NEMASKA LITHIUM INC.
ANNUAL INFORMATION FORM
FOR THE FISCAL YEAR ENDED JUNE 30, 2019
Issue Date: September 30, 2019
TABLE OF CONTENTS
1. PRELIMINARY COMMENTS AND FORWARD-LOOKING STATEMENTS ...... 2 2. CORPORATE STRUCTURE ...... 2 2.1 NAME, ADDRESS AND INCORPORATION ...... 2 2.2 INTERCORPORATE RELATIONSHIPS ...... 2 3. GENERAL DEVELOPMENT OF THE BUSINESS ...... 4 3.1 THREE-YEARS HISTORY ...... 4 3.2 FISCAL YEAR ENDED JUNE 30, 2017 ...... 9 3.3 FISCAL YEAR ENDED JUNE 30, 2018 ...... 10 3.4 FISCAL YEAR ENDED JUNE 30, 2019 AND UP TO THE DATE OF THIS ANNUAL INFORMATION FORM ...... 14 4. DESCRIPTION OF THE BUSINESS ...... 22 4.1 GENERAL ...... 22 4.2 DESCRIPTION OF THE MINERAL PROPERTIES ...... 23 4.3 RISK FACTORS ...... 73 5. DIVIDENDS AND DIVIDENDS POLICY ...... 94 6. GENERAL DESCRIPTION OF THE CAPITAL STRUCTURE ...... 94 6.1 COMMON SHARES ...... 94 6.2 STOCK OPTIONS ISSUED UNDER THE STOCK OPTION PLAN ...... 94 7. MARKET FOR SECURITIES ...... 99 7.1 MARKET ...... 99 7.2 TRADING PRICE AND VOLUME ...... 99 8. DIRECTORS AND OFFICERS ...... 100 8.1 NAME, OCCUPATION AND SECURITIES HOLDING ...... 100 8.2 CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS ...... 104 9. LEGAL PROCEEDINGS AND REGULATORY ACTIONS ...... 106 10. AUDIT & RISK COMMITTEE ...... 107 10.1 THE AUDIT & RISK COMMITTEE’S CHARTER ...... 107 10.2 COMPOSITION OF THE AUDIT & RISK COMMITTEE ...... 107 10.3 RELEVANT EDUCATION AND EXPERIENCE ...... 107 10.4 AUDIT & RISK COMMITTEE OVERSIGHT ...... 109 10.5 RELIANCE ON CERTAIN EXEMPTIONS...... 109 10.6 PRE-APPROVAL POLICIES AND PROCEDURES ...... 109 10.7 EXTERNAL AUDITOR SERVICE FEES ...... 109 11. TRANSFER AGENT AND REGISTRAR ...... 109 12. INTERESTS OF EXPERTS ...... 110 13. MATERIAL CONTRACTS ...... 110 14. ADDITIONAL INFORMATION ...... 111
1. PRELIMINARY COMMENTS AND FORWARD-LOOKING STATEMENTS
The information in this Annual Information Form is dated as at June 30, 2019, unless indicated otherwise. All dollar amounts in this Annual Information Form refer to Canadian dollars, unless otherwise indicated.
This Annual Information Form may contain or incorporate by reference forward-looking statements about the objectives, plans and strategies of Nemaska Lithium Inc. (the “Corporation”) as well as management’s expectations regarding its future growth, financial position and results of operations, and the Corporation’s activities. These statements are forward-looking because they are based on assumptions about future economic conditions and courses of action that will be undertaken by the Corporation. These statements are subject to a number of risks and uncertainties (please refer to section “Risk Factors”) which may cause actual results to differ materially from those contemplated by the forward-looking statements. While the Corporation believes that the expectations reflected in these forward-looking statements are reasonable, there is no guarantee that such expectations will prove to be accurate and the reader must not unduly rely on them. The forward-looking statements are made on the date of this Annual Information Form and, except if the applicable legislation requires it, the Corporation has no intention of updating them nor does it assume the responsibility to do so.
2. CORPORATE STRUCTURE
2.1 Name, Address and Incorporation
The Corporation was incorporated under the Canada Business Corporations Act (the “CBCA”) by articles of incorporation on May 16, 2007 under the name “James B Resources Inc.” and its French version “Ressources James B inc.” On November 5, 2008, the Corporation filed articles of amendment in order to change its name for “Nemaska Exploration Inc.” and its French version “Exploration Nemaska inc.” On November 22, 2011, the Corporation filed articles of amendment in order to change once again its name for “Nemaska Lithium Inc.” and in order to allow the directors of the Corporation to appoint one or more additional directors in accordance with the provisions of subsection 106(8) of the CBCA. On July 1, 2019, the Corporation filed articles of amendment in order to increase the maximum number of directors from seven to nine.
The Corporation’s registered office is located at 1000 de la Gauchetière West, Suite 2500, Montréal, Province of Québec, Canada, H3B 0A2.
2.2 Intercorporate Relationships
The following corporate chart is a list of the subsidiaries of the Corporation as of the date of this Annual Information Form, indicating their jurisdiction of incorporation. All shares of each subsidiary are held directly by the Corporation.
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The Corporation
100% 100% 100% 100% Nemaska Lithium Nemaska Lithium Nemaska Lithium Nemaska Lithium Shawinigan P1P Inc. Innovation Inc. Whabouchi Mine Inc. Transformation Inc. (Canada) (Canada) (Canada) (Canada)
All assets of the Corporation and of its subsidiaries are located in the Province of Québec, Canada and, in summary, each corporate entity featured in the above chart has the following main assets:
Nemaska Lithium Inc.: intellectual property, computer software & hardware; all shares of the four subsidiaries as well as the investments in Monarch Gold Corporation (TSX: MQR) (OTCMKTS: MRQRF) (FRANKFURT: MR7) and Vision Lithium Inc. (previously ABE Resources Inc.) (TSXV: VLI) (OTC-PINK: ABEPF) (“Vision”); Nemaska Lithium P1P Inc.(“NMX P1P”): equipment, office and lease required to operate an electrochemical demonstration plant located in Shawinigan, Province of Québec, Canada (the “Phase 1 Plant”) and designed to produce high purity lithium hydroxide from spodumene concentrate and lithium sulfate; Nemaska Lithium Whabouchi Mine Inc. (“NMX Whabouchi”): including but not limited to, the mining lease, mining claims, surface usage leases and mineral property, including site preparation, concentrator building/garage/domes infrastructures and related equipment, administrative office trailers and all other additions in order to put the Whabouchi mine and concentrator in operation, being all located in the Eeyou Istchee / James Bay Region in the Province of Québec, Canada (“Whabouchi Property”); Nemaska Lithium Shawinigan Transformation Inc. (“NMX Shawinigan”): including but not limited to, the land and commercial buildings located in Shawinigan, Province of Québec, Canada, including site preparation, permanent administrative office building, infrastructures and equipment and all other additions to be used for the commercial production of lithium salts, relating to the future commercial electrochemical plant (“Commercial Electrochemical Plant”) and permanent administrative office building; and
Nemaska Lithium Innovation Inc. (“NMX Innovation”): entity that carries research & development has its main activities relating to lithium salts and lithium-ion battery industry and in which non-material cash assets nor material activities have yet taken place.
For the purpose of this Annual Information Form, the Whabouchi Property together with the Commercial Electrochemical Plant, and any other asset owned by the Corporation, NMX Whabouchi or NMX Shawinigan related to the Whabouchi Project (as defined hereinafter) are designated as the “NMX Property”.
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3. GENERAL DEVELOPMENT OF THE BUSINESS
3.1 Three-Years History
Introduction and General Outlook
The Corporation had started its business as a Québec-based resource company (i) performing, since September 2009, exploration and development work on its 100%-owned spodumene deposit known as Whabouchi property and located in the Eeyou Istchee James Bay Region in the Province of Québec (the “Whabouchi Project”, which includes any exploration, development, construction, mining, production, processing, recovery, sale, transportation, storage and delivery operation in respect of the lithium mineral deposit located at the Whabouchi Property), and (ii) raising capital to fund the aforementioned work. Following a feasibility study initially completed in 2014 and revised in 2016, and a public offering that yielded gross proceeds of $69 million in July 2016 (the “2016 Public Offering”), the Corporation started construction and engineering work for its Whabouchi Project.
In parallel, with proceeds of $38 million raised from different sources, the Corporation built and commissioned its Phase 1 Plant during the second half of 2016 and first quarter of 2017. This Phase 1 Plant, together with a DMS modular mill installed on the Whabouchi Property, allowed the Corporation, among other things, to qualify its products with different customers. The Corporation had acquired the land and existing buildings in Shawinigan, Québec, to locate its Phase 1 Plant and its Commercial Electrochemical Plant in May 2016.
The Corporation is henceforth a developing chemical company whose activities will be vertically integrated, from spodumene mining to the commercialization of high-purity lithium hydroxide. This lithium salt is mainly destined for the fast-growing lithium-ion battery market, which is largely driven by the increasing demand for electric vehicles, personal portable devices and other consumer products as well as for energy storage worldwide. The Corporation will operate the mine located on the Whabouchi Property, one of the richest lithium spodumene deposits in North America, both in volume and grade (the “Whabouchi Mine”), and the concentrator located on the Whabouchi Property (the “Concentrator”). The spodumene concentrate produced thereat will be processed at the Commercial Electrochemical Plant using a unique membrane electrolysis process for which the Corporation holds several patents.
With an additional public offering in June 2017 for proceeds of $50 million (the “2017 Public Offering”), the Corporation was able to pursue construction further at the Whabouchi Property and engineering at both sites. During almost a year following that 2017 Public Offering, the Corporation’s focus was on raising project financing for the total required investment for the Whabouchi Project, which was then estimated at $549 million.
In the course of such financing endeavors, and more particularly in light of the thorough technical due diligence performed by potential creditors/investors, the Corporation determined to have a new feasibility study for the Whabouchi Project as a technical report under NI 43-101 (the “2018 Technical Report”). This determination was also ensuing from the Corporation’s re-assessment of the current and foreseeable market demands, its discussions with potential clients and its testing and optimization work of its processes. The 2018 Technical Report’s results, publicly released in January 2018 and filed on SEDAR (www.sedar.com) on February 23, 2018, provided for an increased mine life and production profile which in turn increased the required capital investment for the Whabouchi Mine, the Concentrator and the Commercial Electrochemical Plant to an aggregate $801 million (excluding sunk costs of about $73.5 million).
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From the 2016 Public Offering on, and given the fact that the priority has always been set on the Whabouchi Project, very little to no work was performed the Sirmac lithium project (the “Sirmac Property”), which the Corporation sold in the beginning of 2018 to Vision, in consideration of a combination of cash, common shares of the buyer and a royalty.
The Corporation’s vision is to facilitate access to green energy through its products and processes, for the benefit of humanity; its mission is to become a vertically integrated lithium hydroxide producer and supplier to the emerging lithium battery market that is largely driven by electric vehicles, cell phones, tablets and other consumer products as well as energy storage. Based on its understanding of the actual and expected status of the lithium hydroxide supply, the Corporation believes it is still well timed to enter that supply chain.
Intellectual Property
The Corporation now has a patent portfolio comprised of 11 different patent families that relate to its proprietary processes for preparing lithium hydroxide and lithium carbonate as well as for preparing metal hydroxides and oxides to be used in the preparation of lithium batteries, processes for recycling same, and additives for cement and concrete. More specifically, the Corporation has obtained Canadian Patents Nos. 2,871,092 and 2,964,106, Australian Patent No. 2013252439 and US Patents Nos. 9,677,181 and 10,066,305 that relate to its proprietary process for preparing high purity lithium hydroxide as well as Canadian Patents Nos. 2,905,197; 2,928,227; 2,940,027; 2,964,148 and 3,005,843; Australian Patents Nos. 2014339706 and 2014231593; Chilean Patent No. 55.597; European Patents Nos. 3 060 699 and 3 110 988; Japanese Patents Nos. 6368347 and 6449317; US Patent No. 10,036,094 and Chinese Patent No. 201480070316.6 that specifically protect improvements of the electrolysis membrane process for preparing lithium hydroxide. The Corporation has also obtained Canadian Patents Nos. 2,874,917 and 2,928,224; US Patents Nos. 9,382,126; 9,890,053 and 10,144,990; European Patents Nos. 2 855 735 and 3 060 522; Japanese Patents Nos. 6335316 and 6559754; Australian Patents Nos. 2013270412; 2014339705 and 2017201692; and Chinese Patent No. 201480070317.0 that relates to its proprietary process for preparing high purity lithium carbonate. In addition to the above-mentioned patents, the Corporation has 60 pending patent applications in 11 different jurisdictions (AU, CA, CL, CN, HK, EP, IN, JP, KR, US, PCT).
Objectives
The Corporation’s main commercial business objectives as of the date of this Annual Information Form, subject to securing the necessary equity financing required for the construction and the commissioning (the “Additional Financing”) and securing replacement financing for the US$350 million Bonds referred to below, are to commence spodumene concentrate production at its Whabouchi Property during Q3 2020 calendar year and to start producing lithium salts at its Commercial Electrochemical Plant in Q4 2021 calendar year. In particular, the main objectives that the Corporation intends to accomplish from the date of this Annual Information Form and up to the next 12 to 18 months are, in no particular order, to:
fulfill all conditions precedent to receiving the second tranche payment of US$75 million pursuant to the US$150 million Stream Agreement (the “Stream Agreement”) with Orion Mine Finance II LP (“Orion”); take all such steps to see that the proceeds from the US$350 million offering of senior secured callable bonds (the “Bonds”) (the “Bond Offering”) be reimbursed to the bondholders, as announced on September 17, 2019, and as per the agreed terms under the Bond Offering and dated May 29, 2018 (the “Bond Terms”);
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take all such steps to see that the equity investment, being a private placement for $200 million and then the rights offering for up to $400 million, proposed by The Pallinghurst Group (“PG” or “Pallinghurst”) and announced on July 19, 2019 (the “PG Proposed Investment”) closes as soon as practicable and that proceeds obtained in respect thereof be at least equivalent to the funding gap announced on February 13, 2019 – in addition, take all such steps to secure financing replacing the aforementioned bonds on better terms and in due course; provided the Additional Financing and, to the extent required, bond replacement funds will have been secured, resume construction of the Whabouchi Mine, the Concentrator and the Commercial Electrochemical Plant; conduct a review of its various supply agreements with a view to considering whether or not to seek to renegotiate their terms, notably to extend certain deadlines; and hire and retain the necessary additional management, operations, technical, administrative and support personnel in an orderly and timely manner, to ensure proper operations readiness in anticipation of the resumption of construction work, if and when applicable as well as commissioning of these operations.
Progress at the Phase 1 Plant
The Corporation has continued operating its Phase 1 Plant, designed to produce high purity lithium hydroxide from spodumene concentrate and lithium sulfate. Since February 2017, the Phase 1 Plant is producing battery grade lithium hydroxide solution from lithium sulfate provided by Johnson Matthey Battery Materials (“JMBM”) and, since September 2017, the Phase 1 Plant is also able to process spodumene concentrate, and has processed the concentrate resulting from the bulk sample done at the Whabouchi Property during the first 8 months of the calendar year 2017.
During the twelve-month period that ended June 30, 2019 and up to the date of this Annual Information Form, the following work was done:
engineering and installation of a fluid bed dryer in the Phase 1 Plant to produce lithium hydroxide monohydrate; continued delivery of lithium hydroxide in solution to JMBM for a yearly total of about 31 tonnes produced from third party lithium sulfate solution; production of 54 tonnes of lithium hydroxide monohydrate; notably for JMBM and Leverton-Clarke Specialty Chemicals; of the 75 tonnes produced, about 16 tonnes were derived from the conversion of own-sourced spodumene concentrate that was produced at the Whabouchi Property; expedition of qualification samples of lithium hydroxide monohydrate produced from the Phase 1 Plant and results obtained confirm the high purity of the product; and installation and commissioning of drying equipment in order to produce lithium hydroxide monohydrate. Progress at the Commercial Electrochemical Plant
During the twelve-month period that ended June 30, 2019 and up to the date of this Annual Information Form, the following work was done:
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Engineering work for the procurement of major equipment completed (i.e. electrolysis, flash calciner, LHM, LSM, SARC, acid bake kiln); ordering and manufacturing of the long lead items; engineering for the procurement of other equipment is progressing as per schedule; engineering for the early demolition contracts completed; demolition of the obsolete, non-required buildings by the former owner thereof, and site preparation; optimization and testing of key elements of the flow sheet; hiring of key management, operation and support personnel; commencement of installation of pilings, and of preparation of concrete foundations; continued progress on the layout, plot plan and 3D modeling; continued engineering work, including purchasing of process equipment for the long lead items for the Commercial Electrochemical Plant; continued optimization and testing of key elements of the Commercial Electrochemical Plant’s flow sheets; construction at the Commercial Electrochemical Plant has progressed up to 2%, and is suspended for now; engineering for the procurement of main equipment completed for the Commercial Electrochemical Plant; engineering for the award of main CSA contracts completed for the Commercial Electrochemical Plant; and the Commercial Electrochemical Plant’s 3D model showing all disciplines is progressing on supplier's approved design. The Corporation expects that the construction, installation and pre-operation verification at the Commercial Electrochemical Plant will take about 14 months from the time of resumption of the construction in connection with the Whabouchi Project.
Progress at the Whabouchi Property
During the twelve-month period that ended June 30, 2019 and up to the date of this Annual Information Form, the following work was done:
construction of the approximately 17 km hydroelectric transport line from the Nemiscau sub-station all the way to the sub-station that was also built on the Whabouchi Property in order to hook the hydroelectric transport line to the infrastructure, with a successful power-on of main switch yard on August 18, 2018; construction has been slowed down since May 2019 and has progressed up to about 52% completion; substantial completion of civil works as part of the general site preparation and crushing area; garage and ore sorters buildings are completed, along with overhead cranes installed and functional;
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electric room for the crushing and ore sorting area is installed; concentrate, tailings and fine ore domes are completed; fire protection and process water tanks are completed; installation of primary crusher, secondary crushers and ore sorters; concrete foundations inside the Concentrator have been completed; structural steel and equipment installation are well underway inside the concentrator; outside concrete foundations are substantially completed; civil work for Basins 11 and 11N has started; 4.16 kV electricity distribution is substantially completed; 3D modeling showing all disciplines, progressing with supplier's approved design; installation of the lodging and cafeteria for the construction workers at the mine site is completed and operational; operation readiness plan is about 50% completed; detailed mine plan for 3-5 years is completed; mobile equipment mine fleet received and assembled at the mine site in May 2019 and June 2019 to proceed with the current workload; development of the starter pit and permanent mine infrastructure is underway and progressing; continued engineering work, including purchasing of process; continued optimization and testing of key elements of the flow sheets; and hiring of key management, operation and support personnel. The Corporation expects that the construction, installation and pre-operation verification at the Whabouchi Mine and the Concentrator will take about 24 months from the time of resumption of the construction in connection with the Whabouchi Project.
Technical Report
On August 9, 2019, the Corporation filed a technical report entitled “NI 43-101 Technical Report– Report on the Estimate to Complete for the Whabouchi Lithium Mine and Shawinigan Electrochemical Plant – Nemaska Project” with an effective date as of May 31, 2019 (the “2019 Technical Report”), the results of which were announced by the Corporation on July 31, 2019; it was posted on SEDAR at www.sedar.com.
The 2019 Technical Report that was prepared by Daniel Maguran, P. Eng., Maxime Dupéré, P. Geo., Rock Gagnon, P. Eng., James Anson, P. Eng., Ph.D., David Anthony Boyd, P. Eng., Ph.D., André-François Gravel, P. Eng., PMP, Jeffrey Cassoff, P. Eng., Ewald Pengel, M. Sc., P. Eng., Pierre Girard, P. Eng. and Dominic Tremblay, P. Eng., M.A. Sc. (the “Authors of the 2019 Technical Report”), each of whom is a “qualified person” and “independent” of the Corporation within the meaning of the NI 43-101. The 2019 Technical Report was prepared in conformance with the standards required by NI 43-101 and Form 43-101F1.
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So far, the Corporation has financed, in part, its activities and the acquisition of mineral rights forming its properties by the issuance of common shares of its capital, by the Bond Offering and Stream Agreement and by the receipt of grants and an upfront payment as aforementioned. These issuances from the last three fiscal years of the Corporation and also up to the date of this Annual Information Form, are described below.
3.2 Fiscal Year Ended June 30, 2017
Public Offering and Graduation to the Toronto Stock Exchange
On July 8, 2016, the Corporation announced the completion of the 2016 Public Offering, which was a brokered short form prospectus offering for gross proceeds of $69,000,115 by the issuance of 60,000,100 units, which included the exercise of the over-allotment option in full, at a price of $1.15 per unit pursuant to the short form prospectus of the Corporation dated July 4, 2016. Each unit was comprised of one common share of the Corporation and one-half of one common share purchase warrant (collectively, the “2016 Warrants”). Each 2016 Warrant entitled its holder to purchase one common share of the Corporation, at a price of $1.50 per common share, up to July 8, 2019.
The Corporation also announced its graduation to the Toronto Stock Exchange (the “TSX”) pursuant to which all of its issued and outstanding common shares, as well as the 2016 Warrants, commenced trading on the TSX under the trading symbol “NMX” for the Common Shares and “NMX.WT” for the 2016 Warrants.
Livent Agreement
On October 31, 2016, the Corporation announced the entering into of an agreement with FMC Corporation (now Livent Corporation) (“Livent”) pursuant to which it will provide Livent with 8,000t per year of lithium carbonate beginning in mid-2018 (the “Livent Agreement”). After the agreement entered into on May 9, 2016 with JMBM for the supply of lithium hydroxide monohydrate (the “JMBM Agreement”), this was the second multi-year supply agreement for the Corporation.
On April 3, 2017, the Corporation received from Livent a lump sum payment of US$10 million in accordance with the Livent Agreement, which was amended, as announced on March 22, 2017, to extend the timeline to supply Livent with lithium carbonate by no later than April 1, 2019.
Mineral Resources Estimate
On December 1, 2016, the Corporation announced an increase of (i) total measured and indicated mineral resources of 36.620 million tonnes (“Mt”) at an average grade of 1.48% Li₂O (from 27.991 Mt at an average grade of 1.57% Li₂O), and (ii) total inferred mineral resources of 7.188 Mt at an average grade of 1.37% Li₂O (from 4.686 Mt at an average grade of 1.51% Li₂O). The effective date of the mineral resource estimate is November 30, 2016.
JMBM Agreement and Phase 1 Plant Operations
On May 5, 2017, the Corporation announced that JMBM had made an early payment of $2 million to the Corporation (of the final $3 million milestone payment) following receipt of the first shipment of lithium hydroxide solution in accordance with the JMBM Agreement. The final $1,000,000 payment was announced on June 20, 2017 following the delivery of the second shipment of 3.5 tonnes of lithium hydroxide meeting JMBM’s final lithium hydroxide specifications.
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With that announcement, the Corporation also provided an update on operations at the Phase 1 Plant, which was then producing lithium hydroxide on a regular basis using lithium sulfate provided by JMBM, and it was noted that the Corporation’s proprietary processes have been performing as expected.
Equity Financing
On June 12, 2017, the Corporation announced the entering into of an agreement with a syndicate of underwriters led by National Bank Financial Inc. (“NBF”, and together, the “Underwriters”) in connection with the 2017 Public Offering, pursuant to which the Underwriters purchased, on a bought deal basis, 47,620,000 common shares of the Corporation at a price of $1.05 per share for gross proceeds of $50 million. The Corporation used the net proceeds from that equity offering for the ongoing development of the Whabouchi Project, and also for general working capital purposes.
Issuances for Cash Consideration
On July 8, 2016, the Corporation closed the 2016 Public Offering, as described above. In addition, it should be noted that the Corporation was entitled to accelerate the July 8, 2019 expiry date for the 2016 Warrants should the closing price of the common shares listed on the TSX, as applicable, be equal to or above $2.25 for a period of 20 consecutive trading days; this scenario did not occur.
Between July 1, 2016 and June 30, 2017, 1,475,000 options were exercised by officers, directors and consultants at prices varying between $0.10 and $0.92, and shareholders exercised 15,457,650 warrants at prices varying between $0.20 and $0.28 for an aggregate total value of $4,006,705. This resulted in the Corporation issuing 16,932,650 common shares. As a result of option exercises, an amount of $257,106 was reclassified from contributed surplus to the share capital and warrants.
Between July 1, 2016 and June 30, 2017, the Corporation granted 4,225,000 stock options to newly hired executives and employees, at an average exercise price of $1.23 per common share.
On June 29, 2017, the Corporation completed the 2017 Public Offering, as described above, pursuant to the short form prospectus of the Corporation dated June 22, 2017.
Issuances for Mineral Rights Acquisitions
No issuance for mineral rights acquisitions has been made during the fiscal year ended June 30, 2017.
