small but we are completing our arrangements with them first to see how the rest look like.
James West: Okay. So you must know quite on intimate terms with the growth profile of usage of lithium for lithium ion batteries. Why don’t you elaborate on that for us a bit?
Waldo Perez: Absolutely. This is the first year in history that lithium carbonate or lithium is used mostly in batteries. Actually, lithium is used for glass and Pyrex and this kind of glassware in order for it to be heat-resistant, and that is the number one use worldwide. But this year is the first year — 2011 actually, the breakthrough year in which batteries is number one. And it’s interesting because it’s really guided by the use of Smartphones, iPhone, iPad and all kinds of small appliances from the vacuum cleaner to a screw driver, that all of them come with a lithium battery. This is what’s driving consumption right now.
It’s also of course electric vehicles, hybrid vehicles and above all, transportation vehicles, busses and so on. So lithium really has increased at a healthy 10% to 20% a year growth rate for consumption. Not many metals in the entire industry have such an increase in consumption.
James West: Okay. If the rate of growth of demand is supposed to go up by 10% and 20% and we do see a large number of lithium companies coming on stream, what kind of competitive advantage will your company have relative to the new production coming on?
Waldo Perez: Yeah, actually the first point is brine versus hard rocks. There is a very few brine projects out there and there are many hard rock.
The hard rock producers are at a much more higher cost. So we don’t see in the long term a future for many or most of those hard rock producers.
From the brine producers, there are very few actually, just two, three or four. And from those, we have the largest resource. We have the lowest operational cost then we have the best infrastructure. Our project is on a paved road. We have natural gas. We have freshwater. Basically our — that’s why our CAPEX is so low because we don’t need to build a plant.
James West: Sure. And you got the partners to lend you the money to do that.
Waldo Perez: Absolutely.
James West: It’s been suggested that the supply side could easily respond to the increasing demand for lithium in the next few years going forward. What have you got to say about that?
Waldo Perez: Well, first of all, every major company that produce lithium — there are only four companies that supply almost entirely the world with lithium. When you think about how many uses lithium have, there’s an oligopoly. It’s very interesting because all of them have already ramped up.
Each one has already done it either in the past year or it’s doing it currently, somewhere around 10%, 20%, 30, 50% even more. Without the ramp up, there is still today scarcity of lithium hydroxide. Go out in the streets and there’s no lithium hydroxide.
Every miner knows that — of course, you can ramp up any mine to reasonable percentages but if you do any projection by the year 2020, they would have to ramp up 150% from what they produce today. That’s basically impossible.
James West: So, you’re saying the supply side is incapable of meeting the growing demand?
Waldo Perez: Absolutely. It is meeting growing demand now inefficiently. There’s no lithium hydroxide in the market. The price has increased 20% a year for the last 10 years. So that’s why companies like Mitsubishi are in the market to help us simply because they need that for their electric vehicle. Their electric vehicle is the most — the number one selling electric vehicle in the world, and people are clearly seeing that those existing producers may not be able to keep up with demand. They are not doing it right now. I don’t see they are going to do it in the future.
James West: Very interesting. So in terms of cash on hand, you’re going to need to hit the markets for a capital raise anytime soon?
Waldo Perez: Not anytime soon but obviously building a mine requires capital. So we have $10 million in our treasury. We have $10 million line of credit with out existing shareholders. That makes $20 million in total. We will close our financing with our current partners that is — I mean our strategic partners. And surely, there is always going to be an equity component in the near future that you need to put along with this.
But what is very important is that very major milestones are coming. We are only two months away from final feasibility that will also come with the arrangement with the partners. We are four months away approximately for environmental impact approval. So in the very short term, there are major milestones coming and we are looking forward for a very promising future for our company.
James West: Okay. Why don’t you tell me just a little bit about your Board of Directors?
Waldo Perez: Board of Directors is formed by Tom Hudson, former executive for Magna Corporation. He’s our executive chairman; George Pirie, the CEO — president and CEO of San Gold; Constantine Karayannopoulos, the president and CEO of Neo Material. Then we also have a very important director who is a member — he’s an Argentinian. He is the underlying owner of the mineral property and he’s also an investor and a believer in our company. That gives our liaisons with the local government and the local community.
So we have a very, very strong Board of Directors not only from the Canadian perspective with people with experience building mines but actually with people that is locally known to build very large projects.
James West: Wow! That’s a fantastic story. We’re going to follow that with interest. I’d like to thank you for joining us, Dr. Perez.
Waldo Perez: Thank you very much.
James West: If you’d like to learn more about Lithium Americas, you can visit them online at lithiumamericas.com. If you like to learn more about companies like Lithium Americas, you can visit midasletter.com. I’m James West and this is Midas Letter Money.
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