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Penny stocks: This lithium miner needs a spark from the electric car

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Nemaska Lithium (symbol NMX on Toronto; aims to bring its Whabouchi project in Quebec into production.

Lithium is used in batteries, glass and ceramics, lubricants, refrigeration, pharmaceuticals, polymers and aluminum production. But the metal mostly goes into lithium-ion and lithium-metal batteries for electric and hybrid-electric cars.

Whabouchi holds a deposit of spodumene, which is a hard rock that was once the most important lithium source. But most of today’s lithium comes from brine solutions drawn from salt lakes, such as the Chabyer in Tibet and the Salar de Atacama in Chile. This is cheaper than producing lithium from spodumene and other sources, and the recovered metal is suitable for most uses.

However, when the purest lithium is needed, producers look to spodumene because the final product has fewer contaminants.

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Penny stocks: Even with Chinese firm’s backing, mine funding will be difficult

Nemaska plans to ship ore from the mine to a processing plant it aims to build in Salaberry-de-Valleyfield, Quebec.

This facility will transform spodumene concentrate into high-purity lithium compounds using a method the company developed. This approach uses a process called membrane electrolysis, which lets Nemaska take advantage of Quebec’s lower-cost electricity and makes the pricey soda ash used in traditional extraction processes unnecessary.

Nemaska completed a positive feasibility study in 2014. It plans to acquire the necessary permits this year. By the end of 2015, it hopes to begin building a mine with a 26-year life.

Chinese firm Sichuan Tianqi Lithium Industries holds 8% of Nemaska’s shares. Tianqi is one of the world’s largest producers of lithium concentrates from spodumene.

That association could help Nemaska raise the $448.0 million it needs to build its mine, but either way, arranging that funding will be difficult. The company could be forced to make highly dilutive share issues, or it may need to sell a big stake in the Whabouchi project. Moreover, Nemaska’s plan to use a new process to extract lithium adds further risk. That’s why the stock trades at just $0.17.

Furthermore, it’s still unclear how quickly demand for electric cars will rise, or if lithium batteries will even be the preferred method of powering them.

TSI Network recommendation: SELL.  


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