Other
Between July 1, 2016 and June 30, 2017, commissions were paid to agents for an aggregate amount of $7,072,116 and an aggregate number of 3,600,006 broker warrants were issued, collectively entitling the holders thereof to purchase an aggregate of up to 3,600,006 units of the Corporation, at a price of $1.15 per unit, each being comprised of one common share of the Corporation and one-half of one 2016 Warrant. Subject to acceleration provisions as described hereabove, each whole 2016 Warrant was exercisable up to July 8, 2019 to purchase one common share of the Corporation at a price of $1.50.
3.3 Fiscal Year Ended June 30, 2018
During the fiscal year that ended on June 30, 2018, major strides were accomplished by the Corporation to put in place the necessary financing for the construction and commissioning of the Whabouchi Project.
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Dedicated teams were formed to lead construction and commissioning and, thereafter, be ready to conduct operations once construction and commissioning are completed.
Phase 1 Plant Production
On December 4, 2017, the Corporation announced a production of 1.5 tonnes of battery grade lithium hydroxide made from the Whabouchi Property’s spodumene concentrate. Independent laboratory analyses then confirmed that the lithium hydroxide produced from the Phase 1 Plant met the specifications of cathode manufacturers globally. Production of lithium hydroxide from the Whabouchi spodumene concentrate was ongoing at the Phase 1 Plant and deliveries of lithium hydroxide occurred on a regular basis during the months that followed this announcement.
On January 8, 2018, the Corporation announced that it has produced another two tonnes of battery grade lithium hydroxide solution, made from the Whabouchi Property’s spodumene concentrate. At that date, the Corporation had delivered three tonnes of lithium hydroxide solution produced from its spodumene concentrate. The Corporation also reported having received an installment payment of $4,600,000 from Sustainable Development Technology Canada (“SDTC”) for having achieved the second milestone in the development of the Phase 1 Plant.
Mining Lease
On December 14, 2017, the Corporation announced that the Québec Ministry of Energy and Natural Resources (“MERN”) issued a mining lease covering that portion of the Whabouchi Property where the deposit is located, in compliance with Section 100 of the Mining Act. This lease comprises the mining and surface rights necessary to exploit the Whabouchi deposit, and is valid for an initial period of 20 years (expiring October 25, 2037). The lease can thereafter be renewed every 10 years for the duration of the mining operation. In addition, the Corporation obtained the required leases for the Occupation of the Domain of the State as per Section 239 of the Mining Act, allowing the use of lands for tailings disposal, Concentrator and ancillary installations, and other facilities necessary for mining activities.
Rehabilitation and Reclamation Plan for the Whabouchi Project
On December 19, 2017, the Corporation announced that, pursuant to Section 232.1 of the Québec Mining Act, the Corporation submitted a rehabilitation and reclamation plan for the Whabouchi Project which had been approved by the MERN in September 2017. This plan accounted for costs of all works needed for the reclamation of a mining site under the Regulation respecting Mineral Substances other than Petroleum, Natural Gas and Brine. Mine reclamation and closure costs, as approved by the MERN, were estimated at $9,074,664. Accordingly, the Corporation made the first installment representing 50% of the reclamation and closure costs. The second installment representing 25% was paid on September 19, 2018, while the final payment was made in June 2019.
Sale of the Sirmac Property
On February 2, 2018, the Corporation announced the closing of the sale of its Sirmac Property to Vision, a mineral resource company specializing in the acquisition, exploration and development of mineral properties. The Sirmac Property consists of 24 mining claims covering a total area of approximately 1,100 hectares located approximately 180 kilometres North-West of Chibougamau, in the province of Québec.
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As part of the consideration payable by Vision, the Corporation was issued, on January 31, 2018, an aggregate of 15,000,000 common shares of Vision, at a price of $0.40 per common share, for a consideration of $6,000,000, which represented 19.18% of the share capital outstanding immediately after the acquisition. The Corporation also received $250,000 in cash and other consideration. Immediately before the acquisition, the Corporation did not hold any securities of Vision and the Vision shares have since been held for investment purposes, and the Corporation reserves the right to dispose of any or all of its Vision shares, at any time and from time to time.
Supply Agreement with Hanwa Co., Ltd.
On May 29, 2018, the Corporation announced the signing of a supply agreement for spodumene concentrate with Hanwa Co., Ltd. acting as agent for General Lithium Corp. Under this agreement and through NMX Whabouchi, the Corporation agreed to sell spodumene concentrate on a take-or-pay basis and at a market priced-based formula applicable at the time of delivery. The supply period will commence after the construction of the Whabouchi Property and continue up to the full ramp-up of the Commercial Electrochemical Plant.
Financing Arrangements
On May 30, 2018, the Corporation completed an overall $1.1 billion project financing package comprised of the US$150 million Stream Agreement, equity financing totalling $454 million and the US$350 million Bond Offering . As indicated above, this constitutes by far the main highlight of the financial year ended June 30, 2018, and the components of this financing package are more particularly set out in the following paragraphs.
Financing Arrangements – Bond Offering
The Bonds issued in the aggregate principal amount of US$350 million (about $455 million based on an exchange rate of $1.00: US$0.77) are USD-denominated with a maturity date of May 30, 2023, unless called by the Corporation prior to maturity, and bear interest at a rate of 11.25% per annum. Interest is payable quarterly and in arrears on the relevant interest payment dates in February, May, August and November of each year, commencing on August 30, 2018. As at the date of this Annual Information Form, the Corporation has not accessed any proceeds from the Bond Offering.
Also, pursuant to the Bond Terms, the Corporation had to deposit $40 million (from its public offering closed in May 2018, which is detailed below) in a restricted bank account as a project cost overrun facility, for which the Corporation would have to meet certain conditions for these funds to be released from that account. Any unused portion of this $40 million at the end of the construction will be made available to the Corporation once the independent engineer (for the bondholders) issues his final report.
In relation to the Bond Offering, the Corporation incurred, as at June 30, 2018, financing fees amounting to $16,665,072 and paid in advance the first quarterly interest expense of $12,689,560 on May 30, 2018, for the months of June, July and August 2018.
Financing Arrangements – Stream Agreement
On April 12, 2018, the Corporation signed the Stream Agreement where the Corporation will, in exchange of US$150 million, sell to Orion 14.5% of its production of lithium hydroxide , if applicable, lithium
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carbonate produced at the Commercial Electrochemical Plant (and spodumene concentrate above 300,000 tonnes – collectively, the “Stream Products”) at an agreed discount price.
Orion's purchase price paid to the Corporation under the Stream Agreement will be 40% of the sales proceeds of such Stream Products and, through this arrangement, Orion will receive 60% of the sales proceeds from such Stream Products, which will result in Orion receiving a net portion of approximately 8.7% of the Stream Products sales. The maximum amount of Stream Products deliverable per year will not exceed the equivalent of 5,000 tonnes of Stream Products.
In relation to this Stream Agreement, the Corporation incurred, as at June 30, 2018, financing fees amounting to $1,794,965 and recorded them as deferred financing costs in the consolidated statements of financial position.
Financing Arrangements – SoftBank Private Placement
On April 25, 2018, the Corporation announced the closing of a private placement (the “SoftBank Placement”) of 88,460,446 subscription receipts (the “Receipts”) at a price of $1.12 per Receipt for aggregate gross proceeds of $99,075,700, pursuant to an investment agreement (the “SoftBank Investment Agreement”) entered into with SoftBank Group Corp (“SoftBank”) on April 5, 2018. Pursuant to the Placement, upon conversion of the Receipts, SoftBank would acquire up to 9.9% of the Corporation’s common shares (see conversion outcome below). The gross proceeds from the issue of the Receipts was placed in escrow, pending satisfaction or waiver of certain conditions.
Financing Arrangements – Equity Financing
On May 30, 2018, the Corporation completed, through a syndicate of underwriters, a $280 million public offering of common shares on a bought deal basis, pursuant to a prospectus supplement dated May 23, 2018, which was filed in connection with the short form base shelf prospectus of the Corporation dated March 29, 2018 (the “2018 Public Offering”). This resulted in the Corporation issuing 280,000,000 common shares at a price of $1.00 per share.
The Corporation completed, contemporaneously with the 2018 Public Offering, an $80 million private placement with Ressources Québec Inc. (“RQ”) pursuant to which the Corporation issued 80,000,000 common shares at a price of $1.00 per share.
Finally, on May 30, 2018, immediately following the closing of the 2018 Public Offering, the private placement with RQ and the Bond Offering, the Corporation issued to SoftBank, 83,729,011 common shares at a price of $1.12 per share the for aggregate gross proceeds of $93,776,492 following the conversion of 83,729,011 Receipts.
Issuances for Mineral Rights Acquisitions
No issuance for mineral rights acquisitions has been made during the fiscal year ended June 30, 2018.
Other
Between July 1, 2017 and June 30, 2018, the Corporation received a total amount of $15,853,751 following the exercises of: i) 19,842,875 warrants by shareholders at an average price per share of $0.48; ii) 2,864,518 broker units which resulted in the issuance of 3,849,197 common shares at an average price of $1.42 per
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share; and iii) 1,651,750 options by officers, employees, consultants and a former director of the Corporation at prices per share varying between $0.10 and $1.20, for an aggregate total of 25,343,822 common shares issued following these exercises.
3.4 Fiscal Year Ended June 30, 2019 and Up to the Date of this Annual Information Form
Supply Agreement with LG
On July 3, 2018, the Corporation announced the signature of an agreement providing for the supply of battery grade lithium hydroxide by the Corporation to LG Chem, Ltd. (“LG”). Under this agreement, the Corporation agreed to supply LG, on a take-or-pay basis and through its wholly-owned subsidiary NMX Shawinigan, with 7,000 tonnes per year of lithium hydroxide produced at Commercial Electrochemical Plant, for an initial 5-year period scheduled to start in October 2020.
Supply Agreement with Northvolt
On August 20, 2018, the Corporation announced the signature of an agreement providing for the supply by the Corporation to Northvolt AB (“Northvolt”) of battery grade lithium hydroxide. Under this agreement, the Corporation agreed to supply, through its wholly-owned subsidiary NMX Shawinigan, and Northvolt agreed to purchase, on a take-or-pay basis, up to 5,000 but not less than 3,500 metric tonnes per year of lithium hydroxide produced at the Commercial Electrochemical Plant, for a 5-year supply period commencing upon the start of commercial production at both the Commercial Electrochemical Plant and Northvolt’s projected Skellefteå factory in Sweden.
Stream Agreement
On August 23, 2018, the Corporation confirmed receipt of a first payment of US$75 million from Orion under the Stream Agreement. Such payment represents the first tranche of the total advance payment equal to US$150 million to be made under the Stream Agreement. Consequently, in the first quarter of the fiscal year 2019, the Corporation recorded a liability related to the Stream Agreement and the related deferred financing costs against this liability. The second US$75 million tranche will be payable upon the satisfaction of certain technical and other customary conditions that can be satisfied until December 31, 2019.
Bond Offering – Long Stop Date
On August 29, 2018, the Corporation confirmed that that it has satisfied the conditions required pursuant to the Bond Terms before the Long Stop Date (August 30, 2018 - as defined in the Bond Terms).
Updates on the Whabouchi Project
On August 23, 2018, the Corporation made the final payment of $1.7 million for the purchase of the Commercial Electrochemical Plant’s site, to the Société de Développement de Shawinigan Inc.
On September 12, 2018, the Corporation received from SDTC an amount of $2,732,198 in relation with a non-repayable grant for the construction and operation of its Phase 1 Plant.
As of December 31, 2018, $138.4 million had been incurred for the Whabouchi Mine and Concentrator, and $67.3 million for the Commercial Electrochemical Plant covering mainly engineering, site and civil
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works. As of February 8, 2019, the Corporation had on hand $335 million in unrestricted cash and cash equivalent.
Funding Gap and Financing/Strategic Endeavors
On February 13, 2019, in connection with another Whabouchi Project update, the Corporation announced that, taking into account the aforementioned $1.1 billion financing package and based on the past eight (8) months of construction, additional net funds of about $375 million would be required to enable it to complete construction and also meet the drawdown conditions provided in the Stream Agreement with Orion and the Bond Terms.
As a result, the Corporation then reinitiated financing and strategic endeavors with a view to closing the funding gap or otherwise finding an adequate financing and/or strategic solution. This funding gap determination and the ensuing financing and/or strategic endeavors constitute by far the main highlight of the financial year ended June 30, 2019, and these endeavors, together with related actions, are more particularly set out in the following paragraphs.
Special Committee
Further to the February 13, 2019 announcement, the Board of Directors of the Corporation (the “Board”) established, on February 15, 2019, a special committee of independent directors (the “Special Committee” or “Committee”), mainly to review and oversee all financing and/or strategic alternatives for the Corporation – with a view to enhancing shareholder value – including, but not limited to, the eventual issuance of common and/or preference shares, debt instruments permitted under the Stream Agreement and Bond Terms, and other sources of funds as well as mergers and acquisitions alternatives (together, the “Financing and/or Strategic Alternatives”).
In addition to reviewing and making recommendations on Financing and/or Strategic Alternatives, the Committee’s mandate has covered, inter alia, overseeing (i) the construction schedule and expenses as well as the Corporation’s available cash throughout the Corporation’s performance of the aforesaid endeavors, and (ii) the required public disclosure in respect of the foregoing. Committee members are François Biron, Vanessa Laplante, Jacques Mallette and Paul-Henri Couture, the latter being chairman. During that February 15, 2019 meeting, the Board also started considering cash preservation measures, and engaged Clarksons Platou Securities AS (“CP”) as financial advisor.
On February 21, the Special Committee held its first meeting and engaged:
NBF (together with CP, the “Financial Advisors”) to seek, analyze and advise on, Financing and/or Strategic Alternatives; PricewaterhouseCoopers LLP (“PwC”) to advise mainly on the Corporation’s financial position and cash flow projections, and the Whabouchi Project’s main capital cost components; and McCarthy Tétrault LLP (“McCarthy”), as legal advisor.
Qualification of Product
On February 28, 2019, the Corporation announced having started the qualification of its high purity lithium hydroxide monohydrate products with more than 20 customers globally.
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Livent Agreement
On February 18, 2019, the Corporation announced the termination of the Livent Agreement. As disclosed in the Corporation’s financial statements for the year ended June 30, 2018 (Note 23 – Subsequent Events), the Corporation and Livent have had discussions with a view to amending the Livent Agreement and, throughout these discussions, the Corporation has advised Livent that it might have no option but to terminate the Livent Agreement and repay Livent the US$10 million payment (received by the Corporation in April 2017 – see above) plus a similar amount as a termination fee, which the Livent Agreement expressly allows it to do.
Despite good faith negotiations, the Corporation was unable to reach a mutually satisfactory outcome with Livent and, as a result, had no choice but to exercise its contractual right to terminate the Livent Agreement. Livent resumed the arbitration proceedings it had started in July 2018 (and which the parties suspended in September 2018 to allow discussions with a view to amending the Livent Agreement). The Corporation has undertaken to vigorously defend itself thereunder (“Livent Arbitration”).
Financing and/or Strategic Alternatives
On February 27, 2019, the Corporation announced the appointment of the Special Committee and the hiring of the above-listed advisors. In addition, on the same date, the Committee hired the Canadian engineering firm BBA Inc. (“BBA”) to conduct a technical audit mainly to assess the Whabouchi Project’s status and execution plan, and also to validate the Corporation’s capital expenditure (CAPEX) and funding gap estimates.
From February 28 to March 22, 2019, the Board and the Committee met several times to, inter alia:
be apprised of general discussions with large shareholders, important stakeholders and other parties about their potential participation in Financing and/or Strategic Alternatives, and of particular discussions with specific parties; receive, review and discuss interim reports from PwC, BBA and the Financial Advisors, as well as advice on various legal issues from McCarthy; consider asset conservation and cash preservation scenarios; consider renegotiating terms of certain offtake agreements; consider prioritizing Mine construction and limiting work at the Plant to detailed engineering; oversee the Corporation’s endeavors to enhance project management and restructure the Whabouchi Project’s construction team; consider various approaches and strategies regarding available Financing and/or Strategic Alternatives; and determine to update the 2018 Technical Report.
New Members of the Board
On March 12, 2018, the Corporation announced the appointment of two new members to its Board: Mr. Jacques Mallette, President & Chief Executive Officer of Raymor Industries Inc., and Mr. Luc Séguin, consultant, a former senior executive of Investissement Québec. The significant experience of these two
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new directors was considered to be a great addition to the Corporation, especially in the context of the review of Financing and/or Strategic Alternatives (see “Directors and Officers” for more details about their biographies).
Financing Action Plan
On March 22, the Board mandated, on a joint (50-50) basis, the Financial Advisors to lead a dual-track financing action plan (the “Financing Action Plan”), resulting from the analysis of equity raise and M&A opportunities to carry the Whabouchi Project through the production stage. It also reviewed a letter from counsel to an ad hoc committee of bondholders (the “AHC”) and its purported objective to engage a dialogue with the Corporation, and it encouraged management and McCarthy to dialogue with the AHC’s counsel.
On March 25, 2019, the Corporation provided an update to the public on the deployment of the Whabouchi Project and on the Financing Action Plan, and it was noted that operations at the Phase 1 Plant were ongoing, as more potential clients requested lithium hydroxide monohydrate samples internationally.
Special Committee (bis)
It should be noted that, since its inception, the Committee has gradually systemized its modus operandi such that, from March 27 on, the following reports were tabled and discussed at each meeting until July 17:
management’s report on developments with interested parties; Financial Advisors’ update on their Financing Action Plan; McCarthy’s update re the AHC and legal analyses of issues facing the Corporation; and financial review of PwC (and management).
In addition, the Committee, all its advisors and management have closely monitored Orion’s and the AHC’s respective stance in respect of the Corporation’s endeavors, discussed how that could potentially evolve over time and reviewed which approaches are appropriate.
JMBM Amended Agreement
On March 27, 2019, the Corporation announced the signature of an amendment to the JMBM Agreement to extend various deadlines (the “JMBM Amended Agreement”). Under this JMBM Amended Agreement, the Corporation has agreed to supply JMBM, on a take-or-pay-basis and through its wholly-owned subsidiary NMX Shawinigan, a total of 61,000 tonnes of lithium hydroxide produced at the Commercial Electrochemical Plant, for an initial 10-year supply period scheduled to start in 2021. As of March 27, 2019, JMBM received over 80 tonnes of battery grade lithium hydroxide solution from the Phase 1 Plant and started receiving lithium hydroxide monohydrate earlier that month.
Financing and/or Strategic Alternatives (bis)
From March 28 to April 29, 2019, the Board and the Committee met several times to, inter alia:
be apprised of communications with SoftBank and Investissement Québec (“IQ”), the Corporation’s largest shareholder, about their general willingness to support a financing solution;
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mandate PwC to assist management enhancing its financial model; be apprised of communications with the AHC counsel; be apprised of management’s implementation of an asset conservation plan and improvements to project management; review the Corporation’s exposure under purchase orders as well as management’s endeavors to mitigate same; consider ways of keeping “tension” in connection with the Financing Action Plan to foster competition among potential strategic “players” and, ultimately, deliver the best possible value for Shareholders; and consider an eventual interim financing if commitments can be obtained of anchor investors. On April 12, 2019, the Board, upon the Committee’s recommendation, resolved to further: slow down the construction pace at the Mine in an orderly manner and until a Financing and/or Strategic Alternative is identified; and reduce short-term capital expenditures without compromising, as much as possible, the Corporation’s ability to eventually resume full pace construction such that the Whabouchi Project be brought into production in a timely fashion.
On April 26, 2019, the Board approved a formal asset conservation plan, the implementation of which has been overseen by the Committee up to the date of this Annual Information Form – and with PwC’s assistance until the end of July.
Independent Audit Report From BBA
On April 29, 2019, the Corporation announced that an external and independent audit conducted by BBA, has validated the Corporation’s internal cost-to-complete construction assessment as of February 13, 2019, based on the information that was then available to the Corporation (the “BBA Report”). BBA’s independent cost assessment was slightly lower than the Corporation’s prior cost-to-complete internal estimate as of February 13, 2019 and therefore validated the Corporation’s conclusion that additional net funds of approximately $375 million are required to meet the cost to complete drawdown conditions provided in the Stream Agreement and the Bond Terms.
Financing and/or Strategic Alternatives (bis)
In May 2019, the Board and the Committee met several times to, inter alia:
. review with the Financial Advisors, the interim results from the Financing Action Plan, notably:
o communications and expressions of interest from potential financing and/or strategic parties; o interested parties’ level of activity in the Corporation’s virtual data room; o certain parties having “passed” the opportunity;
review the Financial Advisors’ endeavors to induce parties to submit non-binding letters of intent by end of May 2019;
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review the outcome of the foregoing endeavors (indicative proposals and withdrawals from the process); and be apprised of the initial communications and discussions with PG, a global metals and mining industry investor, at the end of May 2019.
In light of the Financing Action Plan’s outcome in early June and the interest expressed by PG, the Corporation’s efforts and communications with the few remaining interested parties focused on an eventual private placement by an anchor investor followed by a rights offering (to allow existing shareholders to participate in the financing solution to a certain extent) whereby the anchor investor would act as “backstop” purchaser.
In parallel, approaches to bondholders were considered, which prompted the Corporation to seek an arrangement pursuant to the provisions of the CBCA on arrangements (a “CBCA Arrangement”) mainly to foster the implementation of a Financing and/or Strategic Alternative and notably to secure a stay of proceedings from creditors.
Increasing Interest of PG
From June 14 on, discussions with PG intensified as the latter reiterated its interest for a financing to be structured as a private placement followed by a rights’ offering. These discussions led to PG submitting an indicative investment proposal for up to $600M, dated July 4, 2019.
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Finalization of Updating the 43-101 Report and PG’s Indicative Investment Proposal
On July 5, the Board thoroughly reviewed management’s presentation on the updated 43-101 Technical Report’s main conclusions and findings (subject to final review) (the “2019 Technical Report”) and PG’s aforementioned indicative proposal.
On July 10, the Special Committee reviewed and commented on PG’s indicative proposal with management, and also extensively reviewed (i) potential approaches with the AHC and Orion in light of the PG proposal as well as (ii) the workings of the CBCA Arrangement to foster the implementation of PG’s proposal. The Committee determined that, subject to PG and the Corporation agreeing on a finalized investment proposal, the CBCA Arrangement appeared the preferred avenue to implement that proposed investment.
PG’s Investment Proposal (“LOI”)
On July 19, 2019, the Corporation announced that it had received and accepted the non-binding LOI for the financing of the Whabouchi Project. The LOI contemplates a $200 million private placement at $0.25 per share and a stand-by purchase agreement to fully guarantee the successful completion of a rights offering of up to $400 million at the same issue price. PG and the Corporation agreed to a 3-month exclusivity period to allow for, among other things, the finalization of definitive agreements and completion of PG’s due diligence.
It was underlined that, whereas the BBA Report supported the Corporation’s February 13, 2019 Whabouchi Project cost-to-complete internal estimate that entailed a funding gap of approximately $375 million, it was the Corporation’s and PG’s desire to ensure that the Corporation would be fully financed (recognizing that at that time the Corporation and PG anticipated that the US$350 million Bond proceeds would still be available). As such, the ultimate size of the rights offering was to be determined by the parties following completion of PG’s due diligence review and prior to execution of the definitive private placement documentation.
The Board accepted the LOI based on a unanimous recommendation from the Special Committee, which had reviewed the LOI from a director’s fiduciary duty perspective, as follows:
the Financial Advisors having conducted a thorough process to seek credible financing / strategic proposals since last February which led to the LOI being the best available alternative for the Corporation and its various stakeholders; PG’s proposal being then the only alternative that will would, at least to a certain extent, shareholder value; there being a lack of executable alternatives and, moreover, a likelihood that the available alternative to the LOI – for all practical intents and purposes – is a Companies’ Creditors Arrangement Act (“CCAA”) recourse; while the LOI’s implementation would eventually dilute shareholder value significantly, a CCAA alternative would leave virtually nothing to shareholders; and IQ, SoftBank and the Financial Advisors being supportive of PG’s proposal.
In its decision to accept the LOI, the Board considered the foregoing and several factors, including the best interests of the Corporation and its stakeholders, the economic and market environment in which the Corporation operates, the equity commitment size and the structure combining a private placement and a
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rights’ offering. The Committee and the Board concluded that the overall terms of the LOI are reasonable and acceptable.
Following its acceptance of the LOI, the Corporation specified in its press release dated July 19, 2019, that definitive agreements with PG remain subject to the amendment of certain terms of the Stream Agreement and the Bond Terms.
In light of the complexity of the implementation of the investment proposal and the number of stakeholders involved, the Corporation sought a preliminary interim order pursuant to the Canada Business Corporations Act under which a solvent corporation can efficiently implement such a complex transaction; the process itself is called an “arrangement”.
43-101 Technical Report
On July 31, 2019, the Board reviewed a finalized version of the 2019 Technical Report, the related press release and the Corporation’s financial model. After extensive discussions, the 2019 Technical Report and its filing on SEDAR (www.sedar.com) were approved, and said report was filed on August 9, 2019.
Bonds’ Set-Off and Reimbursement
On September 16, 2019, the Corporation filed an application with the Superior Court of Québec, in connection with its CBCA Arrangement, seeking the discharge of the security which secured the Bonds.
On September 17, 2019, the Corporation was made aware of a notice of a written bondholders’ resolution published by the Nordic Trustee, without the Corporation’s consent, seeking approval of bondholders by way of a written resolution to instruct the Nordic Trustee to refrain from exercising, commencing or proceeding against the Corporation with respect to, among other things, any right to set-off and effect any prepayment of the Bonds. The Corporation has advised the Nordic Trustee that it considers the proposed resolution invalid with no effect for the Corporation or under the Bond Terms and has requested the Nordic Trustee to withdraw such notice.
On September 17, 2019, the Corporation informed the market that:
. following the publication of the 2019 Technical Report, a Project Completion Cut-Off Event (as defined in the Bond Terms) was triggered as a result of the overall project completion date being delayed to later than June 2021 without the Bond Terms being amended;
. pursuant to Article 13.9 of the Bond Terms, it advised the trustee for the Bonds (the “Nordic Trustee”) of its acknowledgement of the set-off of the USD 350M nominal amount of the Bonds, together with accrued interest up to September 16, 2019, with all obligations of the Corporation under the Bond Terms being extinguished as of such date;
. under the Bond Terms, upon the occurrence of a Project Completion Cut-Off Event, any remaining proceeds from the Bond Offering held in escrow be set-off against and used to prepay the Bonds within 45 days following the notice of the Project Completion Cut-Off Event (dated July 31st, 2019); and
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. the Nordic Trustee is authorized and obligated to take all necessary measures to effectuate such prepayment.
On September 25, 2019, the Corporation informed the market that it received a notice published by the Nordic Trustee stating that a written resolution instructing the Nordic Trustee to refrain from effecting, among other things, any prepayment of the Bonds was approved by the bondholders. The Corporation reiterated its position that (i) such resolution, published without the Corporation`s consent, has no legal effect on the Corporation or the Bond Terms, as it purports to amend the Bond Terms without the Corporation’s consent, and (ii) the Nordic Trustee is in breach of its obligations under the Bond Terms. The Corporation undertook to take all measures available to it to protect its interests. Issuances for Cash Consideration
No issuance for cash consideration has been made during the fiscal year ended June 30, 2019 and up to the date of this Annual Information Form.
Issuances for Mineral Rights Acquisitions
No issuance for mineral rights acquisitions has been made during the fiscal year ended June 30, 2019 and up to the date of this Annual Information Form.
Other
Between July 1, 2018 and June 30, 2019 and up to the date of this Annual Information Form, 1,575,000 options were exercised by employees, consultants and a former board member at prices per share varying between $0.100 and $0.400 for a total amount of $273,375, which resulted in the issuance of 1,575,000 common shares. As a result of the options exercised, an amount of $134,953, was reclassified from contributed surplus to the share capital. The Corporation issued 6,250,000 options having exercised prices varying between $0.85 and $1.40. Also 2,072,832 options expired or cancelled that were issued at an exercise price varying between $0.92 and $2.39.
4. DESCRIPTION OF THE BUSINESS
4.1 General
4.1.1 The Corporation
The Corporation is a developing chemical company whose activities will be vertically integrated, from spodumene mining to the commercialization of high-purity lithium hydroxide. This lithium salt is mainly destined for the fast-growing lithium-ion battery market, which is driven by the increasing demand for electric vehicles and energy storage worldwide. The Corporation will operate the Whabouchi Mine, one of the richest lithium spodumene deposits in the world, both in volume and grade, and the Concentrator. The spodumene concentrate produced thereat will be processed at the Commercial Electrochemical Plant using a unique membrane electrolysis process for which the Corporation holds several patents.
All the Corporation’s activities and assets are located in the Province of Québec, Canada. The Corporation has currently no mine in operation. As of the date of this Annual Information Form, the Corporation had 131 employees.
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4.2 Description of the Mineral Properties
4.2.1 Whabouchi Property
The following description of the Whabouchi Project has been summarized from the 2019 Technical Report that was prepared by the Authors of the 2019 Technical Report. Each of the Authors of the 2019 Technical Report is a “qualified person” and “independent” of the Corporation within the meaning of Regulation 43- 101 respecting Standards of Disclosure for Mineral Projects (“NI 43-101”) and is qualified in its entirety with reference to the full text of the 2019 Technical Report. The summary presented below is subject to all the assumptions, conditions and qualifications set forth in the 2019 Technical Report. The 2019 Technical Report was prepared in accordance with NI 43-101 and for additional technical details, reference should be made to the full text of the 2019 Technical Report which was filed with the regulatory authorities and was posted on SEDAR at www.sedar.com on August 9, 2019. Defined terms and abbreviations used in this section and not otherwise defined in this Annual Information Form have the meanings attributed to them in the 2019 Technical Report. Unless otherwise specified, the information provided in this section is derived from the 2019 Technical Report.
4.2.2 Introduction
The Whabouchi Property comprises the mining operations and the crushing and concentrating of the ore to produce spodumene concentrate. The Concentrator is designed to nominally produce 215,000 tonnes of spodumene concentrate which is then transported by truck transport to the Commercial Electrochemichal Plant, where the spodumene concentrate is transformed into 37,000 tonne/year of lithium hydroxide monohydrate (“LHM”) crystals, assuming the Corporation will purchase lithium sulfate monohydrate (“LSM”) and/or concentrate when needed to achieve nameplate capacity.
Met-Chem, a division of DRA Americas Inc. (“DRA/Met-Chem”) has provided engineering and integration services for all aspects of the 2019 Technical Report on the Whabouchi Property with the participation of other companies. The 2019 Technical Report includes the Resource Estimation (by SGS Geostat “SGS”), Open Pit Mine Design (by BBA Inc. “BBA” ) and Underground Mine Design (by DRA/Met-Chem), Mineral Reserve Estimation (by BBA and DRA/Met-Chem), Concentrator (by DRA/Met-Chem), and the Commercial Electrochemical Plant (by Hatch and NORAM), infrastructure (Hatch for the Commercial Electrochemical Plant and DRA/Met-Chem elsewhere), waste rock and tailings disposal and water management (by SNC-Lavalin “SNC”), capital and operating costs (DRA/Met-Chem for the Whabouchi Property and Hatch for the Commercial Electrochemical Plant), and economic analysis by DRA/Met-Chem.
The 2019 Technical Report follows the guidelines as outlined with the provisions of NI 43-101. The 2019 Technical Report has also been prepared using the NI 43-101 Technical Report Feasibility Study on the Whabouchi Lithium Mine and Shawinigan Electrochemical Plant dated February 21, 2018 produced for the Corporation, as a guideline and each section updated, as required.
Since the design and construction activities have been on-going since 2016 on the properties with special emphasis on the Whabouchi Property, this capital cost impact only focuses on the work to complete each of the two projects (Whabouchi Property and Commercial Electrochemical Plant) to their operational phases.
The purpose of the 2019 Technical Report is to update the reader as to the status of the Whabouchi Project, the capital and operating cost estimates and show the current financial picture of the Whabouchi Project.
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Work has been on-going on the two projects (Whabouchi Property and Commercial Electrochemical Plant) and as of May 31, 2019, the overall status of the Whabouchi Project’s activities is shown in table below.
Table – Projects Completion Status (May 31, 2019)
Description Status
Whabouchi Property
Design 75%
Procurement 90%
Construction 39%
Commercial Electrochemical Plant
Design 45%
Procurement 20%
Construction 4%
It should be noted that the 2019 Technical Report supersedes all previous NI 43-101 compliant technical reports.
4.2.3 Property Description and Location
The Whabouchi Property is located in the James Bay area of the Province of Québec, approximately 30 km east of the Nemaska community and 300 km north-northwest of the town of Chibougamau. The center of the Whabouchi Property is situated at about UTM 5,725,750 mN, 441,000 mE, NAD83 Zone 18. The Whabouchi Property is accessible by the Route du Nord, the main all-season gravel road linking Chibougamau and Nemaska. The road crosses the Whabouchi Property near its center. The Nemiscau airport is 18 km west of the Whabouchi Property.
The Whabouchi Property is composed of one block containing 35 map-designated claims (the “Mining Claims”) covering a total of 1,632.24 ha. and one mining lease by MERN. See table below.
Table - List of the Mining Rights Related to the Whabouchi Property
Date of NTS Sheet Title Expiry Date Registration
NTS 32O12 BM 1022 Oct. 26, 2017 Oct. 25, 2037
NTS 32O12 CDC 101251 Nov. 3, 2005 Nov. 2, 2021
NTS 32O12 CDC 101252 Nov. 3, 2005 Nov. 2, 2021
NTS 32O12 CDC 101253 Nov. 3, 2005 Nov. 2, 2021
NTS 32O12 CDC 2137247 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137248 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137249 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137250 Nov. 26, 2007 Nov. 25, 2021
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Date of NTS Sheet Title Expiry Date Registration
NTS 32O12 CDC 2137251 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137252 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137253 Nov. 26, 2007 Nov 25, 2021
NTS 32O12 CDC 2137254 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137255 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137256 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137257 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137258 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137259 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137260 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137261 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2137262 Nov. 26, 2007 Nov. 25, 2021
NTS 32O12 CDC 2141913 Jan. 24, 2008 Jan. 23, 2022
NTS 32O12 CDC 2141920 Jan. 24, 2008 Jan. 23, 2022
NTS 32O12 CDC 2141921 Jan. 24, 2008 Jan. 23, 2022
NTS 32O12 CDC 2141927 Jan. 24, 2008 Jan. 23, 2022
NTS 32O12 CDC 2141928 Jan. 24, 2008 Jan. 23, 2022
NTS 32O12 CDC 2141933 Jan. 24, 2008 Jan. 23, 2022
NTS 32O12 CDC 2141934 Jan. 24, 2008 Jan. 23, 2022
NTS 32O12 CDC 2202355 Jan. 21, 2010 Jan. 20, 2022
NTS 32O12 CDC 2202356 Jan. 21, 2010 Jan. 20, 2022
NTS 32O12 CDC 2202357 Jan. 21, 2010 Jan. 20, 2022
NTS 32O12 CDC 2203107 Jan. 25, 2010 Jan. 24, 2022
NTS 32O12 CDC 2203108 Jan. 25, 2010 Jan. 24, 2022
NTS 32O12 CDC 2203109 Jan. 25, 2010 Jan. 24, 2022
NTS 32O12 CDC 2203110 Jan. 25, 2010 Jan. 24, 2022
NTS 32O12 CDC 2519870 Jun. 21, 2018 Nov. 25, 2021
NTS 32O12 CDC 2519871 Jun. 21, 2018 Nov. 25, 2021
On October 26, 2017, the Corporation obtained the mining lease number 1022 (the “Mining Lease”), under the conditions provided for in the Mining Act and those prescribes by regulation. The surface of the Mining Lease totals 138.106 ha, consisting of lot 4,994,037 of the Québec cadastre, registration division of Lac- Saint-Jean-Ouest. This lease gives the tenant the right to extract all mineral substances owned by the Crown in the above-named land, but it does not give entitlement to surface mineral substances, petroleum, natural
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gas, or brine. The Mining Lease is for a period of 20 years from the date of the landlord’s signature on October 26, 2017 and will end on October 25, 2037, renewable for 10-year terms.
The Corporation owns 100% interest in the Whabouchi Property through its subsidiary NMX Whabouchi. 16 claims were acquired from Victor Cantore Group (the “Cantore claims”) on September 17, 2009, ten claims were acquired from Golden Goose Resources Inc. (“Golden Goose”) on January 15, 2010 as part of a larger mining titles purchase agreement (594 claims forming the Lac Levac and Lac des Montagnes properties), and seven claims were acquired by map designation directly by the Corporation. However, the Corporation transferred to its subsidiary NMX Whabouchi all its rights, titles and interests in and to its immovable assets and mining rights directly related to the Whabouchi Property pursuant to an asset transfer agreement with an effective date as of April 2, 2018. Therefore, since that time, NMX Whabouchi is the registered owner of the Mining Lease and the Mining Claims. As of the date of this Annual Information Form, all 35 claims are in good standing. The deposit on the Whabouchi Property is located on the Cantore claims. The expiry dates for the Mining Claims range from November 2, 2021 to January 24, 2022. 4.2.4 Accessibility, Climate, Local Resources, Infrastructure and Physiography
Whabouchi Property
a) Accessibility
The Whabouchi Property is easily accessible via the Route du Nord road that crosses the Whabouchi Property near its center. This road links the town of Matagami, via the Route de la Baie-James road, approximately 390 km to the south-southwest. The Route du Nord also links the town of Chibougamau, located approximately 300 km to the south-southeast, and leads to the community of Nemaska.
b) Physiography and Climate
The Whabouchi Property is characterized by a relatively flat topography with the exception of the local ridge where the more competent pegmatites occur, forming the surface expression of the deposit. The elevation above sea level ranges from 275 m to 325 m with an average elevation of 300 m. Lakes and rivers cover approximately 15% of the Whabouchi Property area. The flora in the area is typical of the taiga environment observed in the region with a mix of black spruce forest and peat moss-covered swamps. A vast portion of the Whabouchi Property was devastated by forest fires less than 15 years ago.
There is no permafrost at this latitude and the overburden cover ranges in depth from 0 m near the ridge to 25 m in the south part of the Whabouchi Property. The climate in the region is sub-arctic. This climate zone is characterized by long, cold winters and short, cool summers. Daily average temperature ranges from -20°C in January to +17°C in July. Break-up usually occurs in early June, and freeze-up in early November.
The annual precipitation averages 479 mm of rain mostly from March to November and 117 cm of snow from September to May. Averages are based on data from 2009 to 2016.
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Figure - Property General Location
c) Local Resources and Infrastructure
The nearest infrastructure with general services is the Relais Routier Nemiscau Camp, located 12 km west of the Whabouchi Property, where the Corporation has access to lodging facilities, if needs exceed the capacity of the camp installed on the Whabouchi Property. The community of Nemaska, located 30 km west of the Whabouchi Property, can also provide accommodation and general services. The area is serviced by the Nemiscau airport, serviced by regular Air Creebec flights and charter flights, and by mobile phone network from the main Canadian service providers.
Hydro-Québec owns several infrastructure and facilities in the area including the Poste Albanel and Poste Nemiscau electrical stations located approximately 20 km east and 12 km west from the Whabouchi Property, respectively. Electrical (735 kV) transmission lines connecting both stations run alongside the Route du Nord road and cross the Whabouchi Property near its center. As well, a 69-kV power line connecting the Poste Nemiscau electrical station to the mine has been put in service and is supplying power to the facilities.
d) Surface Rights
All claims comprising the Whabouchi Property are located on Crown Lands. The Corporation secured in October 2017 all surface rights to construct and operate the projected infrastructure.
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Commercial Electrochemical Plant Site
The Commercial Electrochemical Plant site is located in a sector of Shawinigan identified as Grand-Mère, adjacent to the Saint-Maurice River between the Grand-Mère Bridge and 8th street south.
a) Accessibility
The site is easily accessible via Highway 40 or Highway 20 and Highway 55. It is located about 40 km north of Trois-Rivières; 140 km west of Québec City; 170 km east of Montréal.
b) Physiography and Climate
The Commercial Electrochemical Plant site is located at the transition from the Saint Lawrence River Lowlands to the Canadian Shield (Grenville; Laurentides Geologic Province). Landscape is mainly composed of rounded hills surrounded by small river valleys, with the large Saint-Maurice River valley acting as a central element and is located in the Laurentian Mixed Forest region. The main physiographic regional element is the Saint-Maurice River (watershed of 42,651 km²) which is the 4th largest river flowing towards the Saint Lawrence River, representing from 6 to 15% of its flow depending on time of the year.
Mean annual flow is estimated to be about 755 m³/s near Shawinigan, i.e. about 40 km upstream of its mouth in the Saint Lawrence River. Climate is cold and temperate. The average annual temperature in Shawinigan is 4.7 °C. About 1,063 mm of precipitation falls annually. Daily average temperature ranges from -12.7 °C in January to +19.5 °C in July.
c) Local Resources and Infrastructure
Shawinigan has access to the CN rail network is located less than 45 km from two ports: Trois-Rivières and Bécancour. A regional airport accessible to regional jets is located in Trois-Rivières, approximately 20 minutes from Shawinigan. The Montréal and Québec international airports are both less than two hours away from Shawinigan.
For international overseas shipments, the port of Montréal, open year-round, is only about 90 minutes from the Commercial Electrochemical Plant and is connected to the Montréal highway network.
The Commercial Electrochemical Plant site is supplied with a high-pressure natural gas line, city water and effluent system. It is also located near the Grand-Mère Hydro-Québec hydroelectric dam.
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4.2.5 History
Numerous geological surveys and geoscientific studies have been conducted by the Québec Government in the Eeyou Istchee/James Bay area. Geological surveys in the 1960s (Valiquette 1964, 1965, and 1975) cover the entire Whabouchi Property area. In 1998, the MERN released the results of a regional lake bottom sediment survey completed in 1997. The first exploration work reported in the area, dates back to 1962 by Canico and included the discovery of a lithium-bearing pegmatite by the geologists of the Québec Bureau of Mines. That same year, Canico drilled two packsack drill holes on the pegmatite, followed by three diamond drill holes on the same pegmatite ridge in 1963. A total of 462.99 m was drilled. The best result obtained was 1.44% Li2O over 83.2 m (Elgring 1962).
No exploration was reported for the next ten years. From 1974 to 1982, the exploration work was exclusively reported by the Société de Développement de la Baie James (“SDBJ”), which mainly executed large scale geochemical surveys, followed by geological reconnaissance of the anomalies (Pride 1974, Gleeson 1975 and 1976). Two exploration programs, one in 1978 and the other in 1980 were aimed at lithium exploration, with the evaluation of the Whabouchi spodumene-bearing pegmatite (Goyer et al. 1978, Bertrand 1978, Otis 1980, Fortin 1981, and Charbonneau 1982).
In 1987, Westmin Resources completed an airborne Dighem III survey. In 1987-1988, Muscocho Exploration Ltd. also completed ground magnetic and Very Low Frequency (“VLF’) surveys that covered a major part of the Whabouchi Property.
In 2002, while exploring for tantalum, Inco re-sampled the spodumene-bearing pegmatite, taking 11 channel samples and seven grab samples. The best value obtained by Inco was 0.026% Ta, and Li2O values ranging from 0.3% to 3.72% (Babineau 2002). The Corporation initiated its exploration work on the Whabouchi Property during the fall of 2009. A mechanical stripping and trenching program was conducted to expose and sample the main spodumene-bearing pegmatite along with a small drilling program designed to validate the historical results.
During 2010 and 2011, exploration work completed by the Corporation on the Whabouchi Property included three drilling campaigns, mechanical stripping, ground and airborne geophysics, a 50-tonne bulk sample and metallurgical testing. An initial Mineral Resource was estimated in May 2010 by SGS and was followed by an initial preliminary economic assessment of the Whabouchi Project completed in March 2011 by Equapolar in collaboration with BBA.
The initial Mineral Resource estimate of the Whabouchi Property, effective May 28, 2010, totalled 9.78 Mt grading 1.63% Li2O in the measured and indicated resources categories, with an additional 15.40 Mt grading 1.57% Li2O in the inferred resources category.
Following further drilling in 2011, SGS provided the Corporation with an updated Mineral Resource (effective June 6, 2011) to be included in the Preliminary Economic Assessment (prepared by Met-Chem Canada Inc. and dated October 2, 2012). This updated Mineral Resources comprised 11.294 Mt of measured resources with an average grade of 1.58% Li2O, 13.785 Mt of indicated resources with an average grade of 1.50% Li2O and 4.401 Mt of inferred resources with an average grade of 1.54% Li2O. The Mineral Resources were reported within an optimized pit shell and a cut-off grade of 0.43% Li2O.
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From 2012 to 2013, the Corporation conducted further drilling in order to measure the geotechnical properties of the rocks, to condemn certain sectors of the Whabouchi Property for construction and to increase the level of confidence on the 2011 in-pit resources. The Corporation drilled 14 holes for a total of 1,815 m in 2013.
During 2016, the Corporation conducted a definition drilling program highlighting a new mineralization zone named Doris. The Corporation started a bulk sampling program in order to extract and pilot test up to 60,000 tonnes of mineralized material.
During 2017, the Corporation conducted a definition drilling program on the Whabouchi Property focusing on the better definition of measured areas based on the first five years of mining. The program also enabled to add knowledge and resources to the Doris zone.
In 2018, the Corporation conducted a drilling program in order to increase the level of confidence on the shallow, eastern extension part of the measured category mineral resources.
4.2.6 Geological Setting and Mineralization
The Whabouchi Property is located in the northeast part of the Superior Province of the Canadian Shield craton, in the Lac des Montagnes volcano-sedimentary formation which is principally composed of metasediments and mafic and ultramafic amphibolite. A spodumene-bearing pegmatite intrusive dyke swarm occurs on the Whabouchi Property and is composed of a series of sub-parallel and general sub- vertical pegmatite bodies up to 90 m total composite width. The mineralized pegmatite swarm has a general NE-SW orientation, extends 1.3 km along strike and reaches a depth of more than 500 m below the surface.
The lithium mineralization occurs mainly in medium to large spodumene crystals (up to 30 cm in size) but petalite also occurs, averaging less than 2% in the deposit. Figure below shows the drill holes location on the Whabouchi Property and the typical geology in the area.
The deposit on the Whabouchi Property is a lithium-bearing rare metal pegmatite. Emplacement of rare metal pegmatites is the last phase of the crystallization of a parent granite pluton. High pressure residual fluids, with abundant water, silica, alumina, alkalis, and rich in rare elements and other volatiles from the crystallization of a pluton at modest depth, concentrate in the cupola or upper domed contact of the granite as it crystallizes.
Under increasing pressure, this fluid dilates fractures in overlying rocks in a manner analogous to that of hydraulics in mechanical equipment, thereby providing feeder channels for emplacement of pegmatites at shallower depth. Progressive crystallization of the main rock-forming minerals out of this fluid enriches the final fluids in rare metals and the process culminates in the formation of rare metal pegmatites still under fluid pressure.
A variety of types occur depending on the abundance and type of rare metals associated with the pluton and the physico-chemical conditions affecting the sequence of emplacement events. Two distinct phases are observed in the pegmatites on the Whabouchi Property: a spodumene-bearing phase comprising most of the pegmatite material and a lesser, white to pink barren quartz-feldspar pegmatite. The lithium mineralization occurs mainly in medium to large spodumene crystals (up to 30 cm in size) but petalite also occurs, averaging less than 2% in the deposit.
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Figure - Map of the Property Geology with Drill Holes Location
4.2.7 Deposit Types
The interpretation of the pegmatite model was developed by Gary H. K. Pearse in 2011, based on geological mapping, evaluation work, and development work on a number of major pegmatite deposits over many years.
The deposit on the Whabouchi Property is a lithium-bearing rare metal pegmatite. Emplacement of rare metal pegmatites is the last phase of the crystallization of a parent granite pluton. High-pressure residual fluids, with abundant water, silica, alumina, alkalis, and rich in rare elements and other volatiles from the crystallization of a pluton at modest depth, concentrate in the cupola or upper domed contact of the granite as it crystallizes.
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Under increasing pressure, this fluid dilates fractures in overlying rocks in a manner analogous to that of hydraulics in mechanical equipment, thereby providing feeder channels for emplacement of pegmatites at shallower depth. Progressive crystallization of the main rock-forming minerals out of this fluid enriches the final fluids in rare metals and the process culminates in the formation of rare metal pegmatites still under fluid pressure. A variety of types occur depending on the abundance and type of rare metals associated with the pluton and the physico-chemical conditions affecting the sequence of emplacement events.
Pegmatite petrologists classify the variety of types and subtypes by combinations of the following criteria:
Mineralogical-geochemical signatures; Internal structure/zonation; and Pressure-temperature conditions of crystallization.
The criteria are related through degree of fractionation, which arises from the chemical, temperature and pressure evolution of the pegmatite fluids over time and distance from the parent granite. The complex rare element pegmatites generally evolve as follows: at depth under high-pressure and temperature conditions, simple granite pegmatites of quartz, feldspar and mica crystallize in fractures above and within the solidified granite pluton. Above this level, columbo-tantalite minerals appear starting with high niobium compositions and progress to higher tantalum/niobium ratios where the complex pegmatites appear with lithium, cesium, and rubidium bearing minerals.
Variations may appear, in which petalite is the dominant lithium mineral, often along with pollucite, lepidolite, etc. Alternatively, spodumene dominates in a classification known as albite-spodumene pegmatite. Tantalum may occur in a variety of minerals and cassiterite may be present. A final, mariolitic or greisen phase at low pressure temperature, may be present with lepidolite, quartz, tantalum-rich minerals, tin, topaz, etc. Where beryllium is relatively abundant, beryl (most commonly) or other beryllium minerals, these often occur throughout the sequence from the parent granite through all phases to the final mariolitic mineralization
Three characteristics of the geological setting for rare metal pegmatites are common:
Emplacement in concordant stacked sills; Presence of a compressed, near-vertical, syntectonic mobile zone that is the locus of pegmatite intrusion; and Host rocks most commonly are dominantly mafic volcanics often with intercalated metasediments and gabbroic rocks.
The pegmatite on the Whabouchi Property is a highly fractionated, spodumene-rich pegmatite swarm, individual bodies of which display typical zoning to varying degrees – a comparatively thin albite wall zone at the contacts followed by a K-feldspar rich zone with lesser albite, quartz, mica, and little or no spodumene, followed by a spodumene-quartz-rich core zone (with variable feldspars and mica) making up more than 90% of the cross-section.
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The deposit on the Whabouchi Property lacks a quartz core which is one of the classic zoned pegmatite features. Insufficient stratigraphic work has been done on the host rocks to establish that the bodies are dominantly sills as in the classic case. The concordance of the bodies with the greenstone belt and the persistence of even thin pegmatite bodies over a 100 m or more on strike and at depth support this structural control. The drilled sections at 700E and 800E on the grid do appear to show this, in that the hanging wall of the main pegmatite zone is basalt and the footwall gabbro.
4.2.8 Exploration
The Corporation began its exploration program in October 2009 and consisting of mechanical stripping, trenching (16 trenches, 1,000 m lateral strike), channel sampling (35 channels for a total of 295 samples) successfully exposing spodumene-bearing pegmatites. Seven diamond drill holes were completed (+1 hole abandoned) successfully intersecting pegmatites zones.
A second exploration program was conducted from January to April 2010. During that program, 59 drill holes totaling 11,600 m were completed. In addition to drilling, 14 line-km of ground magnetic surveying covering the main mineralized occurrence and 670 line-km of helicopter-borne magnetic surveying covering the Whabouchi Property were completed. Later in May 2010, the Corporation completed 2,780 m of mechanical stripping of the south contact of the main mineralized zone with (16 trenches and seven contact zones) and collected 649 channel samples. The stripping also allowed the mapping of the surface geology.
In late 2010, 23 drill holes were completed. An additional 41 holes were drilled in 2011 including 26 for infill drilling, three for metallurgical tests for a total of 9,500 m. In May 2011, a 50-tonne bulk sample was collected at the surface for metallurgical testing purposes.
In 2013, 14 drill holes were added to better define the mineralization towards the eastern boundary and also, to increase the level of confidence of the 2011 in-pit mineral resources. A total of 1,815 m of drilling was completed and 351 samples were sent for Li2O assay.
In 2016, 51 drill holes were added to: 1) convert the inferred in pit inferred resources to indicate; 2) increase the confidence level of mineral resources from 0 m to 200 m; and 3) extend the mineral potential at depth. A total of 17,424 m of drilling were completed and 4,039 samples were sent for Li2O % analysis. A new zone named Doris was discovered to the southeast of the known deposit on the Whabouchi Property.
The 2017 campaign aimed to confirm the extension of pegmatite veins of the Doris Zone and to better define the geological continuity and lithium content in the main zone targeted to be mined during the first five years of mining operation. This campaign added 48 drill holes totaling 4,361 m on the Whabouchi Property.
In 2018, 20 diamond drill holes were added. Out of which fourteen drill holes totaling 2,070 m were infilling drilling between section 900 and 1100 and six drill holes totaling 960 m were core oriented geotechnical holes. The objective of the campaign was to better define and increase the confidence level of mineral resources in between section 900 and 1100 which would be exploited in the first years of operation and also to increase the geotechnical data for a better conception of the open pit design.
4.2.9 Drilling
A total of 258 drill holes were completed by the Corporation to define the mineral deposit. In addition to the drilling, extensive mechanical stripping on surface permitted the completion of more than 140 channels.
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Tables below summarize the drilling and channel sampling completed by the Corporation to define the mineralized pegmatite intrusion.
Table - Drilling Completed by the Corporation at Whabouchi
Metres Year Count Drilled
2009 8 999
2010 82 15,670
2011 41 9,257
2013 14 1,815
2016 51 17,424
2017 48 4,361
2018 14 2,070
Total 258 51,596
Table - Channel Sampling done by the Corporation at Whabouchi
Total Year Channels Samples
2009 35 295
2010 108 649
Total 143 944
4.2.10 Sample Preparation, Analysis and Security
The Corporation implemented an internal quality assurance and quality control (“QA/QC”) protocol by regularly inserting reference materials (standards and blank) and core duplicates in the samples stream. The Corporation also conducted in the 2010 and 2011 reanalysis of selected pulp in a second laboratory, as part of their QA/QC protocol.
SGS completed a review of the sample preparation and analysis including the QA/QC analytical protocol implemented by the Corporation for the Whabouchi Property. SGS visited the Whabouchi Property on November 27, 2013, and numerous times in the summer of 2016 to review the Corporation sample preparation procedures, local infrastructure and in order to conduct an independent sampling program.
The author visited the site on May 20, 2019. The QA/QC data from previous campaigns and up to 2018 was reviewed. A review of the QA/QC analytical results for blanks and core duplicates did not highlight any analytical issues. However, the observations for the 2016 standard material and pulp duplicates suggest the presence of a bias in the analytical data between SGS and ALS Chemex laboratories of about 5%, SGS having the higher average grade. SGS verified the effect of a 5% grade added value on the 2016 assay results in the resources estimates and found the results to be negligible.
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Specific Gravity (“SG”) measurements were completed in 2010 and 2011 on mineralized core samples to estimate an average bulk density value for the deposit on the Whabouchi Property and are considered acceptable for the 2019 Technical Report.
The author is of the opinion that the sample preparation, analysis and QA/QC protocol used by the Corporation for the Whabouchi Property follow generally accepted industry standards and that the Whabouchi Property data is of a sufficient quality SGS recommends continuing its internal QA/QC protocol for blanks, duplicates (core and pulp), and standards (reference materials).
4.2.11 Data Verification
A total of 39 mineralized core duplicates were collected in 2013 by SGS on 2011 and 2013 drill hole samples and submitted for lithium analysis at the SGS in Lakefield, Ontario and followed the same analytical protocol used by the Corporation during the 2009 and 2010 drilling programs (code ICP90Q) except that the sample preparation has been made directly at the SGS laboratory and not at the TJCM laboratory.
The comparative results show the average relative grade differences between the original and the control samples range between 1% and 12%, which can be considered acceptable for core duplicates, considering the coarse nature of the spodumene mineralization generally observed at Whabouchi Property. The weighted average grades between the original and the control samples outline similar results.
The digital drill hole database supplied by the Corporation has been validated for the following data field: collar location, azimuth, dip, hole length, survey data, lithology and analytical values. The validation returned only minor discrepancies located in lithology and assay data, which were communicated to the Corporation and corrected in the final drill hole database.
As part of the data verification of the Whabouchi Property, the analytical data from the database has been validated with the values from the laboratories analytical certificates. No errors were noted during the validation.
The final revised database includes the channel samples collected in 2009 and 2010 from surface trenches and the drilling data from the 2009, 2010, 2011, 2013, 2016, 2017, and 2018 drilling programs. The final drill hole with reported analytical results included in the database is WHA-18-257. The few historical drill hole and channel analytical data were considered for the current mineral resource estimate and were kept for modelling purposes. The author is of the opinion that the final drill hole database is adequate to support a mineral resource estimate.
4.2.12 Mineral Processing and Metallurgical Testing
Mineral processing testing was performed on spodumene concentrate production and LHM production separately. A summary of spodumene concentrate production test work is presented in the section entitled “Whabouchi Concentrator” below. The electrochemical production of LHM test work is presented in the section entitled “Shawinigan Transformation Plant” below.
Whabouchi Concentrator
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Between 2010 and 2017, multiple test work programs were done to develop the Concentrator flow sheet. This involves crushing, ore sorting, hydro classification, DMS and flotation methods. It also includes summaries from screening, settling, filtration, freezing, drying, and magnetic separation tests performed by various laboratories and suppliers.
Ore sorting was tested at full scale by two suppliers to evaluate the ore amenability to coarse size sorting. The ore can be effectively separated into rejects and accepted with minimal lithium losses. This was implemented in the flow sheet to reduce contamination with amphibolite.
Hydraulic separation has been tested to remove muscovite before the two main separation processes (DMS and flotation). It has been used in pilot plant campaigns. It was also tested in a manufacturer laboratory.
Multiple DMS testing programs, at bench scale with heavy liquid separation tests and in pilot plant tests, have been done since the beginning of the flow sheet development. DMS performs well with particles of less than 9.5 mm and improves as the top size is reduced to 6.3 mm. DMS can produce a final concentrate, a final reject and a middlings stream which will be reprocessed in flotation.
Multiple test programs involved flotation. Both bench scale and pilot plant work were performed since 2010. The most recent programs aimed at taking advantage of the coarse liberation of the material and coarse flotation with hydroflotation was introduced. In addition, column flotation shows a better selectivity against muscovite and other contaminant in the fine flotation concentrate by using wash water addition. Final design tests were performed at Eriez which supplies the hydroflotation technology. The grade and recovery of these tests were very good. The reagent consumption was reduced drastically through optimization.
Thickener, filtration and freezing tests have been done to size various equipment and validate conditions where concentrate transportation could be problematic.
The Whabouchi DMS pilot plant operated in 2016. Whilst not a piloting of the current flow sheet, it did demonstrate that the contaminant minerals behaved similarly to spodumene and proved the necessity to include ore sorting and dry magnetic separation into the commercial flow sheet. The Whabouchi DMS pilot plant was an important derisking activity for the Whabouchi Project.
Finally, DMS concentrate drying tests have been done to evaluate conditions required to have a good concentrate for dry magnetic separation of the coarse DMS concentrate. This last operation in the upgrading of the ore was tested at two suppliers’ facilities with good results.
Shawinigan Transformation Plant1
a) Offsite Laboratory and Pilot Scale Testing
Extensive process testing was conducted on the spodumene concentrate to determine the design and sizing of a facility to produce high quality LHM.
Key aspects of the process were tested at the laboratory and/or pilot scale. A high-level summary follows:
1 Commercial Electrochemical Plant
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Crushing and Screening: Crushing and screening of DMS was extensively tested at multiple suppliers to confirm the technology and size the equipment. It was later decided to integrate this plant area into the Concentrator. Calcination: Large-scale pilot test work was performed with reputable suppliers of flash calciners. The test work demonstrated that under the right conditions the concentrate could be calcined and achieve high lithium extraction rates (> 95%). Acid Bake: Laboratory and pilot test work was performed to determine the required mixing and acid bake parameters to adequately sulfate the lithium and obtain a high lithium extraction. Impact of using recycled acid was extensively studied. Leaching: Multiple leaching laboratory and pilot tests were performed to determine optimum operating and design parameters. Belt filter sizing was determined through filterability and washability test work. Impurity Removal: A series of impurity removal tests were performed to meet the stringent feed requirements of the electrochemical cells. The traditional impurity removal flow sheet was modified to improve efficiency and reduce equipment size. Lab scale and pilot scale test work investigated reagents and residence times to develop the proposed flow sheet. Test work was performed to determine filtering and thickening behaviour and select and size the appropriate filters. Dedicated ion exchange tests were used to size the ion exchange (“IX”) columns. Test work showed that high purity solution meeting the electromembrane requirements could be produced. Electromembrane Process: Various phases of membrane electrolysis test work were performed by the Electrosynthesis Company. The objectives were to determine optimal operating parameters (concentration, current efficiency, current density, configuration, etc.) and to estimate membrane and anode life cycle. Long-term stability of the process was demonstrated by a series of tests on a continuous basis totaling about 1,000 hours and referred to as the “1,000-hour test.” In addition, the Phase 1 Plant has operated for over a year bringing valuable insight into the operation and performance of the electrolysis cells. LHM Crystallization and Drying: LHM crystallization laboratory scale test work was performed. Pilot test work was also performed at a supplier to size the LHM dryer. Acid Concentration: Work was performed to develop the ternary phase diagram for the lithium sulfate – sulfuric acid – water system as a function of temperature. This included the solubility and to a more limited extent the boiling point curves. The experiments allowed the flow sheet structure to be confirmed and provided basic data for equipment design. Laboratory and pilot test work at suppliers provided further information to be used in equipment sizing and design. Multiple other tests were performed to gather data for proper engineering of the facility. This included: material handling properties, river water quality testing, materials of construction testing in the sulphation area, etc.
b) Electrochemical Demonstration Plant – Phase 1 Plant – 2017-2019
The Phase 1 Plant is a ~1/65-scale demonstration plant with full-scale electrolysis cells installed. It is designed for continuous operation, with complete instrumentation and distributed control system, allowing automated and safe operation. It can produce high quality LHM from spodumene and recycled lithium
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sulfate salts. It has a nameplate capacity of 500 tonne/year of LHM crystal production from recycled lithium sulfate salts and 100 tonne/year of LHM from spodumene concentrate.
Figure – Phase 1 Plant Overview Picture - Purification and Crystallization Unit Operation
The objectives of the Corporation in building and operating the Phase 1 Plant in advance of starting commercial scale operation were multiple:
To demonstrate its ability to repeatedly produce lithium hydroxide according to quality specifications as defined by customers including battery customers. To qualify its products with customers and sign off-take agreements before starting operation of the Commercial Electrochemical Plant. For the development of staff skills and internal processes and to provide strong foundations for the integration of new staff in the Commercial Electrochemical Plant. Process improvements made during the life of the demonstration plant and operational lessons learned can be integrated in the engineering of the Commercial Electrochemical Plant. To demonstrate the versatility of the process by also converting lithium sulfate salts (that are produced by some customers in their industrial processes) into lithium hydroxide.
The timeline for the Phase 1 Plant is as follows:
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May 2016 – Phase 1 Plant financing completed. The estimated total budget to build and operate the Phase 1 Plant for two years was established at $38 million. June 2016 – Beginning of construction at the Shawinigan site. December 2016 – Phase 1 Plant operation team training. February 2017 – Start electrolysis continuous operation on synthetic lithium sulfate solution from LiOH and H2SO.
March 2017 – First tonne equivalent of LiOH-H2O solution produced from synthetic lithium sulfate solution. April 2017 – Start purification and electrolysis on recycled lithium sulfate salts from a client.
June 2017 – First tonnes equivalent of LiOH-H2O solution produced from recycled lithium sulfate salts meeting JMBM battery grade specification. October 2017 – Start processing spodumene concentrate feed while over 20 tonnes of LHM meeting our client specification were produced from lithium sulfate salts.
December 2017 – First tonnes equivalent of LiOH-H2O solution produced from spodumene concentrate meeting battery grade specifications.
February 2019 – First tonnes of LiOH-H2O crystals and samples to potential clients within 60 days of installing a fluid bed dryer and packaging equipment. May 2019 – Over 240 tonnes of spodumene concentrate processed and over 100 tonnes equivalent of LiOH-H2O produced from spodumene concentrate and/or recycled lithium sulfate salts. Phase 1 Plant continues to deliver high purity LHM commercial samples to potential clients internationally.
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The Phase 1 Plant includes the following key unit operations:
Acid bake pug mixer, kiln, and cooler; Leaching reactor and filter; Primary impurity removal (“PIR”) reactors and filter; Secondary impurity removal (“SIR”) reactors and filter; Tertiary impurity removal (“TIR”) reactors and filter; IX columns; Electromembrane cells within electrolyzer; Crude and pure LHM crystallizer; LHM dryer; Services. When running on recycled lithium sulfate salts, the acid bake and leaching steps aren’t used, and impurity removal is adapted for the specific feedstock.
Since the acid regeneration circuit is not present, the spent anolyte from electrolysis is recycled to PIR where it is neutralized.
The spodumene concentrate was sourced from the Whabouchi Property. The spodumene calcination was performed offsite by third-party suppliers.
Key operational learnings by process sectors:
Lithium Extraction Circuit Between Q4-2017 and Q1-2019, approximately 240 tonnes of spodumene concentrate were processed. Operational learnings influenced Commercial Electrochemical Plant materials selection to prevent premature corrosion and erosion of equipment. Purification Circuit Conditions to produce gypsum with low lithium losses and removal of almost all metallic impurities. Electrolysis Circuit Operation of commercial scale electrolysis cell at various current densities. Confirmation of key design parameters. Conditions that affect membrane and anode life, and current efficiency. More than 5,000 hours of continuous operation to understand cell performance over time. LHM Circuit Confirmation of two step crystallization process configuration to obtain product quality. In Q1-2019 quality battery grade was confirmed for at least two potential clients.
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Since the beginning of its operation in Q1 2017 to Q1 2019, many of the objectives and milestones were achieved: The Phase 1 Plant was operated in several campaigns and produced over 100 tonnes equivalent of LiOH-H2O produced from spodumene concentrate and/or recycled lithium sulfate salts. The Phase 1 Plant was deliberately run at lower than nameplate capacity to ramp up and stabilize operation and adapt operation to match the availability of feedstock. This material qualified as battery grade as per typical market specifications.
Table - LiOH-H2O Produced at Phase 1 Plant from Recycled Lithium Sulfate Solution
Market LiOH-H₂O Specs* Element Unit LiOH-H₂O Product measures Span of Max Values
LiOH % w/w 54.8 - 56.5 Min 56.5
Ca mg/kg 10 - 100 <4
Na mg/kg 20 - 500 <4
K mg/kg 10 - 250 <4
Mg mg/kg 10 <4
Fe mg/kg 5 - 21 <4
Al mg/kg 10 <4
CO2 % w/w 0.035 - 0.35 < 0.1
Cl mg/kg 15 - 100 <10
SO4 mg/kg 50 - 300 <120
Cr mg/kg 5 - 100 <4
Cu mg/kg 1 - 5 <4
Ni mg/kg 1 - 10 <4
Si mg/kg 20 - 30 <4
Zn mg/kg 10 <4
Sol. Acid mg/kg 40 - 1,000 <50 * Data from publicly available company product list
Since the end of 2016, engineers, process specialists, support teams, key management staff, and 20 technical operators have been hired and trained to operate Phase 1 Plant. These highly skilled technicians have educational backgrounds in mechanical, chemical, and electrical disciplines as well as a range of technical work experience including chemical plant start-up. Both process safety reviews during engineering and skilled personnel proved to be efficient at preventing accidents during commissioning, start-up, and operation of the plant. This phase allowed the development of important internal processes and know-how required for the commercial phase. Learnings from Phase 1 Plant operation were transferred and integrated to the process and engineering design of the commercial concentrator. This mitigates many of the technical risks associated with new process development.
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In 2019, the Phase 1 Plant will continue to produce LHM crystal from recycled lithium sulfate salts and/or spodumene concentrate from the Whabouchi Mine, to further demonstrate and optimize the process, qualify products with clients, and to develop the know-how of the workers in advance of the start-up of the commercial process. In addition, optimization tests will be done to increase current efficiency, increase lithium recovery in acid bake and leaching, reduce impurities concentration in electrolysis feed, reduce purge from the crude LHM crystallizer, and to extend life of resins of IX columns before regeneration, amongst others.
4.2.13 Mineral Resource Estimates
SGS completed the Mineral Resource update using the digital database supplied by the Corporation (as of January 25, 2019) which included channel data from trenches and drill holes data completed by the Corporation since 2009.
The aim of the updated mineral resource estimation was to better define the geological units present in the model and highlighting the presence of distinct mineralized and barren pegmatites in the geological model. The 2018-2019 geological interpretation also highlighted the presence of smaller parallel dykes and dykelets (1-3 m wide) close to the Main deposit, within the designated mining area outlined by previous open pit scenarios.
The database used to produce the Mineral Resource estimate was derived from a total of 617 channels and diamond drill holes, including historical diamond drill holes and un-assayed channels.
The Mineral Resource was estimated from a resource block model interpolated using ordinary kriging. The 2019 geological model was updated with the new exploration information from 2018; the analytical data contained within the wireframe solids was then normalized, to 2 m length composites. The composite data was used to interpolate the Li2O grade of blocks by ordinary kriging on a regularly spaced defined grid that fills the 3D wireframe solids.
The general requirement that all mineral resources have “reasonable prospects for economic extraction” implies that the quantity and grade estimates meet certain economic thresholds and that the mineral resources are reported at an appropriate cut-off grade taking into account extraction scenarios and processing recoveries. The Authors of the 2019 Technical Report consider that the deposit on the Whabouchi Property mineralization is amenable for open pit extraction.
An optimized pit shell model was done by SGS in Whittle software in 2019 and using the completed block model. The interpolated blocks located below the bedrock/overburden interface, within the optimized pit shell and above a determined cut-off grade comprise the mineral resources. The blocks are then classified based on confidence level using proximity to composites, composite grade variance and mineralized solids geometry. The 3D wireframe modelling, block model, and mineral resource estimate were completed by SGS based on information provided by the Corporation.
The final mineral resource estimates within the open pit are reported at a cut-off of 0.30% Li2O and totals 17.734 Mt, with an average grade of 1.60% Li2O in the measured category, 20.532 Mt, with an average grade of 1.33% Li2O in the indicated category, with an additional 11.745 Mt, with an average grade of 1.27% Li2O in the inferred category. The table below shows the in-pit mineral resource estimate.
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Table - Whabouchi Deposit In-Pit Mineral Resource Estimate
Cut-Off Grade Tonnage* Average Grade Category (Li2O%) (t) (% Li2O)
0.30 Measured 17,734,000 1.60
0.30 Indicated 20,532,000 1.33
0.30 Measured + Indicated 38,266,000 1.45
0.30 Inferred 11,745,000 1.27
Note: The Mineral Resource estimate has been estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definitions Standards for Mineral Resource and Mineral Reserve in accordance with NI 43-101. Mineral resources which are not Mineral Reserve do not have demonstrated economic viability. Inferred Mineral Resources are exclusive of the measured and indicated resources. Bulk density of 2.71 t/m³ is used. Effective date is June 26, 2019 Blocks centres were used as extraction factor for the overburden and pit surfaces * Rounded to the nearest thousand. Blocks from bulk sample area were taken out from the block model. Mineral resources on the block of 19,200 tonnes at 1.56% Li2O are included in the measured category.
The mineral resource estimates below the optimized pit are reported at a cut-off of 0.60% Li2O and totals 274,000 tonnes of indicated resources with an average grade of 1.13% Li2O and 5.423 Mt of inferred resources with an average grade of 1.32% Li2O. The table below shows the below pit mineral resource estimate.
Table - Whabouchi Deposit Below Pit Mineral Resource Estimate
Cut-Off Grade Tonnage* Average Grade Category (Li2O%) (t) (% Li2O)
0.60 Measured -- --
0.60 Indicated 274,000 1.13
0.60 Measured + Indicated 274,000 1.13
0.60 Inferred 5,413,000 1.32
Note: The Mineral Resource estimate has been estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definitions Standards for Mineral Resource and Mineral Reserve in accordance with NI 43-101. Mineral resources which are not Mineral Reserve do not have demonstrated economic viability. Inferred Mineral Resources are exclusive of the measured and indicated resources. Bulk density of 2.71 t/m³ is used. Effective date is June 26, 2019 Blocks centres were used as extraction factor for the overburden and pit surfaces * Rounded to the nearest thousand.
4.2.14 Mineral Reserve Estimates
The deposit on the Whabouchi Property will be mined using conventional open pit mining for the first 26 years of operation, followed by seven years of underground mining. The Whabouchi life of mine (“LOM”) plan and subsequent Mineral Reserves are based on a lithium spodumene concentrate selling price of $800/tonne. The effective date of the Mineral Reserve estimate is July 5, 2019.
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Development of the LOM plan included pit optimization, pit design, mine scheduling and the application of modifying factors to the Measured and Indicated Mineral Resources. The reference point for the Mineral Reserves is the feed to the primary crusher. The tonnages and grades reported are inclusive of mining dilution, geological losses and operational mining losses.
Open Pit Mineral Reserve
The first step in estimating the Mineral Reserves for the open pit component of the deposit of the Whabouchi Property was to convert the mineral resource block model into a sub-blocked model for the purpose of estimating mining dilution and ore losses. This step was completed using the 3D wireframes for the mineralized pegmatite dykes, the non-mineralized pegmatite dykes, and the bedrock contact that were provided by SGS. The host waste rock around the pegmatite dykes was modelled as amphibolite.
The next step in estimating the open pit Mineral Reserves was to run a mineable shape optimizer (“MSO”) tool to evaluate the mining dilution and operational losses that can realistically be achieved using the selected mining fleet and operational conditions. The MSO tool resulted in a total mining dilution of 14.1% and a mining recovery of 96.7% within the open pit. Upon completion of the mining dilution and ore loss modelling, the sub-blocked model was regularized in order to complete the following steps of the open pit mine design work.
A pit optimization analysis was carried out to determine the part of the orebody that is economic to mine using open pit methods. The pit optimization was based on mining and processing costs, revenue per block and operational and technical parameters such as the mill recovery, concentrate grade, pit slopes and other imposed constraints. The pit optimization analysis produced a series of pit shells whose discounted cash flows were calculated and evaluated to select the optimum pit shell. The optimum pit shell was then used as a guide for the open pit design.
The open pit design was done following the recommendations from a geotechnical pit slope stability analysis that was updated for the Whabouchi project in 2019. The design incorporates 12 m high benches, a 25 m wide haul ramp at a maximum grade of 10% and a minimum mining width of 30 m. The ultimate open pit for the Whabouchi deposit is approximately 1,300 m long and 350 m wide at the surface and has a total surface area of roughly 42 ha. The deepest part of the pit is 210 m below the surface.
The table below presents the Mineral Reserves that have been estimated for the open pit component of the deposit on the Whabouchi Property which includes 18.3 Mt of Proven Mineral Reserves at an average grade of 1.41% Li2O and 9.6 Mt of Probable Mineral Reserves at an average grade of 1.18% Li2O for a total of 27.9 Mt of Proven and Probable Mineral Reserves at an average grade of 1.33% Li2O. In order to access these Mineral Reserves, 1.3 Mt of overburden and 75.2 Mt of waste rock must be mined, resulting in a stripping ratio of 2.7:1.
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Table - Whabouchi Open Pit Mineral Reserves
Category Tonnes (Mt) Li2O Grade (%)
Proven 18.3 1.41
Probable 9.6 1.18
Proven and Probable 27.9 1.33
The Mineral Reserves are above a cut-off grade of 0.4% Li2O. The Mineral Reserves are based on a spodumene concentrate selling price of $800/t delivered to the hydrometallurgical plant in Shawinigan at an average concentrate grade of 6.25% Li2O. The reference point for the Mineral Reserves is the feed to the primary crusher. The open pit Mineral Reserves for the Whabouchi deposit have been estimated by Mr. Jeffrey Cassoff, P. Eng. OIQ#5002252, a qualified person as defined by NI 43-101. The effective date of the Mineral Reserves is July 5, 2019.
Underground Mineral Reserve Estimate
The table below presents the Mineral Reserves that have been estimated for the underground component of the deposit on the Whabouchi Property.
Table - Whabouchi Underground Mineral Reserves
Category Tonnes (Mt) Li2O Grade (%)
Proven 0.7 1.42
Probable 8.0 1.20
Proven and Probable 8.7 1.21
The table below presents the combined open pit and underground Mineral Reserves that have been estimated for the deposit on the Whabouchi Property.
Table - Whabouchi Combined Mineral Reserves
Category Tonnage (Mt) Li2O Grade (%)
Proven 18.3 1.41
Open Pit (OP) Probable 9.6 1.18
Proven and Probable 27.9 1.33
Proven 0.7 1.42
Underground (U/G) Probable 8.0 1.20
Proven and Probable 8.7 1.21
Proven 19.0 1.41 Total Probable 17.6 1.19 OP & U/G Proven and Probable* 36.6 1.30
* Due to rounding errors, totals may not add-up exactly.
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4.2.15 Mining Methods
The deposit on the Whabouchi Property characteristics make open pit mining more favorable from a technical and economic standpoint because of its proximity to surface. Open pit mining will, therefore, be favoured for the upper portions of the deposit. However, open pit mining is commonly associated with more significant environmental and social impacts than underground mining, essentially because of the associated larger surface footprint. In order to mitigate environmental and social effects of the projected mine, where geological characteristics and economic factors made it feasible to switch to underground mining, the latter was favoured.
Consequently, from Year 26, the mine will be operating from underground, thus not only limiting the surface footprint of the ultimate open pit, but also minimizing the amount of waste rock to be managed and stockpiled at the surface. Such an approach also enables a longer mine life without significantly increasing the surface area impacted by mining activities, something which extends the duration and cumulative importance of the Whabouchi Project’s economic spin offs for local, regional and provincial stakeholders.
Open Pit Mining
The mining method selected for the Whabouchi Mine is a conventional open pit, truck and shovel, drill and blast operation. Vegetation, topsoil and overburden will be stripped and stockpiled for future reclamation use. The ore and waste rock will be drilled and blasted with 12 m high benches and loaded into haul trucks with mining backhoes in 6 m flitches.
Phases, also referred to as pushbacks, have been designed to access ore quicker and to defer waste stripping. A total of three phases were designed in addition to the ultimate pit design. A minimum working width of 40 m between phases was considered acceptable based on the size of the mining equipment and the proposed scale of mining operations.
The overburden stripped from the open pit will be placed in the overburden stockpile and used for future closure and reclamation activities. The overburden stockpile is located to the east of the open pit and south of the concentrator facilities.
The waste rock excavated from the open pit will be hauled to and placed with the tailings in the co-disposal storage facilities. Co-disposal involves the construction of waste rock cells in which fine tailings are disposed. Mixing the fine and coarse waste reduces the empty void space primarily associated with coarse waste streams, while simultaneously increasing the strength of the fines. Tailings produced at the Concentrator will have a moisture maximum content of around 15%. The tailings will be transported from the Concentrator to the waste rock pile with the same fleet of 64-tonne haul trucks that will be used in the open pit mine.
The LOM plan for the open pit was completed using MSSO (MineSight Schedule Optimizer) and was scheduled monthly for the first four years and annually thereafter. The mine plan includes a pre-production period of ten months, which begins in June 2019 and lasts until March 2020. The pre-production phase will be used to build the haul roads, prepare the co-disposal storage facility, stockpile 80,000 tonnes of ore, and to develop the open pit for mine production. During pre-production only one shift per day will be in operation. The Concentrator is scheduled to begin to receive ore feed in April 2020 and will gradually ramp up to 100% of its nominal production capacity which is targeted for May 2021. Mining of the open pit is planned to be completed in 2045 when the mine will convert to an underground operation.
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The ore production in the mine plan is limited to the maximum feed of the DMS plant which is 949 kt/y. A 5% increase in the DMS plant capacity was considered as of 2023, bringing the annual limit to 996 kt. The maximum material mined from the open pit in any given year is 5.5 Mt.
Mining operations for the Whabouchi Project are based on two 12-hour shifts per day, seven days per week, for 50 weeks per year. The fleet calculations consider seven days of lost mine production due to inclement weather. The mine will operate on the day shift only until June 2020 when the night shift operations begin.
The mining equipment fleet will be owner operated with the exception of the production drilling which will be carried out on a contract basis. In full production, the open pit mining operation will have two PC1250SP- 11 mining backhoes, seven HD605-8 haul trucks, three WA600-8 wheel loaders as well as a fleet of support and service equipment. In addition to supporting the open pit mining operations, the fleet of wheel loaders will be used to feed the primary crusher from the ore stockpile, feed ore to the DMS, and load the tailings and ore sorter rejects into the haul trucks.
Drilling and blasting will be done using bulk emulsion which will be transported to site by an explosive supplier using 20,000 kg tankers. The explosives supplier will provide down the hole service.
The total workforce for the open pit operation including supervision, mine equipment maintenance, and mine technical services is expected to reach a peak of 129 employees.
Underground Mining
The ore extraction will switch from an open pit operation to an underground mine located underneath the pit floor. The duration of the underground mining is seven years and planned to be in operation from the second quarter of 2045 to the end of 2052. An underground mine production ramp up period of four months is planned during the second and third quarters of 2046 to reach the annual production rate of 1.3 Mt of Run- of-Mine (“ROM”).
The underground mine development and operation will be awarded to a mining contractor who will excavate and haul the ore and waste from underground to a rolling stockpile located at the bottom of the open pit. Hauling of the ore and waste from the bottom of the pit to the crusher and the waste disposal area along with the mine tailings operation will continue to be managed directly by the owner’s personnel and the mobile equipment fleet from the open pit operation. The underground mine will be operated on two shifts of ten hours, seven days per week.
The mining methodology selected is 30 m high long-hole type stopes. Based on the favorable geotechnical and hydrogeological conditions, backfilling of the excavated stopes will not be required. The very last excavation phase consists of mining the 30 m thick remaining crown pillar from the open pit floor.
The mine design is purposely kept as simple as possible in order to minimize the development capital expenditure due to the period of seven years of the remaining life of mine of the Whabouchi Property. Halfway down in the western area of the open pit, an underground entry portal to a main ramp driven downward will provide access to the six horizontal haulage drifts which in turn provides access to the draw points of the various stopes.
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The annual production requirement is the same as the full regime of the open pit extraction period with yearly lithium concentrate production ranging from 201 to 221 k tonnes. An overlapping underground mine ramp- up production period of four months with a target ROM production of 300 k tonnes is planned with the open pit ore extraction finishing at the end of Year 26. This will ensure an uninterrupted ROM feed to the Concentrator.
The underground mine work schedule will be similar to the open pit operation with two shifts per day, seven days per week and 50 weeks per year. The shifts will be ten hours with two hours between shifts for clearing of the blasting fumes.
The contractor will supply and operate the underground mining fleet consisting of development jumbos (2), production drills (2), LHDs (3) and haulage trucks (4). The underground haulage trucks will haul the ore and waste up to the mine portal where it will be dumped into stockpiles to be reclaimed by the Owner and hauled out of the pit to the crusher or waste dump.
The underground mine will require 86 employees for the development phase while 70 will be required during the production phase, excluding owner’s management and engineering team and waste and tailings personnel.
4.2.16 Recovery Methods
Whabouchi Concentrator
The Concentrator is located at 675 m north east of the open pit mine. The Concentrator is designed to produce a nominal 215,000 tonnes of spodumene concentrate per year. The ROM mineralized material will be fed into the primary jaw crusher and then screened at 15 mm and 80 mm to enable efficient selection by the ore sorters. The sorted material will then go to the secondary and tertiary cone crushers. The final crushed product will be stored into a stockpile at the Concentrator.
The crushed mineralized material will be screened on the fine ore screen and the oversize will be upgraded in a dense media circuit after a stage of mica hydroseparation removal to produce a coarse spodumene concentrate, a tailings product and a middlings product. The DMS coarse concentrate will then be dried in a rotary dryer before treatment by a dry magnetic separation system. The magnetic product will be discarded with the tailings and the non-magnetic product will be the first portion of the final spodumene concentrate. In Phase 2, this product will be crushed to less than 1 mm.
The DMS middlings product will be ground to less than 0.85 mm and combined with fine ore screen undersize. This ground product feeds a fine stage of mica hydroseparation removal and then goes to the flotation circuit. The flotation circuit consists of de-sliming, wet magnetic separation, attrition and finally 2- stages of spodumene flotation. The flotation is performed at coarse size (850 µm/+ 200 µm) in a hydro float separation unit and at fine size (200 µm/20 µm) by flotation columns.
Tailings from DMS concentration, dry magnetic separation, mica hydroseparation, de-sliming, wet magnetic separation and flotation will be dewatered by a combination of screen dewatering, thickening and filtration before storage into a dome. The tailings will be transported by haul truck to the co-disposal area with mine waste.
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The spodumene flotation concentrate will be thickened and filtered by a belt filter to less than eight percent (8%) moisture. In Phase 2, the concentrate will be dried using a rotary dryer to one and half percent (1.5%) moisture. The flotation concentrate will be combined with the DMS concentrate for transport by road trucks to Matagami or possibly Chibougamau. The shipped concentrate will have moisture of less than five percent (5%) to prevent freezing during the winter months. In Phase 2, this concentrate will always be less than two percent (2%). In Matagami or possibly Chibougamau, the concentrate will be transferred into railcars for transport to the Commercial Electrochemical Plant for further processing.
Commercial Electrochemical Plant
Commercial Electrochemical Plant process design criteria, mass balance, process flow sheets, equipment list as well as plant layouts were prepared for a plant design feed rate of 215,000 tonne/year (dry) of 6.25% Li2O spodumene concentrate and a lithium sulfate feed rate of 2,000 tonnes per year Li2SO4.H2O eq. (dry). The Commercial Electrochemical Plant is designed to produce 37,000 tonne/year LHM crystals (approximately 33,000 tonne/year of lithium carbonate equivalent (“LCE”)). The Commercial Electrochemical Plant is scheduled to operate seven days per week and 24 hours per day. The plant availability has been estimated at 85% based on benchmarks with comparable industries and dynamic simulation availability analysis. The overall lithium recovery is based on laboratory results and extensive mass balance modelling.
The Commercial Electrochemical Plant feed consists primarily of a blend of DMS concentrate and flotation concentrate which has been dried and crushed at Whabouchi Property to the appropriate size for calcination. The spodumene concentrate is transported from the mine and Concentrator site to the process plant in bottom dump type railcars. It is unloaded at the site and stored in a silo.
The first major process step is the calcination of the concentrate where the spodumene mineral is converted from the alpha to the beta form.
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Table - Commercial Electrochemical Plant Design Criteria – Summary
Parameters Unit Value
Site Text Shawinigan
Future Expansion Text No
Concentrate Design Processing Rate tonne per year (dry) 215,000
Concentrate Composition % DMS/% Flotation 42/58
Concentrate Grade (Total) % Li/Li2O 2.9/6.25
Concentrate% Moisture % H2O 0.5%
Concentrate Size Distribution F95 microns 1,000
tonne per year Li SO H O eq. Lithium Sulfate Feed Rate 2 4 2 2,000 (dry)
Plant Operating Time hours per day 24
Overall Plant Availability % 85
LHM Design Production tonne per year 37,000
LHM Product Moisture % ≤0.1
≥57.5 LHM Product Grade % LiOH- (< 20 ppm Na)
Overall Lithium Recovery % 94.9
The beta spodumene is then mixed with sulfuric acid in a pug mixer and the blend of acid and mineral is sent to an acid-bake kiln. The heat provided in the kiln allows the reaction of oxides with the sulfuric acid to make sulfate (mostly lithium sulfate, but also minor amounts of sulfate of select impurities).
The acid bake product is mixed with water in the leach process step. The sulfate dissolves in the water while the gangue material remains insoluble. The leach slurry is sent to a belt filter that separates the gangue mineral (a form of aluminum silicate) from the pregnant leach solution that contains the lithium sulfate and certain impurities.
The pregnant leach solution is combined with purchased lithium sulfate solution (when available) and then undergoes three purification and filtration steps: PIR, SIR and TIR. The solution is polished in an IX system that removes trace amounts of remaining calcium and magnesium. These three purification steps and IX remove many impurities including, excess acid, calcium, silicon, iron, aluminum, manganese and magnesium.
The IX polished solution is fed to the electrolyzers. During this process, lithium sulfate is converted to lithium hydroxide (catholyte solution) and sulfuric acid (anolyte solution). The anolyte solution is sent to sulfuric acid concentration where excess water is evaporated to create a suitably strong regenerated acid. The regenerated acid is recycled to the pug mixer along with fresh make-up acid. The catholyte from electrolysis is sent to the LHM crystallization step.
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A double crystallization process produces pure LHM crystals and condensate that is fully re-used in the process. The LHM crystals are dried and bagged to produce LHM crystals for sale. A small bleed stream from the LHM crystallization is sent to a treatment unit where lithium is recovered, and sodium and potassium are purged.
Figure - Commercial Electrochemical Plant Simplified Flow Sheet
CONCENTRATE RECEPTION AND THERMAL CONVERSION CRUDE LHM PURE LHM CRYSTALLIZER CRYSTALLIZER
ACID ACID PUG MILL CONCENTRATION CONCENTRATION STEP 2 STEP 1 FLASH SPODUMENE CALCINER CONCENTRATE ACID CONCENTRATION
LHM DRYER
ACID BAKE KILN ELECTROMEMBRANE PROCESS
LEACH LHM PRODUCTION REACTORS
BELT FILTER ELECTROLYSIS CELLS
LHM PRODUCT LEACHING AND PURIFICATION BAGS LHM PRODUCT
PRIMARY IMPURITY ALUMINUM SILICATE REMOVAL DRYER
PURGE Na/K SOLUTION FILTER TREATMENT PURGE PRESS TREATMENT
SECONDARY IMPURITY TERTIARY IMPURITY REMOVAL REMOVAL ION EXCHANGE
ALUMINUM SILICATE GYPSUM
4.2.17 Project Infrastructure
Whabouchi Co-Disposal Storage Facility
Co-disposal methodology will be used for the storage of the tailings produced at the Concentrator and the waste rock from the mine. The adopted co-disposal methodology consists of confining filtered tailings into waste rock cells.
With both open pit and underground mining, the lifespan of the Whabouchi Project will be 33 years and will generate 52.4 Mm³ of material. Four co-disposal storage facilities located north of the Route du Nord were designed, all located on the Whabouchi Property. All the waste rock and filtered tailings will be contained in these co-disposal storage facilities, except 6 Mm³ of waste rock that is expected to be disposed in the open pit mine that could be used as backfill material for the underground operation.
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Whabouchi Concentrator
The Whabouchi Property is located at km 276 on the Route du Nord public road. The infrastructure required to service a project in a remote location and fulfil the needs of the workers is significant and comprises the following facilities with their current status (in parentheses):
Whabouchi Property access and Gate House (completed); Maintenance Garage (completed with minor work to complete); Administration Office and Construction Camp Facilities (completed and operational); Construction Camp Facilities (completed and operational); Laboratories (in fabrication); Fuel Tank Farm (currently being designed); Fresh water supply (completed and operational); Fire protection (Fire water network installed around the Concentrator, pump station ready for installation); Sewage Treatment (temporary facilities in place); Electrical substation, power supply and distribution (completed with minor modifications remaining).
Commercial Electrochemical Plant
The Commercial Electrochemical Plant will be located in Shawinigan, Québec, on the site of an old pulp and paper mill. The infrastructure that has been planned in addition to the process plant include the following:
Upgrade of the existing rail network; Spodumene reception and unloading facilities; Substation, power distribution; Residues/by-product handling; Site services; Site buildings; Roads; Guard house; Control system; Communication system.
4.2.18 Market Studies and Contracts
The market study is mostly based on Lithium: Outlook to 2028, 16th edition, published by Roskill Consulting Group Ltd (“Roskill”), an independent and experienced consultant, on July 5, 2019. The main conclusions from their report are:
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Demand for battery-grade lithium hydroxide is expected to grow at 35.3% compound annual growth rate (“CAGR”) between 2018 and 2028; Lithium hydroxide expected growth demand is mainly related to secondary batteries use over the next years; The prices for technical grade and battery grade lithium hydroxide are expected to range between 14,000 USD to 18,400 USD from 2022 to 2028.
At the date of the 2019 Technical Report, the Corporation has three commercial off-take agreements in place totalling about 14,000 tonne/year LCE and valid between 60 and 120 months from the start of commercial production. There is one established contract for the sale of spodumene concentrate for the material that will be produced at Whabouchi Property before production starts at the Commercial Electrochemical Plant.
Based on the information supplied by Roskill, the current off-take contracts in place and information gathered through discussions with potential customers and other sources, the Corporation has established its sale prices as follows (on a per metric ton basis):
Lithium Hydroxide (EXW Shawinigan): 14,000 USD; Spodumene Concentrate Sales (FOB Port of Trois-Rivières): 600 USD.
4.2.19 Environmental Studies, Permitting and Social or Community Impact
For the Whabouchi Property, a first version of the Environmental and Social Impact Assessment (“ESIA”) document was submitted to both federal (Canadian Environmental Assessment Agency) and provincial (Review Committee of the James Bay and Northern Quebec Agreement, or “COMEX”) authorities for review in April 2013. Questions and comments on that first version were sent by those authorities to the Corporation late in 2013. The Corporation provided answers to all questions in early May 2014.
The COMEX held public hearings in March-April 2015; as well, other forms of consultation were organized by the Corporation and/or the Cree Nation of Nemaska, enabling the COMEX to consider the concerns of the people in the territory and ensure they were accounted for in the Whabouchi project and reflected in the Certificate of Authorization (“CA”). On September 4, 2015, following a positive recommendation by the COMEX, the Provincial Administrator of the James Bay and Northern Quebec Agreement granted authorization for the Whabouchi project and the Corporation announced that it has received the CA for the Whabouchi project from the MDDELCC.
On July 29, 2015, following a comprehensive assessment of the Whabouchi project, the Canadian Minister of Environment decided that the Whabouchi project is not likely to cause any significant adverse environmental effects, and set out in its positive decision statement the conditions relative to the mitigation measures and monitoring program to be respected by the Corporation. The Agency issued on that same date its final EA report.
The Corporation has already begun and is continuing to fulfil the provisions included in the CA for the Whabouchi project, and the authorization application and permitting process for construction were started in Q1-2016. Applications are being filed in a timely manner with the construction works and have therefore no impact on the project schedule.
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The Commercial Electrochemical Plant will be located in Shawinigan using part of the former Resolute Forest Products (“RFP”)’s Laurentide pulp and paper mill buildings. MDDELCC has indicated that this part of the Whabouchi Project will need only a CA and not a complete ESIA. The legal framework for the construction and operation of the projected facilities is a combination of provincial, national, and municipal policies, regulations and guidelines.
The permitting process has been fully identified and applications are being filed concurrently with the construction works and should therefore not impact the Whabouchi Project schedule. Since construction works are to take place within existing buildings, most of the environmental permits and authorizations are only needed for infrastructure located outside of the existing buildings and for the operations to be initiated.
a) Water and Tailings Management at the Whabouchi Property
The mine water management plan addresses the management of runoff water collected in the open pit, industrial area, mining stockpiles, overburden/topsoil stockpile and co-disposal storage facilities at the Whabouchi Property.
The water management infrastructure (i.e. ponds, ditches and pumping requirements) are sized based on the required volume of surface runoff to manage, which varies according to the catchment area of the co-disposal storage facilities. A total of 13 water collection ponds, located in strategically selected areas, are required to manage the surface runoff and pit dewatering on the Whabouchi Property.
The final effluent pipeline of Whabouchi Property will direct water from the collection ponds (BC-1 and BC- 11) to the final effluent in the Nemiscau River with regular monitoring of flow and water quality in full compliance with applicable laws, regulations and standards. It should be noted that multiple ponds designed for the Whabouchi project will serve as polishing ponds for suspended solids sedimentation and an active water treatment plant will be installed if required.
With regards to tailings management, best economically and technically available technologies have been integrated to the Whabouchi project design so that filter-pressed tailings will be produced at the mine site and co-disposed with waste rocks on a dedicated pile (co-disposal storage facility).
4.2.20 Capital and Operating Costs
Whabouchi Property, Chibougamau, and Matagami
a) Capital Cost
The scope covered in this estimate is based on the remaining construction work was at the end of May 2019 of the green field facilities at Whabouchi Property, the Matagami transfer site and expended costs at Chibougamau.
The initial Capex consists of the direct and indirect costs, rehabilitation costs, as well as expended costs to May 31, 2019, that are considered for economic analysis purpose. The indirect costs include engineering, procurement and construction management (“EPCM”) and owner’s costs. A contingency of 11% is also included.
The total provision for closure and rehabilitation is $9.2 million, of which $6.9 million was paid previous to May 31, 2019, and the balance paid in June 2019 and also included in the actual costs as of May 31, 2019.
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The table below shows the summary Capex for Whabouchi, Chibougamau, and Matagami. Table - Whabouchi/Chibougamau/Matagami - Capital Cost Estimate ($M - CAD)
Estimate to Estimate at Description Actuals to Date Complete Completion
Whabouchi / Chibougamau / Matagami Site Capex
Total Direct Costs 125.7 138.7 264.4
Total Indirect Costs 87.7 39.7 127.4
Corporate Costs 0.0 27.8 27.8
Contingencies 0.0 18.3 18.3
Rehabilitation Payment Year (-1) 9.2 0.0 9.2
Total Whabouchi / Chibougamau / Matagami Site Capex 222.6 224.5 447.1
The totals may not add up due to rounding errors.
b) Operating Cost
The operating cost was estimated for the Whabouchi Property operation and concentrate transport up to the Commercial Electrochemical Plant and cover the costs related to ore extraction, spodumene concentration, management of tailings, waste and water, general and administration (“G&A”) costs including site services, transport and lodging of workers and operation expenses and concentrate shipping to the Commercial Electrochemical Plant.
The operating cost was based on a concentrate production rate of 205,364 tonne/year (dry).
The table below summarizes the average operating cost estimate.
Table - Average Annual Operating Cost Estimate for the Whabouchi Property
Average Operating Description Operating Cost ($/y) Costs 2 ($/t of Concentrate)
Mining (Open Pit Years 1 to 26) 24,850,366 121.01
Stockpile Re-handle, Tailings, Ore Sorter Rejects, DMS 3,418,318 16.65 Loading (Open Pit Years 1 to 26)
Tailings and Water Management Cost 14,595 0.07
Mill Operating Cost 22,307,680 108.63
G&A Operating Cost 20,492,778 99.79
Concentrate Transport Cost 17,742,218 86.39
Total 1 88,825,955 432.53
1) Based on Years 2021 to 2025 average mill throughput of 1,086,990 tonnes per year. 2) Based on Years 2021 to 2025 average spodumene concentrate production of -205,364 tonnes per year
55 Annual Information Form
Commercial Electrochemical Plant
a) Capital Cost
The capital cost estimate consists of the direct and indirect costs. The indirect costs include the EPCM and owner’s costs. A contingency of 16% on the remaining capital costs is also included. The table below shows the Commercial Electrochemical Plant Capex costs.
Table - Commercial Electrochemical Plant Capex ($M CAD)
Estimate to Estimate at Description Actuals to Date Complete Completion
Commercial Electrochemical Plant Initial Capital Cost
Total Direct Costs 68.2 450.1 518.3
Total Indirect Costs 49.1 127.5 176.6
Contingency 0.0 92.3 92.3
Corporate Costs 0.0 28.3 28.3
Labour Cost Escalation 0.0 5.9 5.9
Total Commercial Electrochemical Plant Capex 117.3 704.1 821.4
The totals may not add up due to rounding errors.
b) Operating Cost
Operating costs were estimated for the Commercial Electrochemical Plant and cover the costs related to the transformation of spodumene concentrate and lithium sulfate into LHM crystals.
The operating cost estimate includes reagents, consumables, rental equipment, personnel, power, fuel, maintenance and various other indirect costs.
The following items are not included in the operating cost estimate and are treated in the financial analysis, either because they normally vary with time, or because they reflect a temporary situation associated with the first years of operation:
Normally vary with time: o Cost of Whabouchi concentrate and related shipping costs (production varies with mine plan); o Cost of concentrate purchased from the market to make-up for any variations in Whabouchi concentrate supply due to the mine plan (annual tonnage and/or grade of concentrate); o Cost of Green House Gas (“GHG”) emissions. Temporary situations associated with the first years of operation: o Improvements in electrolysis current efficiency over the first four years as production experience improves;
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o Electricity cost discounts (Hydro-Québec electricity cost reduction program for clients at tariff L which provides 20% discount on the electricity cost for four years for clients that invest in installations in Québec); o Disposal costs for aluminum silicate by-product over the first five years; o Disposal cost of purge solution over the first five years; o Increased operations and maintenance manpower for the first four years; o Increased maintenance costs (materials and external maintenance costs) during first two years of operation; o Property tax credit for the first five years equivalent to 75% of the amount by which the taxes increase due to the property modifications; o Debottlenecking projects during the first four years of operation. Other: o Cost of lithium sulfate and related shipping costs are included in the financial analysis to be coherent with the financial treatment of the concentrate.
The following items are excluded from the operating cost estimate:
Corporate costs shared between the Concentrator and the Commercial Electrochemical Plant, such as, general and administrative costs, R&D, etc. These are treated separately. A contingency of 5-10% is typically applied to operating cost estimates to cover the risks related to assumptions made during the estimate development. No contingency is included in the current estimate.
Quantities used in the operating costs are based on the heat and mass balance for reagents, the heat and mass balance and supplier information for utilities, and the equipment list for power.
The sources of pricing used to develop the operating costs include standard rate sheets (electricity), budgetary pricing (other utilities, reagents, residues), technical literature (maintenance), existing experience from the Phase 1 Plant (salaries, manpower) and detailed estimates by the Corporation for general expenses.
Design conditions assume:
Ramp-up to full capacity is complete and all equipment is operating at the design efficiency;
The facility receives 6.25% Li2O spodumene concentrate at a feed rate of 215,000 tonne/year
(dry), lithium sulfate at a feed rate of 2,000 tonne/year Li2SO4.H2O eq. (dry), and produces LHM at a rate of 37,000 tonne/year (dry); Aluminum silicate is sold at net zero cost to the Corporation. Gypsum is disposed. Purge solution is sold or disposed at net zero cost to the Corporation.
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Table – Average Annual Operating Cost Estimate - Commercial Electrochemical Plant Total Operating Cost LiOH.H O Cost Item 2 ****($M CAD/y) ($CAD/t)
Direct Costs
Plant Operations 26.99 728
Utilities 25.37 685
Maintenance 21.38 576
Indirect Costs
General Administration Personnel 1.15 31
Management Staff 0.51 14
General Expenses 2.78 75
Tax & Insurance*** 4.88 132
Other External Services 0.50 13
Total 83.6 2,253
* Cost of concentrate from Whabouchi Property or purchased from market and cost of lithium sulfate solution are not included in the Opex, but are included in the financial analysis. ** Assumes no cost for aluminum silicate or purge disposal *** Cost of GHG emissions is not included in the Opex but is included in financial analysis. **** Excludes those costs treated in the financial analysis
Fixed and variable costs are summarized for the design conditions in the table below. These costs are also used to estimate production costs during production ramp-up. Reagents, consumables, by-product disposal costs, electricity for the electrolysis cells and fuel are considered variable costs. All other costs are considered fixed.
Table – Average Annual Operating Cost Estimate – Fixed Versus Variable Costs
Total Operating Cost* LiOH.H O Description 2 ($M CAD/y) ($CAD/t)
Variable Costs 36.3 978
Fixed Costs 47.3 1275
Total 83.6 2,253
* Excludes those costs treated in the financial analysis.
4.2.21 Economic Analysis
An economic assessment based on the production and cost parameters of the Whabouchi Project has been carried out. Q2-2019 price projections in U.S. currency and cost estimates in Canadian currency have been used. An exchange rate of 1.30 CAD per USD was assumed to convert USD market price projections and particular components of the cost estimates into CAD. Selling prices of 600 USD per tonne (FOB SLP) for the concentrate and 14,000 USD (EXW SHA) for the lithium hydroxide have been assumed.
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Current Canadian tax regulations were applied to assess the corporate tax liabilities and the regulations adopted in 2013 were applied to assess the Québec mining tax liabilities. This assessment is based on the fact that the Whabouchi Project is ongoing, i.e., significant work on the Whabouchi Property began in July 2016. Consequently, all funds invested up until May 31, 2019, are considered sunk and are omitted from the capital expenses in the present economic analysis.
Only that part of the capital expenditure that remains to be incurred to bring the Whabouchi Project to the production phase is considered.
Table – Summary of Life of Whabouchi Production, Revenue and Cost Statistics
Description Units Value
Production – Mineralization k tonnes 36,594
Production – Concentrate @ 6.25% Li2O k tonnes 6,570
Production – LiOH-H2O product – Mine Concentrate tonnes 1,032,748
Production – LiOH-H2O product – Other Sources tonnes 64,099
Concentrate Sold tonnes 368,202
Revenue M CAD 20,249.8
Initial Capital Costs M CAD 928.7 (excludes Working Capital and Sunk Costs)
Sustaining Capital Costs M CAD 419.4
Operating Costs (includes Royalty Payments) M CAD 6,161.0
General and Administration Corporate Costs M CAD 252.2
RDPA Payments (excludes $4.5 million already paid) M CAD 383.0
Closure Costs (excludes $9.2 million already paid) M CAD 0.0
Pre-Tax Total Cash Flow M CAD 12,105.5
After-Tax Total Cash Flow M CAD 9,021.0
Table - Base Case Scenario Results
Base Case Financial Results Unit Value
Pre-Tax (P-T) NPV @ 8% M CAD 3,127.6
After-Tax (A-T) NPV @ 8% M CAD 2,330.3
P-T IRR % 30.3
A-T IRR % 27.4
P-T Payback Period year 4.5
A-T Payback Period year 4.6
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The figures below illustrate the sensitivity of the after tax net present value (“NPV”) and internal rates of return (“IRR”), respectively, to variations in capital costs, operating costs, selling prices and the USD/CAD exchange rate.
Figure – Sensitivity of Whabouchi Project NPV @ 8% (After Tax)
4000
3500
3000
2500
2000
1500
1000 A-T NPV @ 8% ($ mil.) ($ 8% @ NPV A-T
500
0 -30 -20 -10 0 10 20 30 RELATIVE VARIATION (%) CAPEX OPEX PRICE FX RATE
Figure – Sensitivity of Whabouchi Project IRR (After Tax)
40.0
35.0
30.0
25.0
20.0 A-T IRR (%) IRR A-T 15.0
10.0
5.0 -30 -20 -10 0 10 20 30 RELATIVE VARIATION (%)
CAPEX OPEX PRICE FX RATE
A sensitivity analysis reveals that the Whabouchi Project’s viability will not be significantly vulnerable to variations in capital and operating costs, within the margins or error associated with projects of this nature. However, the Whabouchi Project’s viability remains more vulnerable to the CAD/USD exchange rate and to the larger uncertainty in future market prices.
The 2019 Technical Report has been compiled according to widely accepted industry standards. However, there is no certainty that the outcome of the economic analysis will be realized as assessed.
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Table - Cash Flow Statement WHABOUCHI PROJECT – Nemaska Lithium Inc.
All monetary values in CAD except where specified otherwise
Exchange Rate to use in this Analysis (USD per CAD) 0.7692 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 Year -2 -1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Total
Mineralisation from Pit (t) 503,224 1,057,982 1,047,991 1,056,987 1,131,991 1,139,999 1,164,981 1,121,972 1,109,990 1,121,982 1,147,982 1,147,996 1,144,975 1,146,983 1,161,981 1,155,957 1,152,980 1,147,972 1,141,959 1,119,986 1,105,001 1,116,967 1,074,990 1,083,997 1,083,994 537,234 27,928,053
Grade (% Li2O) 1.46% 1.41% 1.49% 1.42% 1.29% 1.32% 1.30% 1.31% 1.37% 1.33% 1.26% 1.27% 1.28% 1.29% 1.26% 1.31% 1.31% 1.30% 1.31% 1.34% 1.41% 1.30% 1.41% 1.35% 1.32% 1.25% 1.33% Mineralisation from Underground (t) 613,651 1,287,905 1,285,397 1,269,661 1,289,455 1,271,858 1,272,945 375,471 8,666,344
Grade (% Li2O) 1.25% 1.22% 1.20% 1.23% 1.13% 1.20% 1.26% 1.28% 1.21%
Total Mill Feed (t) 503,224 1,057,982 1,047,991 1,056,987 1,131,991 1,139,999 1,164,981 1,121,972 1,109,990 1,121,982 1,147,982 1,147,996 1,144,975 1,146,983 1,161,981 1,155,957 1,152,980 1,147,972 1,141,959 1,119,986 1,105,001 1,116,967 1,074,990 1,083,997 1,083,994 1,150,885 1,287,905 1,285,397 1,269,661 1,289,455 1,271,858 1,272,945 375,471 36,594,397
Grade (% Li2O) 1.46% 1.41% 1.49% 1.42% 1.29% 1.32% 1.30% 1.31% 1.37% 1.33% 1.26% 1.27% 1.28% 1.29% 1.26% 1.31% 1.31% 1.30% 1.31% 1.34% 1.41% 1.30% 1.41% 1.35% 1.32% 1.25% 1.22% 1.20% 1.23% 1.13% 1.20% 1.26% 1.28% 1.30%
Pit Stripping Ratio (w : o) 1.815 1.666 2.166 1.860 3.094 3.345 3.508 3.739 3.868 3.662 3.735 3.594 3.633 3.635 3.382 3.708 3.690 3.275 2.878 1.858 1.414 1.425 1.074 0.774 0.544 0.043 2.951
Concentrate Production (t) 99,511 202,099 211,995 204,354 201,429 206,940 208,377 203,231 209,079 205,074 200,051 201,644 201,672 203,645 201,658 209,532 207,860 205,765 207,040 206,568 215,504 200,016 208,677 202,236 196,659 199,816 221,703 212,022 215,193 201,475 210,579 221,975 66,206 6,569,586 Loss in Transport (t) 0.0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Concentrate Available (t) 99,511 202,099 211,995 204,354 201,429 206,940 208,377 203,231 209,079 205,074 200,051 201,644 201,672 203,645 201,658 209,532 207,860 205,765 207,040 206,568 215,504 200,016 208,677 202,236 196,659 199,816 221,703 212,022 215,193 201,475 210,579 221,975 66,206 6,569,586 Concentrate Sold (t) 99,511 197,000 71,692 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 368,202 Concentrate for Electrochemical Plant Production (t) 0 5,100 120,296 177,976 198,139 207,427 215,000 215,000 215,000 215,000 215,000 201,644 201,672 203,645 201,658 209,532 207,860 205,765 207,040 206,568 215,000 200,520 208,677 202,236 196,659 199,816 215,000 215,000 215,000 205,394 210,579 215,000 73,181 6,201,383
LiOH-H2O product Mass Balance conversion factor Tonnes product per tonne concentrate 0.166535 0 849 20,034 29,639 32,997 34,544 35,805 35,805 35,805 35,805 35,805 33,581 33,585 33,914 33,583 34,894 34,616 34,267 34,479 34,401 35,805 33,394 34,752 33,679 32,751 33,276 35,805 35,805 35,805 34,205 35,069 35,805 12,187 1,032,748
Purchased Li2SO4 Solution (t LMS equivalent) 0 0 0 0 0 1,930 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 681 54,610
LiOH-H2O product Mass Balance conversion factor Tonnes product per tonne solution 0.653100 0 0 0 0 0 1,260 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 445 35,666 Purchased Concentrate (t) 0 0 0 0 0 0 0 0 0 0 0 13,356 13,328 11,355 13,342 5,468 7,140 9,235 7,960 8,432 0 14,480 6,323 12,764 18,341 15,184 0 0 0 9,606 4,421 0 0 170,735
LiOH-H2O product Mass Balance conversion factor Tonnes product per tonne concentrate 0.166535 0 0 0 0 0 0 0 0 0 0 0 2,224 2,220 1,891 2,222 911 1,189 1,538 1,326 1,404 0 2,411 1,053 2,126 3,054 2,529 0 0 0 1,600 736 0 0 28,433
Concentrate Sales ($) FOB SLP Price (CAD/t) 780 77,618,321 153,659,709 55,919,810 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 287,197,839
LiOH-H2O Sales ($) EXW Shawinigan Price (USD/t) 14,000 0 15,456,428 364,610,961 539,433,995 600,547,744 651,633,807 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 229,897,946 19,962,620,378
Total Revenue ($) Base Case 77,618,321 169,116,137 420,530,770 539,433,995 600,547,744 651,633,807 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 229,897,946 20,249,818,217 Total Revenue ($) Indexed for Sensitivity 77,618,321 169,116,137 420,530,770 539,433,995 600,547,744 651,633,807 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 675,424,596 229,897,946 20,249,818,217
Mining Costs ($) $/year (see LOM Schedule) 13,649,685 22,430,569 24,513,332 24,470,789 26,237,800 26,599,340 26,998,115 26,995,983 26,833,569 26,930,701 27,629,242 27,424,811 27,747,233 27,688,974 27,546,493 27,969,715 28,247,860 27,744,314 27,203,705 22,558,652 21,135,065 21,070,414 19,618,029 18,361,669 17,829,647 28,739,003 38,213,492 40,403,914 39,934,825 39,656,385 39,114,698 37,999,430 16,233,754 895,731,204 Concentrator Processing Costs ($) $/year (see LOM Schedule) 15,681,729 24,002,471 23,972,562 23,744,518 24,666,064 24,670,923 24,805,892 24,622,809 24,316,043 24,549,535 24,668,726 24,583,264 24,742,291 24,521,192 24,644,803 24,920,540 24,705,754 24,934,907 24,692,317 24,435,930 24,540,299 24,493,037 24,203,024 24,253,452 24,359,721 23,746,888 23,655,744 23,567,823 23,505,641 23,509,339 23,482,371 23,575,625 7,530,524 776,305,759 Tailings Haulage & Management Costs ($) $/year (see LOM Schedule) 1,045,735 1,543,483 1,513,561 1,506,762 1,548,371 1,534,250 1,549,140 1,525,277 1,542,515 1,548,281 1,622,217 1,641,647 1,679,872 1,682,086 1,703,681 1,710,323 1,669,129 1,732,845 1,761,379 1,797,415 1,837,804 1,835,822 1,765,016 1,736,387 1,831,874 1,068,055 31,618 31,618 31,618 31,618 31,618 31,618 31,618 42,154,257 Concentrate Transport Costs WHA-SHA ($) $/dmt concentrate 86.39 0 440,572 10,392,911 15,376,087 17,118,080 17,920,487 18,574,754 18,574,754 18,574,754 18,574,754 18,574,754 17,420,869 17,423,254 17,593,758 17,422,099 18,102,386 17,957,933 17,776,889 17,887,051 17,846,265 18,574,754 17,323,742 18,028,491 17,472,060 16,990,192 17,262,917 18,574,754 18,574,754 18,574,754 17,744,815 18,192,808 18,574,754 6,322,390 535,763,600 Concentrate Transport Costs WHA-SLP ($) $/dmt concentrate 92.05 9,160,213 18,134,323 6,599,439 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 33,893,976 Mine Site G&A Costs ($) $/year (see LOM Schedule) 15,388,739 20,518,319 20,518,319 20,517,417 20,517,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 20,392,417 6,797,472 654,852,945
Electrochemical Processing Costs ($) $/year (see LOM Schedule) 0 9,726,429 81,038,429 92,387,782 90,219,019 104,993,172 104,629,669 99,755,549 99,806,060 99,860,828 99,920,154 113,006,509 113,049,004 111,199,781 113,214,852 105,583,709 107,260,164 109,349,555 108,152,557 108,659,078 100,483,949 114,648,450 106,741,254 113,067,066 118,551,406 115,519,806 100,761,316 100,807,544 100,853,772 110,266,261 105,256,675 100,992,456 34,391,087 3,194,153,339 Royalty Payments ($) $/t concentrate produced 4.28 426,324 865,834 908,229 875,495 862,962 886,574 892,730 870,683 895,738 878,577 857,057 863,883 864,002 872,457 863,944 897,679 890,516 881,538 887,001 884,978 923,260 856,910 894,015 866,422 842,526 856,051 949,820 908,347 921,930 863,160 902,163 950,986 283,639 28,145,428 Total Operating Costs ($) Base Case 55,352,425 97,662,000 169,456,782 178,878,851 181,169,713 196,997,162 197,842,718 192,737,472 192,361,097 192,735,093 193,664,567 205,333,399 205,898,072 203,950,664 205,788,289 199,576,770 201,123,772 202,812,466 200,976,427 196,574,735 187,887,548 200,620,792 191,642,246 196,149,472 200,797,784 207,585,137 202,579,162 204,686,418 204,214,958 212,463,995 207,372,751 202,517,286 71,590,484 6,161,000,507 Total Operating Costs ($) Indexed for Sensitivity 55,352,425 97,662,000 169,456,782 178,878,851 181,169,713 196,997,162 197,842,718 192,737,472 192,361,097 192,735,093 193,664,567 205,333,399 205,898,072 203,950,664 205,788,289 199,576,770 201,123,772 202,812,466 200,976,427 196,574,735 187,887,548 200,620,792 191,642,246 196,149,472 200,797,784 207,585,137 202,579,162 204,686,418 204,214,958 212,463,995 207,372,751 202,517,286 71,590,484 6,161,000,507
Operating Profit ($) 22,265,895 71,454,138 251,073,988 360,555,144 419,378,031 454,636,644 477,581,878 482,687,124 483,063,499 482,689,503 481,760,029 470,091,197 469,526,524 471,473,932 469,636,307 475,847,826 474,300,824 472,612,131 474,448,169 478,849,861 487,537,048 474,803,805 483,782,350 479,275,124 474,626,812 467,839,459 472,845,434 470,738,178 471,209,638 462,960,601 468,051,845 472,907,310 158,307,462 14,088,817,710
Mine Pre-production Capital Expenditure ($) MINE DEVELOPMENT – Pre-stripping 0 7,696,163 3,862,277 11,558,440 INFRASTRUCTURE 0 21,377,826 49,881,593 71,259,419 MINE EQUIPMENT 0 1,990,322 4,644,085 6,634,407 CRUSHING 0 681,454 1,590,060 2,271,514 PROCESSING PLANT 0 39,834,158 92,946,369 132,780,527 TAILINGS AND WASTE MANAGEMENT 000 0
Electrochemical Plant Capital Expenditure ($) PROCESS 0 8,796,973 268,307,681 162,744,003 439,848,657 BUILDINGS 0 3,119,582 95,147,240 57,712,260 155,979,082 INFRASTRUCTURE 0 2,167,284 66,102,154 40,094,749 108,364,187
Total Base Case 0 85,663,761 582,481,459 260,551,013 928,696,233 Total Indexed for Sensitivity 0 85,663,761 582,481,459 260,551,013 928,696,233
Residual Value ($) Crushing & Processing Plant 0.0% 0
Working Capital ($) Months of Annual Operating Costs 3.0 13,731,525 10,467,516 17,938,097 2,363,701 575,848 3,950,960 209,850 -1,270,800 -100,357 97,789 237,748 2,915,502 141,139 -488,966 461,534 -1,561,313 388,541 424,418 -460,375 -1,099,917 -2,181,367 3,199,899 -2,253,913 1,133,705 1,168,052 1,693,457 -1,274,936 537,182 -121,261 2,076,952 -1,282,562 -1,226,072 -32,564,864 -17,826,711 0
Sustaining Capital Expenditure Mine Site ($) 0 4,255,850 14,258,000 1,569,770 2,430,990 2,766,000 2,203,360 1,373,680 2,086,030 2,547,630 3,284,030 4,773,250 5,749,840 5,946,830 2,071,170 3,064,715 2,940,940 2,553,020 3,099,820 200,000 2,346,770 2,810,840 1,538,140 0 0 0 0 0 0 0 0 0 0 73,870,675 Processing Plant ($) 0 500,000 472,488 7,214,481 0 0 0 0 0 9,985,880 0 5,122,540 0 0 5,122,540 0 0 0 0 0 0 9,045,500 0 0 39,886,218 0 0 0 0 0 0 0 0 77,349,647 Tailings & Water Management ($) 9,004,304 4,988,263 0 2,810,473 744,490 0 21,803,201 0 0 0 0 19,000,000 0 0 0 0 0 19,000,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 77,350,730 Shawinigan Electrochemical Plant ($) 0 0 0 5,000,000 7,000,000 8,000,000 0 0 0 0 738,017 738,017 150,913 150,913 474,285 2,497,256 4,396,588 1,797,064 5,007,233 9,680,280 12,504,215 17,285,934 11,986,168 3,722,206 2,229,929 2,219,405 17,185,475 2,155,836 540,075 540,075 2,815,275 4,509,406 0 123,324,565 Underground Development ($) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 16,792,908 19,243,759 12,057,168 218,526 992,453 970,250 99,107 0 50,374,172 Underground Mine Equipment and Infrastructure ($) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 11,071,295 1,625,604 1,815,630 327,250 0 663,263 1,647,630 0 17,150,672 Total Sustaining Capital Expenditure ($) Base Case 0 0 9,004,304 9,744,113 14,730,488 16,594,724 10,175,480 10,766,000 24,006,561 1,373,680 2,086,030 12,533,510 4,022,047 29,633,807 5,900,753 6,097,743 7,667,995 5,561,971 7,337,528 23,350,084 8,107,053 9,880,280 14,850,985 29,142,274 13,524,308 3,722,206 42,116,147 30,083,608 38,054,838 16,028,634 1,085,851 1,532,529 4,448,788 6,256,143 0 419,420,459 Indexed for Sensitivity 0 0 9,004,304 9,744,113 14,730,488 16,594,724 10,175,480 10,766,000 24,006,561 1,373,680 2,086,030 12,533,510 4,022,047 29,633,807 5,900,753 6,097,743 7,667,995 5,561,971 7,337,528 23,350,084 8,107,053 9,880,280 14,850,985 29,142,274 13,524,308 3,722,206 42,116,147 30,083,608 38,054,838 16,028,634 1,085,851 1,532,529 4,448,788 6,256,143 0 419,420,459 Total Capital Expenditure ($) 0 99,395,287 601,953,279 288,233,222 17,094,189 17,170,572 14,126,440 10,975,850 22,735,761 1,273,323 2,183,819 12,771,258 6,937,548 29,774,945 5,411,788 6,559,278 6,106,681 5,950,513 7,761,945 22,889,708 7,007,136 7,698,913 18,050,883 26,888,361 14,658,012 4,890,258 43,809,604 28,808,672 38,592,020 15,907,373 3,162,803 249,967 3,222,717 -26,308,721 -17,826,711 1,348,116,693
Corporate G&A Costs ($) $/year (see LOM Schedule) 5,865,521 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 7,820,694 3,910,347 252,217,389 Chinuchi Agreement Payments ($) 4,349,034 4,178,835 4,008,636 3,838,437 74,532,829 0 0 3,752,033 9,885,977 8,638,571 7,900,978 8,091,139 6,620,442 7,650,514 7,601,534 7,537,284 7,690,601 7,547,812 6,869,455 7,616,011 14,847,064 14,639,477 13,948,033 14,743,495 14,986,280 13,213,979 13,851,837 13,598,485 14,524,718 14,913,903 14,752,560 14,707,410 16,093,729 5,851,933 382,983,025
Trust Fund Rehabilitation Payments – Mine ($) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Rehabilitation Costs – Electrochemical Plant ($) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Federal Corporate Income Tax Proportions of Total 56.8% 0 0 0 0 0 0 26,141,200 51,697,897 56,844,196 59,467,787 59,543,496 60,491,502 61,374,734 64,104,583 64,097,489 64,779,540 64,863,502 65,837,118 65,756,402 65,583,974 65,532,075 64,975,796 65,951,926 63,972,308 64,763,615 64,728,452 64,760,413 62,899,142 62,765,471 62,564,940 63,667,019 63,473,113 64,487,451 64,928,046 21,092,803 1,751,145,990 Provincial Corporate Income Tax 39.5% 0 0 0 0 0 0 0 0 0 25,623,709 45,650,014 46,376,818 47,053,962 47,545,818 49,544,062 49,965,585 49,954,135 50,643,859 50,539,546 50,375,603 50,312,054 49,867,790 50,602,843 49,075,170 49,674,376 49,641,830 49,662,148 46,880,210 46,983,636 47,749,729 49,612,945 49,161,708 49,791,604 50,094,263 16,369,085 1,218,752,504 Quebec Mining Tax 3.7% 0 0 296,357 353,453 382,034 1,567,793 380,305 387,635 426,120 549,684 696,541 697,087 717,329 697,494 3,961,379 4,858,595 4,883,051 6,065,615 6,177,575 5,296,090 5,966,252 7,117,053 8,514,542 6,349,384 7,878,554 7,624,816 4,754,222 2,945,305 4,023,377 2,739,050 4,041,583 3,060,186 4,572,570 6,341,608 283,753 114,606,393 Total Corporate Income and Mining Taxes ($) Total 100.0% 0 0 296,357 353,453 382,034 1,567,793 26,521,505 52,085,532 57,270,316 85,641,180 105,890,050 107,565,407 109,146,025 112,347,894 117,602,930 119,603,721 119,700,689 122,546,592 122,473,523 121,255,667 121,810,382 121,960,639 125,069,311 119,396,863 122,316,545 121,995,098 119,176,783 112,724,656 113,772,483 113,053,719 117,321,547 115,695,006 118,851,626 121,363,917 37,745,641 3,084,504,887
BEFORE-TAX CASH FLOW 0 -103,744,321 -589,731,740 -228,608,415 222,320,668 261,031,049 397,430,897 435,840,100 443,273,390 463,707,130 464,420,414 454,196,572 458,910,648 425,875,115 448,643,528 449,492,426 448,171,648 454,386,019 451,170,372 435,032,273 452,004,327 448,483,189 447,025,993 426,146,716 446,560,149 451,577,892 409,782,534 417,358,256 412,834,235 432,485,393 445,312,238 440,137,380 442,301,025 475,301,609 166,371,893 12,105,500,604 Cumulative B-T CF 0 -103,744,321 -693,476,061 -922,084,475 -699,763,807 -438,732,758 -41,301,861 394,538,239 837,811,629 1,301,518,759 1,765,939,173 2,220,135,745 2,679,046,393 3,104,921,508 3,553,565,036 4,003,057,463 4,451,229,110 4,905,615,129 5,356,785,502 5,791,817,775 6,243,822,102 6,692,305,291 7,139,331,285 7,565,478,001 8,012,038,150 8,463,616,042 8,873,398,576 9,290,756,832 9,703,591,066 10,136,076,459 10,581,388,697 11,021,526,077 11,463,827,102 11,939,128,711 12,105,500,604
Payback period work area 1.00 1.00 1.00 1.00 1.00 1.00 0.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
AFTER-TAX CASH FLOW 0 -103,744,321 -590,028,097 -228,961,867 221,938,634 259,463,255 370,909,392 383,754,568 386,003,074 378,065,950 358,530,364 346,631,164 349,764,623 313,527,221 331,040,598 329,888,705 328,470,959 331,839,427 328,696,849 313,776,606 330,193,946 326,522,551 321,956,682 306,749,854 324,243,603 329,582,794 290,605,752 304,633,599 299,061,751 319,431,674 327,990,691 324,442,373 323,449,399 353,937,692 128,626,252 9,020,995,717 Cumulative A-T CF 0 -103,744,321 -693,772,418 -922,734,286 -700,795,651 -441,332,396 -70,423,003 313,331,564 699,334,638 1,077,400,588 1,435,930,952 1,782,562,117 2,132,326,740 2,445,853,960 2,776,894,558 3,106,783,263 3,435,254,222 3,767,093,649 4,095,790,498 4,409,567,105 4,739,761,050 5,066,283,601 5,388,240,283 5,694,990,137 6,019,233,740 6,348,816,534 6,639,422,285 6,944,055,885 7,243,117,636 7,562,549,310 7,890,540,000 8,214,982,374 8,538,431,773 8,892,369,465 9,020,995,717
Payback period work area 1.00 1.00 1.00 1.00 1.00 1.00 0.18 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
FINANCIAL INDICATORS Lag from t=-2 to pre-prod. start (months) 18 Lag from t=0 to prod. start (months) 7 NPV Discounting Convention End-of-period / Mid-period Mid Before Tax Payback Period (years) 4.5 Total Cash Flow ($) 12,105,500,604 Net Present Value ($) Discount Rate 6.0% 4,251,031,536 Net Present Value ($) Discount Rate 8.0% 3,127,582,165 Net Present Value ($) Discount Rate 10.0% 2,333,107,389 Internal Rate of Return 30.3% After Tax Effective Payback Period (years) 4.6 Tax Rates Total CashFlow ($) 9,020,995,717 25.5% Net Present Value ($) Discount Rate 6.0% 3,175,998,384 25.3% Net Present Value ($) Discount Rate 8.0% 2,330,253,862 25.5% Net Present Value ($) Discount Rate 10.0% 1,728,394,932 25.9% Internal Rate of Return 27.4%
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4.2.22 Other Relevant Information
Currently, the Whabouchi Project has been slowed down until additional financing is completed. The current schedule is based on assumptions as to restart times. Activities will continue at a slower pace during the summer and early fall months, but are expected to resume full construction activities for the purposes of the 2019 Technical Report by November 2019. The anticipated production start-up is June 2020 for the Whabouchi Property and November 2021 for the Commercial Electrochemical Plant.
4.2.23 Interpretation and Conclusions
The Whabouchi Project consists of the development of the Whabouchi Property approximately 300 km north of Chibougamau and the Commercial Electrochemical Plant to be built in Shawinigan.
Whabouchi Property and Concentrator
a) Mining
Approximately 21% of the contained metal at the reported cut-off grades for open pit current Mineral Resource is in the Inferred Mineral Resource classification. The Inferred Resource is based on limited information and although it is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated or Measured Mineral Resources with adequate infill drilling, it is not guaranteed.
On the mining side, although moderate, a potential risk exists concerning the stability of the pit slopes and underground openings. Mitigation measures include re-evaluation of the final pit walls after a few years of operation and prepare a detail geotechnical study for the stability of the underground infrastructure and open stopes.
Although considered a small risk, trace amounts of sulphide minerals could be present in the orebody or waste rock and potentially generate acidic drainage waters if mismanaged. Should sulfur bearing mineral species be present in quantities warranting it, a small dedicated storage cell would be constructed in the tailings facility and appropriate water treatment provided, if required.
b) Process
The Concentrator is designed with a very high internal water recirculation rate. The impact of the accumulation of chemical species cannot be realistically assessed during the design phase. It could potentially be detrimental to the Whabouchi Project performance. However, the process was specifically designed to reduce chemical usage and the only process section that requires reagents is the flotation of spodumene. The other concentration methods are done by physical separation (hydroseparation, DMS and magnetic separation) which will not be impacted significantly, if at all, by any accumulated chemical species present. This risk is therefore limited.
The Concentrator design is very flexible and can be adapted during operations to optimize recovery and final product quality. The grade and recoveries projected from individual tests performed by various laboratories and suppliers at bench scale or pilot scale have been used to predict the process plant performance that is stated in the 2019 Technical Report. This has not been specifically demonstrated in a
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formal pilot plant test in its final flow sheet configuration as it is comprised of a high number of unit operations that are very difficult to size and operate at that scale.
Where feasible, full-scale equipment were tested by manufacturers which increased the confidence in the expected performance. There is a risk that the performance recovery or the grade cannot be reached if some unforeseen factor affects the total Concentrator performance. The Concentrator should, however, meet the total spodumene production output considering the design factors used to select equipment.
In the drying, crushing and loadout facility, the High Pressure Grinding Roll (“HPGR”) equipment will crush DMS concentrate to less than 1 mm. The risk is that the DMS concentrate may still be very warm and the HPGR performance on warm material is unsure. Test work will be required to mitigate this risk. The loadout silo will also be designed to minimize risk of blockage to ensure reliable, rapid and dust managed loading of trucks.
c) Infrastructure Risk
As the Whabouchi Property is well advanced in design and construction, there are only a few areas that have not been developed. The major area under development is the water management system. The system is well designed and advanced but requires some geotechnical investigation and final location studies for the catchment basins and interconnecting piping and canals.
The Concentrator is located in a remote region with access by road. The Concentrator facilities are designed to minimize noise, dust and other emissions to meet regulations. Fuel and reagents must be brought in by road throughout the year. The design of the fuel and reagent storage covers provision for delivery interruptions during inclement weather.
The concentrate will be transported by truck to Matagami. Storage bins above the loading equipment will be designed to ensure sufficient excess capacity to cover delays in truck arrivals or departures due to inclement weather or other delays. However, a prolonged road closure will provoke a slow down or cessation of Concentrator operations.
d) Execution Risk
The balance of the work to be completed is assumed to commence in November 2019 in the 2019 Technical Report and would be completed in June 2020. This is an ambitious schedule as a large percentage of the work will be done during the winter months, however, almost all of the civil works, with the exception of water management infrastructure, has been completed and buildings are enclosed. The major risk is furnishing ample construction personnel to complete the work especially during the winter months.
Almost all of the equipment has been delivered to site or ready to be delivered. With the exception of the new drying and crushing facility, only minimal equipment is yet to be procured. Prior to restart of construction, it is anticipated that all piping isometric drawings will be completed and issued for bid. The design work on the cable tray layouts and wiring diagrams would also be completed and issued for bid. This work will be constructed within the confines of the concentrator building which is enclosed and heated.
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Currently, it is envisioned that the work will continue to follow an EPCM type project and be performed by an EPCM firm with proven track record of this type of facility in Québec. However, it is possible that the Corporation will manage the Whabouchi project with assistance from engineering consultants and experts as required.
For the upcoming work, the Corporation will renegotiate existing contracts with the firms who have or are currently providing service at the site.
e) Capital Cost Risk
Capital cost risk has been significantly reduced because:
The overall engineering advancement is estimated at 75% with engineering of the Concentrator and crushing facilities at over 90%; The remaining work is well defined and estimated based on the contracts currently awarded; The process equipment is purchased and delivered to site or stored in vendor warehouses; Nevertheless, the risk of lack of available construction labour forces could be a concern; however, only a relatively small workforce is required.
f) Schedule Risk
The planned resumption and duration for the Whabouchi project completion are tight and much of the work will be performed during the winter months. Although a significant portion of the work will be performed inside the Concentrator, other work such as the completion of the crushing area, the water management system, the warehouse and the new dryer and crushing building will be performed in the elements and will be affected by productivity and work interruptions due to extreme weather conditions. However, these activities can be scheduled in spring 2020 and thus, mitigate the impact of winter conditions.
g) Operating Costs Risk
Operating cost risks have been reduced due to better definition of:
Reagent, electricity and propane gas quantities; Manpower requirements; Maintenance cost; Consumables; General expenses, property taxes, and insurance.
Commercial Electrochemical Plant
Regular risk review sessions were held since 2017. These risk review sessions tended to focus on process engineering risks, but also touched on general engineering and infrastructure risks. Execution risks (procurement, market, financing, permitting, by-product sales and construction execution risks) are the responsibility of the Corporation or other parties.
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a) Process Risk
Process risk has been significantly reduced by:
Substantial test work at the laboratory and pilot level; Operation of the Phase 1 Plant; Advancing the process engineering and performing detailed studies on buffer sizing (dynamic simulation), heat and mass balances, minor impurity impacts, HAZOPs, materials selection, purge requirements, etc.; Selecting suppliers and advancing the detailed equipment design; Allowing space within the design for the addition of equipment should this be necessary; Preparing a preliminary hot commissioning plan.
Key process risks include:
The inherent risk related to novel process development; The complex interplay of plant areas and the difficulty in predicting the impact of deviations from the expected operating conditions, upset conditions, planned and unplanned maintenance, and ramp up times; The possibility that the Concentrator produces a concentrate of lower grade or different composition than that expected; Lack of data on the variation of impurities across the orebody; The potential for minor impurity build-up within recycle loops; The use of flash calciners for the calcination of spodumene, an industry first and dependent on high quality concentrate feed; Limits to what can be tested and to the extent items can be tested within the desired time frame and budget; Uncertainty in chlorine and fluorine extraction levels to the process and efficiency of control systems presently in the design; The use of acid concentration for lithium containing acid solutions, an industry first; Loss of knowledge within the Corporation and engineering teams should financing take longer than planned.
All the above process risks can have a significant impact on production, operating cost and ramp up times. If necessary, mitigating these risks can add significant capital cost.
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b) Electromembrane Process Risk
In the electromembrane process, membranes degrade over time and must be replaced when their efficiency decreases to an unacceptable performance level. Analogous information from the chlor-alkali industry, 1,000-hour tests, and experience of the technology suppliers have allowed an estimation of the membrane and electrode coatings, life to be in the order of two years, assuming high-quality brine feed. Nevertheless, actual membrane life span remains unknown as no test has been performed of sufficient duration under the required conditions.
In addition, membrane life will be significantly affected by operating methods and electromembrane feed quality. Should membranes degrade more rapidly than expected, the operating costs will increase and production may decrease. Existing mitigation measures includes ongoing confirmatory laboratory test work at the equipment vendor, specific programs of process and optimization support by the equipment vendor, issuing basic engineering packages to the vendor to advance the engineering, and reserving space in the layout for additional electrolyzers should these be required. Future mitigation strategies include development of detailed operating guidelines, and adequate sparing philosophy so that membranes and associated components are available, if required.
c) Infrastructure Risk
Infrastructure risk has been significantly reduced:
Geotechnical investigation has been completed so that piling design and layout of installation is taking advantages of the existing rock profile; Inspection of existing buildings has been completed allowing the scope to be confirmed and allowing the existing buildings to be adapted to the new process; Substation elevation was adjusted for 1-500 years water level; A berm for a 1-100 years water level was added to the scope along the road near the Saint-Maurice River; A new road and gate house will be constructed south of the plant that will allow for the segregation of trucks vs operating personal vehicles, reception of reagent and shipping of aluminum silicate and gypsum will use that new road; Water intake will be from a connection to an existing pipe on the Hydro-Québec water dam which avoids the construction of a new water intake in the Saint-Maurice River; Rail layout was reviewed with key stakeholders and is respecting CN design criteria; Demolition inside Buildings #67 and #80 is essentially completed; Administrative building is already constructed.
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The Commercial Electrochemical Plant is located near a residential area. The design will ensure that noise, dust and other emissions meet regulations. The traffic of truck for reagent, product and, most importantly, by-products, will be significant but the new road south will allow traffic to use a secondary road that will avoid most of the residential area. The Corporation works in close collaboration with the City of Shawinigan in order to mitigate potential community issues.
Nevertheless, careful monitoring and interface with the community will be required due to the large amount of truck traffic that is expected. To reduce truck traffic, it may in be possible to ship out aluminum silicate by-product by rail (depending on the final destination of the aluminum silicate).
The Corporation will need to finalize the negotiation with the city of Shawinigan to obtain the right of way to construct the new road south of the plant and the permanent access road west on the land that was previously owned by Genesee & Wyoming.
d) Execution Risk
A preliminary execution strategy has been prepared for the purpose of the 2019 Technical Report. Following the temporary suspension of the project by the Corporation, a detailed strategy has yet to be completed. As a result, some uncertainty remains around the exact execution strategy, changes to which can affect the schedule and project cost. Future mitigation includes development of a detail execution strategy prior to the recommencement of the project.
The Corporation has yet to fully define and commit to an execution strategy. The present execution schedule, and the associated capital cost estimate, assume that the execution strategy will follow the typical full EPCM model, and be performed by an EPCM firm with proven track record of this type of facility in Québec. Changes to the execution model may generate schedule and capital costs risks.
Stakeholder management has been historically shown to be a significant source of project risk. The present execution plan assumes that the Corporation has properly addressed and will continue to address key stakeholder management issues.
The present project schedule assumes that all permits are obtained as planned. Delays in permitting will increase project schedule and likely project cost.
The present owners team size is likely too small for the size of the project. It is expected that the Corporation will increase its owners team size upon project financing to allow for enough resources to properly guide the project in a timely manner.
From a construction point of view, the Whabouchi project’s execution plan will use strategies that consider the constraints and risks associated with the site and location. Nevertheless, the detailed construction strategy and sequencing has yet to be prepared. A preliminary strategy has been prepared for the purpose of the 2019 Technical Report and to develop a realistic schedule. It is possible that when the detailed construction strategy and construction sequence are defined, changes will affect the schedule and project costs. Future mitigation includes development of a detailed construction strategy including a detailed construction sequence.
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e) Capital Cost Risk
Capital cost risk has been significantly reduced because:
The project makes use of the existing Buildings #67 and #80 and a detailed assessment of these buildings has been completed and the scope to reinforce and adapt the building to the new equipment is defined; Geotechnical investigation of the Commercial Electrochemical Plant has been completed for all the process area and design is based on the geotechnical report. Only confirmation drilling for the berm design along the east road is required; All the critical equipment (calciner, electrolysis, LHM crystallizer and acid concentration system) and key process equipment have been purchased and a large portion of the vendor documents are available to complete the design; Demolition of existing – non-required infrastructure is essentially complete, and a clear scope for the reinforcement and repair has been developed; Pilling and concrete contracts for Buildings #67 and #80 have been awarded and construction started. Structural reinforcement of Building #67 is also well underway; and Engineering is approximately 45% completed.
Nevertheless, the following capital cost risks remain:
The plot plan and layout are frozen for all process plant area. However, the Corporation must finalize agreements with the CN and the City of Shawinigan (which is in the process of acquiring the land from Genesee & Wyoming) for the access road leading to the site; Inflation on the construction labour has been included, but no provision for material cost increase or unusual market conditions is included; Any process risks described above could negatively affect the capital cost should additional equipment be required following test work, detailed engineering or plant commissioning.
f) Schedule Risk
The current estimate is using assumptions for financing date and full notice to proceed. If these dates are delayed, the project team may need to be demobilized and the estimate will be impacted. There may be cost penalties with suppliers or the Corporation may be put in a position where they need to change suppliers. The Whabouchi Project may also lose key resources which will create inefficiency upon re-mobilization. Equipment delivery may also be impacted which may change the critical path.
The present site and buildings will lead to a challenging construction environment with respect to congestion and related productivity and safety issues. Similarly, the commissioning scheduling assumes that there will be concurrent construction and commissioning activities. Risk of schedule delays has been partially mitigated by the development of a preliminary schedule, a schedule risk analysis and multiple workshops to develop optimal construction sequences. Further mitigation is planned with the:
Development of a detailed project execution plan;
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Validation and optimization of the construction sequence via BIM4D construction simulation.
The commissioning and ramp-up to full capacity may prove difficult due to the risks described herein. Existing mitigation measures include the development of a high-level hot commissioning strategy, including the addition of temporary and permanent bypasses, equipment and reagents, and the strategic placement of surge vessels throughout the process which permit a plant area to operate at a different throughput to a neighboring plant area by providing buffering between plant areas. This will allow a plant area to continue operating, even while a neighboring plant area is experiencing a maintenance or performance issues.
McNulty curves have been used to estimate a reasonable ramp up time to be used for the financial analysis. Future mitigation strategies include the development of a detailed commissioning and start-up strategy, as well as the implementation of appropriate levels of operational readiness planning. It is possible that during the development of this strategy it is realized that additional equipment must be installed to allow for a rapid ramp up to full production or that the ramp up time will be longer due to the inability to ramp up multiple sectors in parallel.
Currently, the Whabouchi Project has been slowed down until additional financing is completed. The current schedule is based on assumptions as to restart times. Any delays to secure Whabouchi Project financing required to start construction will delay the beginning of production of concentrate at Whabouchi Property and the commissioning of the Commercial Electrochemical Plant. This may allow a competing project to begin production before the Corporation and therefore reduce the market opportunity that the Corporation is targeting and could impact sales level and Whabouchi Project economics.
g) Operating Cost Risk
Operating cost risks have been reduced due to better definition of:
The performance of electrolysis; Reagent, electricity and natural gas quantities; Manpower requirements; Maintenance costs; Consumables; General expenses, property taxes and insurance.
Nevertheless, several operating cost risks remain as described below.
Aluminum silicate and Na/K purge solution by-products are produced in large quantities by the Commercial Electrochemical Plant and could incur significant residue disposal costs (>$20 million) should the Corporation not find end-users capable of accepting the product as is. Mitigation strategies include ongoing investigations by the Corporation of potential end users. The anticipated market for the aluminum silicate by-product is as a cementitious additive, similar to fly ash for example.
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It is difficult to evaluate the maintenance requirements for a new process such as this one that includes multiple highly abrasive, acidic or caustic chemicals which have the potential, despite diligent materials of construction selection, to require significant maintenance. Maintenance costs have been based on industry benchmarks. A detailed maintenance strategy should be prepared to further mitigate this risk.
No contracts have been signed for spodumene concentrate, lithium sulfate, reagents, by-product disposal, electricity or natural gas supply. Some variability in these costs is, therefore, likely. Mitigation strategies include signing contracts. In addition, for by-products, an investigation and qualification of potential disposal sites is necessary to ensure their ability to accept the large amount of aluminum silicate during the first years of operation, as well as gypsum residue which will be sent on an ongoing basis.
As mentioned in the process risks section, there is a lack of data on the variability of impurities in the ore over the life of the mine. In addition, confirmatory test work to validate key reagent consumptions and expected residue quantities is presently ongoing. Thus, some variability in reagent and residue quantities may occur.
The cost of GHG emissions has been calculated and integrated within the financial analysis based on commonly used methods, various assumptions and following guidelines from the MERN. Should GHG credits change, the market cost of CO2 may vary unexpectedly, or future maximum costs exceed the assumptions made, then costs could be incurred.
Overall Project Risk
Lithium is considered as an industrial mineral and the sales prices for the different lithium compounds are not public. Sales agreements are negotiated on an individual and private basis with each different end user. Therefore, it is possible that the sales prices used in the financial analysis be different than the actual market when the Corporation is in fact in a position to sell lithium compounds. In addition, there are a limited number of producers of lithium compounds and it is possible that these existing producers try to prevent newcomers in the chain of supply by increasing their production capacity and lowering their sales prices. In such cases, the economics of the Whabouchi Project could be affected.
The Corporation intends to produce mainly hydroxide monohydrate to address the increasing demand for that compound favoured in the making of cathodes for rechargeable batteries. If cathode manufacturers use less hydroxide than expected or if the demand for rechargeable batteries, mainly in the electric and hybrid vehicles, is less than forecast, it could have an effect on the sales price of that compound and the need for new production.
The estimate includes some provision for cost increase on equipment supply. If there are additional financing delays it may become necessary to renegotiate with suppliers about costs and delivery times.
4.2.24 Recommendations
Based on the Whabouchi Project’s demonstrated economic, it is recommended to proceed to the implementation phase and resume construction once the Whabouchi Project is financed.
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For the Whabouchi Property, site work has already been started and engineering is progressed with the available funds that the Corporation already has. It has allowed the various parties involved to develop a clear detailed execution plan that fits the proposed schedule. A total estimate of $224.6 million is needed to complete construction of the Whabouchi Property.
For the Commercial Electrochemical Plant, detailed engineering is well underway. The revised budget to complete all engineering and construction related activities for the Commercial Electrochemical Plant is $704.1 million.
Specific elements that need to be monitored or done are listed below.
Whabouchi Property
a) Process
In order to control the grinding product, the Corporation should consider an automated media feeder. This would ensure near constant ball loading in the grinding circuit and reduce somewhat the slime production. Confirm the concentrate loadout flow for effective bin design properties. Confirm the moisture content of the concentrate through the dryer.
b) Co-Disposal and Water Management Systems
Phases 2B and 3 of the co-disposal and the water management strategy will have to be optimized during the detailed engineering phase when detailed deposition plans will be available, i.e. in a timely manner to secure the required environmental authorizations prior to its use.
c) Execution
Complete the design and contract documents for the co-disposal and water management areas. Complete the design of the drying and crushing facility. Go for tender for long lead equipment and place orders. Finalize the piping Isometric drawings and P&ID’s. Finalize specifications for piping materials and instruments and issue purchase orders/contracts; Start fabrication of instruments and materials to meet scheduled dates. Perform trade-off studies for the infrastructure such as the locations for the mine dry facility, laboratories, warehouse facility and complete design engineering. Complete the cable tray and wiring arrangements for the Concentrator and issue for construction. Finalize outstanding equipment specification and place orders. Negotiate with Hydro-Québec on increased power requirements. Ensure that the construction management team is in place prior to start of construction. Perform a detailed inspection of the site to determine the optimal methodology of proceeding with completing partially completed work and associated new construction.
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Minimize outside work during the winter months if schedule permits.
d) Capital Cost
Renegotiate existing contracts to be ready for construction start in November. Put in place a strong cost management team to manage costs, deliveries and schedules.
Commercial Electrochemical Plant
a) Process
Ensure that the quality of the concentrate is maintained for processing in the Commercial Electrochemical Plant. Confirm the composition of the concentrate, including the level of minor impurities that are in the process design criteria. Re-analyze impurities that have had limited repeat analyses. Analyze the concentrate for a range of minor impurities that have yet to be measured. Determine which impurities may build up (if any) and develop mitigation strategies. Perform sensitivity analysis on the impact of variability of impurity levels in the concentrate on the Commercial Electrochemical Plant process and equipment sizing. If required, develop mitigation plans at the mine, Concentrator and/or Commercial Electrochemical Plant. Determine the quantity and quality of spodumene concentrate and lithium sulfate that will be purchased and incorporate physical and compositional differences in the design and/or operating strategy. Perform or complete outstanding test work including: lab and pilot scale tests on chlorine and fluorine deportment and control; pilot scale testing to validate key reagent consumption and for final confirmation of filter sizing by vendor; lab scale testing for optimization of the IX system; lab scale testing by vendor of the water treatment system; and lab scale testing for drying of spodumene and aluminum silicate. Continue operation of the Phase 1 Plant, ideally operating with 100% spodumene feed for extended periods of time. Analyze the historical and future performance from the Phase 1 Plant. Consider adding the acid concentration loop to the Phase 1 Plant in order to gain practical experience in the operation of this equipment, gain information on the effect of the use of regenerated acid within the process, and evaluate the potential of impurity build up. If such an integrated pilot cannot be performed, consider batch, semi-pilot or pilot acid concentration test work at the selected vendor to confirm the design and gain operating insight. Update the dynamic simulation to incorporate recent flow sheet changes and further refine operating and control strategies. Develop a detailed commissioning, start-up and operational readiness strategy to meet target ramp up times. Document process knowledge to ensure that knowledge is conserved.
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b) Electromembrane Process
Continue studies of optimization of systems peripheral to the electrochemical cells to reduce capital cost. Continue studies of membrane and coating lifetimes as a function of impurity profile and other process variables.
c) Execution
Continue to expedite permitting according to key schedule date. Issue the documentation and letter to the government to officialise the opening of the construction site as a major project (required when resources peak higher than 500 workers). Finalize the qualification process for mechanical & piping and electrical and instrumentation contractors. Continue to engage with the key stakeholders external to the Whabouchi Project (government, city of Shawinigan) to mitigate the risk of social issues during construction and operation. Confirm the detailed project organization with key position identified. Develop a detailed commissioning plan.
d) Capital Cost
Revise the execution plan to include detailed strategies for all groups (engineering, procurement, project control, construction, POV, OR). Finalize negotiation with CN and the City of Shawinigan to obtain servitude for the access road.
e) Operating Cost
Pursue work on aluminum silicate and Na/K purge solution by-product characteristics and value to confirm their attractiveness for potential clients. Complete confirmatory test work on reagent consumption. Confirm spodumene concentrate, lithium sulfate, reagent, by-product disposal, electricity and natural gas costs and sign contracts and agreement with main suppliers. Develop a detailed maintenance strategy.
4.3 Risk Factors
The Corporation operates in an industry that contains various risks and uncertainties. The risks and uncertainties listed below are not the only ones to which the Corporation is subject. Additional risks and uncertainties not presently known by the Corporation, or which the Corporation deems to be currently insignificant, may impede the Corporation’s performance. The materialization of one of the following risks could harm the Corporation’s activities and have significant negative impacts on its financial situation and its operating results. In that case, the Corporation’s stock price could be adversely affected.
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Uncertainty of Completion of Required Funding or Disbursement of Funds
Under the terms of the Stream Agreement, a stream deposit of US$150 million will be released in two equal tranches. The release of the first tranche of such deposit was done on August 23, 2018. The release of the second tranche of such deposit, which is to occur on or prior to December 31, 2019 according to the provisions of the Stream Agreement, is subject to various conditions precedent, which conditions precedent include but are not limited to (i) minimum spend levels in respect of the construction budget in connection with the Whabouchi Project having been achieved and (ii) confirmation that the Corporation has raised financing (equity or debt) sufficient to fully fund the construction and commissioning of the Whabouchi Project.
Although, as mentioned in a press release of the Corporation dated July 19, 2019, it is intended that the Corporation and Orion re-negotiate certain terms and conditions of the Stream Agreement, there is no assurance that the Corporation will successfully obtain from Orion all required amendments to the Stream Agreement. Failure to do so may jeopardize the Corporation’s ability to satisfy (i) all conditions precedent to the funding of the second deposit and (ii) all other conditions and covenants under the Stream Agreement. If the Corporation is unable to draw some or all of the remaining funds from the Stream Agreement, this may materially and adversely affect the Corporation’s ability to complete the construction and commissioning of the Whabouchi Project, forcing the Corporation to seek additional debt and/or equity financing options (please refer to section “Fiscal Year Ended June 30, 2019 and Up to the Date of this Annual Information Form” for more details about the disbursement of funds).
Need for Additional Funding and Time of Development
Although the Corporation entered into a LOI with PG, the entering into of definitive agreements with PG will require the compliance with numerous conditions and to obtain the applicable regulatory approvals including, but not limited to, the approval of the TSX and the approval of the shareholders of the Corporation. In addition, it remains subject to the amendment of certain terms of the Stream Agreement (please refer to section “Fiscal Year Ended June 30, 2019 and Up to the Date of this Annual Information Form” for more details about the LOI with PG).
Given the complexity of the implementation of the investment proposal provided in the LOI and the number of stakeholders involved, the Corporation sought a preliminary interim order pursuant to the provisions of the CBCA on “arrangements”. However, there is no assurance that definitive agreements will be reached during the exclusivity period set out in the LOI and the ongoing discussions, or that such agreements will be obtained on terms satisfactory to the Corporation, if any. In addition, there can be no assurance as to the approval by the Court of the arrangement submitted by the Corporation pursuant to the CBCA, that shareholders will approve the PG Proposed Investment or in general that the PG Proposed Investment will close.
In addition, as the 2019 Technical Report contained the Corporation’s detailed revised project construction plan which contemplates that the Whabouchi Project completion would not be achieved before June 30, 2020, the set-off mechanism was triggered pursuant to the Bond Terms. The occurrence of such event compels the Corporation to secure additional funding in order to pursue the completion of the Whabouchi Project. Even though the Corporation is working to obtain the required funding, there is no assurance that such financing will be obtained on terms satisfactory to the Corporation or at all; and, if raised by offering equity securities, any additional financing may involve a significant dilution to existing shareholders. Any
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lack of financing could result in the delay or indefinite postponement of further construction, exploration and development of the Whabouchi Project, which in turn would materially and adversely affect the financial and operating results of the Corporation and the market price of the Corporation’s securities and, ultimately, could result in the loss of the NMX Property.
Furthermore, the development and construction schedule of the Whabouchi Project is based on management’s expectations, and may be delayed by a number of factors, some of which are beyond the Corporation’s control. There is a risk that the development of the Whabouchi Project into commercial production will not be completed on time or on budget as currently anticipated, or not at all. The project development schedule is still subject to the receipt of various permits in the ordinary course even though the Whabouchi Project’s significant permits were obtained, even with financing and various construction facilities being completed on time. It is common in new mining operations to experience unexpected costs, problems and delays during construction, development and mine start-up. Most, if not all, projects of this kind suffer delays in start-up and commissioning due to late delivery of components, the inadequate availability of skilled labour and mining equipment, adverse weather or equipment failures, the rate at which expenditures are incurred, delays in construction schedules, or delays in obtaining the required permits or consents, or to obtain the required financing. In addition, delays in the early stages of mineral production often occur. During this time, the economic feasibility of production may change.
The Whabouchi Property does not have an operating history upon which the Corporation can base estimates of future operating costs. Capital and operating costs are estimates based on the interpretation of geological data, feasibility studies and other conditions, and there can be no assurance that they will prove to be accurate. The costs, timing and complexities of developing the Whabouchi Project may be significantly higher than anticipated, including because the Whabouchi Property is mainly located in a remote area and therefore the availability of infrastructure such as surface access, skilled labour, and fuel and power at an economic cost, cannot be assured. In addition, cost estimates may increase significantly as more detailed engineering work and studies are completed with respect to the Whabouchi Project.
Delays in the commissioning of the Whabouchi Project or unanticipated increases in capital and operating costs may require the Corporation to obtain additional third party financing or seek to complete further offerings of equity and/or debt securities to make required payments, if any, under its various credit facilities, to complete construction and commissioning of the Whabouchi Project and to fund future working capital, capital expenditures, operating and exploration costs and other general corporate requirements. The success and the pricing of any such additional capital raising and/or debt financing will be dependent upon the prevailing market conditions at that time and upon the Corporation’s ability to attract significant amounts of debt and/or equity without having a significant project already in production and with the possibility of having to secure significant amounts of indebtedness. There is no assurance that such financing will be obtained on terms satisfactory to the Corporation and, if raised by offering equity securities, any additional financing may involve a dilution to existing shareholders. Any lack of financing could result in the delay or indefinite postponement of further construction, exploration and development of the Whabouchi Project, which in turn would materially and adversely affect the financial and operating results of the Corporation and the market price of the Corporation’s securities and, ultimately, could result in the loss of the NMX Property.
There is no assurance that the Whabouchi Property, will ever be brought into a state of commercial production or that its activities will result in profitable mining operations.
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Negative Operating Cash Flow
The Corporation has no history of revenues from its operating activities. During the fiscal years ended June 30, 2018 and June 30, 2019, the Corporation had negative cash flow from operating activities. The Corporation’s cash and cash equivalents amounted to $371,193,499 and $128,132,825 as at June 30, 2018 and June 30, 2019, respectively. From July 1, 2018 to June 30, 2019, based on the operating activities and investing activities as disclosed in the audited statement of cash flows for the year ended June 30, 2019, the Corporation has had an average monthly cash expenditure rate of approximately $66.3 million per month, including addition to restricted cash, property, plant and equipment, intangible assets, deposit to suppliers, prepaid interest, asset retirement obligation and all operating expenses and development capitalized costs not covered by grants.
The Corporation anticipates it will continue to have negative cash flow from operating activities in future periods until commercial production is achieved in connection the Whabouchi Project. Even if commercial operations are achieved in connection with the Whabouchi Project, short-term operating factors relating to the lithium deposits, such as the need for orderly development of the deposits or the processing of new or different grades of ore, may cause any mining operation to be unprofitable in any particular accounting period.
Obligations, Covenants and Restrictions in the Terms of Financing Transactions
The terms of the Stream Agreement and the SoftBank Placement contain financial and operating covenants that limit the discretion of management with respect to certain business matters and to engage in activities that may be in the Corporation’s long-term best interest. These covenants will restrict the Corporation’s ability to incur additional indebtedness (except for, inter alia, certain specifically permitted indebtedness such as unsecured and subordinated debt or uncommitted lines of credit incurred in the ordinary course of business solely for short-term cash management purposes), which may limit the Corporation’s ability to finance any additional capital expenditure for the Whabouchi Project that may be necessary or appropriate once the project has been completed, to finance additional development activities, to fund working capital requirements and to service debt requirements, if applicable, which may greatly restrict the Corporation’s ability to adjust to changing market conditions and may render the Corporation vulnerable to a downturn in general economic conditions and unable to make expenditures that are important to its growth and strategy. These covenants also place significant restrictions on, among other things, the Corporation’s ability to create liens or other encumbrances, to make certain payments and investments, to sell or otherwise dispose of assets, and to merge or consolidate with other entities, which will limit the Corporation’s operating flexibility and could prevent the Corporation from taking advantage of business opportunities. The terms of the Stream Agreement and the SoftBank Placement also contain various provisions requiring the Corporation to take certain positive actions in order to fulfill its commitments such as entering into various future agreements in connection with the Whabouchi Project and providing confirmations, evidences and documents as may be required under the financing transactions contemplated by the existing financing package. Events may occur in the future, including events beyond the Corporation’s control that could cause the Corporation to fail to satisfy its obligations under the existing financing package that may arise.
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The obligations of the Corporation under the Stream Agreement are currently secured by a security package comprised of (i) a charge against all present and after-acquired movable (personal) and immovable (real) property, assets and undertakings of each of NMX Whabouchi and NMX Shawinigan, (ii) a charge against all present and after-acquired rights in intellectual property owned by the Corporation, (iii) a charge against all present and after-acquired rights of ownership in securities issued by each of NMX Whabouchi and NMX Shawinigan owned by the Corporation, (iv) a guarantee by each of the Corporation and NMX Whabouchi of the obligations of NMX Shawinigan, as seller under the Stream Agreement, and (v) blocked accounts control agreements granted in favour of Orion, as a second lien creditor, in respect of all bank accounts held by each of NMX Whabouchi and NMX Shawinigan.
A failure to comply with its obligations and restrictive covenants could result in an event of default which, if not cured or waived, could permit acceleration of the related debt and acceleration of debt under other instruments that contain cross acceleration or cross default provisions and lead to enforcement actions or proceedings under the security granted under the Stream Agreement and any other debt entered into by the Corporation. The occurrence of any such events would have a material adverse effect and could, among other things, result in the bankruptcy or liquidation of the Corporation, and could result in the loss of the Corporation’s entire interest in the NMX Property.
The Corporation filed on September 16, 2019, an application with the Superior Court of Québec, in connection with its arrangement proceedings under the CBCA, seeking the discharge of the security package which secured the Bonds, subject to certain exceptions, on a first priority basis over all material assets of the Corporation, NMX Whabouchi and NMX Shawinigan. However, there is no assurance as to the ability of the Corporation to timely obtain or to obtain from the court the discharge of the security package securing the Bonds.
Going Concern and Insolvency Risk
The Corporation’s financial statements dated June 30, 2019, have been prepared on a going concern basis, which assumes that the Corporation will be able to realize its assets and discharge its liabilities in the normal course of business as they come due into the foreseeable future. However, because the Corporation could have to pay significant penalties and reimburse the first tranche of the Stream Agreement and possibly halt the Whabouchi Project, there exists a material uncertainty that may cast significant doubt about the Corporation’s ability to continue as a going concern.
There is also uncertainties related to the Corporation possibly having to pay penalties and interest on the Bonds post September 17, 2019 and/or don't get access in due time to the $40 million cost overrun restricted cash.
The Corporation does not currently have guaranteed sources of funding or cash flow to repay indebtedness, penalties or interest that it could incur or in the event it enters into any permitted working capital or permitted hedging facilities. The inability to successfully generate revenues from operations would also cast significant doubt as to the Corporation’s ability to continue as a going concern. There are other elements included in this section “Risk Factors” related to the Corporation that could cast a doubt on the ability of the Corporation to continue its operation and development on a going concern basis.
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Uncertainty on the Discharge of the Security Package Securing the Bonds
On September 16, 2019, the Corporation acknowledged the set-off mechanism and the prescribed prepayment pursuant to the Bond Terms. On September 17, 2019, the Corporation announced that it had filed, on September 16, 2019, an application with the Superior Court of Québec, in connection with its arrangement proceedings under the CBCA, seeking the discharge of the security package which secured the Bonds, subject to certain exceptions, on a first priority basis over all material assets of the Corporation, NNX Whabouchi and NMX Shawinigan (for more details see section “Highlights for the twelve-month period ended June 30, 2019, and up to the date of this Annual Information Form” for more details about the Set-Off Mechanism).
The Corporation was made aware, on September 17, 2019, of a notice of a written Bondholders’ resolution sent to the Bondholders and published by the Nordic Trustee without the Corporation’s consent, seeking from the Bondholders the instruction to abide by those terms of the preliminary interim order under which the Nordic Trustee is to refrain, in accordance with the terms of such order, from exercising, commencing or proceeding against the Corporation, NMX Shawinigan, NMX P1P, NMX Whabouchi or NMX Innovation with respect to any right to terminate, demand, accelerate, set-off (including but not limited to the set-off mechanism), effectuate repayment, amend, declare default, issue an activation notice under any blocked account agreement to which any of the Corporation, NMX Shawinigan, NMX P1P, NMX Whabouchi or NMX Innovation is a party or take any other action under the finance documents identified by the Bond Terms, for so long as (i) the preliminary interim order remains in effect, and (ii) the Bondholders by way of a written resolution or a Bondholders’ meeting do not resolve otherwise (the “Proposed Bondholders’ Resolution”). The Corporation has advised the Nordic Trustee that it does not consent to the Proposed Bondholders’ Resolution, and that it considers that (i) the set-off mechanism cannot be amended by the Proposed Bondholders’ Resolution without the consent of the Corporation; and (ii) it is not obligated to pay interest on the Bonds from September 17, 2019.
On September 25, 2019, the Corporation disclosed having received a notice published by the Nordic Trustee stating that the Proposed Bondholders’ Resolution was approved by the bondholders. The Corporation reiterated its position that (i) such resolution, published without the Corporation`s consent, has no legal effect on the Corporation or the Bond terms, as it purports to amend the Bond Terms without the Corporation’s consent, and (ii) the Nordic Trustee is in breach of its obligations under the Bond Terms. The Corporation undertook to take all measures available to it to protect its interests.
The set-off mechanism related outcomes and the validity of the Proposed Bondholders’ Resolution remain uncertain. More precisely, there is no assurance (i) as to the ability of the Corporation to obtain court approval of its view that all obligations in connection with the Bonds have been fulfilled and that the discharge of the security package securing the Bonds should be ordered, and (ii) that the prescribed reimbursement of the Bonds will not have an adverse effect on the Corporation’s financial position and results of operations.
Moreover, there can be no assurances that the uncertainty surrounding the set-off mechanism, the related prescribed reimbursement of the Bonds and the Proposed Bondholders’ Resolution will not result in further litigation proceedings involving certain Bondholders, the Nordic Trustee and/or the Corporation, which could force the Corporation to incur substantial legal fees and to potentially pay damages.
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The Corporation’s Dependence Upon the Whabouchi Project
The Corporation expects future mining operations at the Whabouchi Property to account for all of the Corporation’s ore production unless additional sources of spodumene properties are acquired and brought into production, producing properties are acquired or spodumene concentrate can be purchased and processed at the Commercial Electrochemical Plant. Furthermore, the Corporation expects spodumene revenues (through the sale of spodumene concentrates to third parties from the Whabouchi Property) to be an integrated part of the completion of the Whabouchi Project. As the Whabouchi Property will be put into operation prior to the Commercial Electrochemical Plant, the Corporation has considered using spodumene revenues as a source of financing in the capital budgeting to complete the Whabouchi Project. Any adverse condition affecting the Whabouchi Property, or any adverse conditions affecting the revenues from any spodumene concentrate sale or the costs for producing spodumene concentrate at the Whabouchi Property could be expected to have a material adverse effect on the Corporation’s financial performance, results of operations and prospects and could require the Corporation to raise additional financing, which may not be obtainable under such circumstances. While the 2019 Technical Report demonstrates the economic feasibility of the Whabouchi Project, the inability to achieve commercial operations on a basis that is economically viable would have a material adverse effect on the Corporation.
Significant Level of Indebtedness
Subject to the limits contained in the Stream Agreement, the SoftBank Placement and any other debt instruments entered into by the Corporation, the Corporation may be able to incur additional debt, including but not limited to certain permitted working capital facilities and permitted hedging arrangements, from time to time. If the Corporation does so, the risks related to the Corporation’s high level of indebtedness could increase.
The Corporation’s degree of leverage in the future could have adverse consequences for the Corporation, due to the following factors that may affect the Corporation: (i) increased difficulty in satisfying obligations with respect to indebtedness; (ii) limitations on the ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; (iii) requirements that a substantial portion of the Corporation’s cash flows be dedicated to debt service, if any, payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; (iv) increased vulnerability to general adverse economic and industry conditions; (v) decreased flexibility in planning for and reacting to changes in the industry in which it competes; (vi) placing the Corporation at a disadvantage compared to other, less leveraged competitors; and (vii) increased cost of borrowing.
The Corporation’s ability to make scheduled payments on or refinance its debt obligations, depends on the Corporation’s financial condition and operating performance at that time, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond its control. The Corporation may be unable to generate or maintain a level of sufficient cash flows from operating activities to satisfy its debt obligations or to refinance its indebtedness on commercially reasonable terms or at all, which would have a material adverse effect on the Corporation’s financial condition and results of operations.
The Corporation can provide no assurance that it will achieve sufficient future cash flow and earnings to satisfy its debt obligations. If cash flows and capital resources are insufficient to fund debt service
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obligations, if any, the Corporation could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, seek additional debt or equity capital or restructure or refinance indebtedness. If the Corporation cannot make scheduled payments on its debt, the Corporation could be in default and holders of any indebtedness could declare all outstanding principal and interest to be due and payable which could lead to cross default and cross acceleration provisions under certain of the Corporation’s other debt agreements. The Corporation’s creditors could foreclose against the collateral securing the Corporation’s obligations and the Corporation could be forced into bankruptcy or liquidation, or to initiate other insolvency proceedings.
Variations in Interest Rates
Variations in interest rates could result in significant changes in the amount required to be applied to debt service, if any, and would affect the financial results of operations of the Corporation and its subsidiaries. If the Corporation does not earn sufficient income from the Whabouchi Project to meet its debt service obligations, if any, the Corporation’s creditors could foreclose on the Corporation’s interest in the Whabouchi Property, the Concentrator and the Commercial Electrochemical Plant.
New Mining Operations
The Whabouchi Property does not have an operating history. Whether income will result from any of the Corporation’s activities, including, without limitation, the Whabouchi Project, will depend on the successful establishment of new mining operations and expansion of current operations, including the construction and operation of the Whabouchi Property, the Concentrator, the Commercial Electrochemical Plant and related infrastructure. As a result, the Corporation is subject to all of the risks associated with establishing or expanding new mining operations and business enterprises, including: the timing and cost, which can be considerable, of the construction of mining and processing facilities and related infrastructure; the availability and cost of skilled labour and mining equipment; the need to obtain necessary environmental and other governmental approvals and permits and the timing of the receipt of those approvals and permits; the availability of funds to finance construction and development activities; potential opposition from non- governmental organizations, environmental groups or local groups which may delay or prevent development activities; and potential increases in construction and operating costs due to changes in the cost of fuel, power, materials and supplies.
Various factors, including the successful construction, commissioning and ramp-up of the Whabouchi Project, costs, actual mineralization, consistency and reliability of ore grades, commodity prices, future cash flow and profitability can affect successful project development, and there can be no assurance that current or future estimates of these factors will reflect actual results and performance. The design and construction of efficient processing facilities, the cost and availability of suitable machinery, supplies, mining equipment and skilled labour, the existence of competent operational management and prudent financial administration, as well as the availability and reliability of appropriately skilled and experienced consultants can also affect successful project development. The operations of the Whabouchi Project will rely on new infrastructure for hauling ore and materials to the surface. It is common in new mining operations to experience unexpected problems and delays during construction, development, mine start-up and commissioning activities.
The costs, timing and complexities of developing the Whabouchi Project, may be significantly higher than anticipated, including because the Corporation’s property interests are located in remote, undeveloped areas
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and therefore the availability of infrastructure such as surface access, skilled labour, fuel and power at an economic cost, cannot be assured. Such factors can add to the cost of mine development, production and operation and/or impair production and mining activities, thereby affecting the Corporation’s profitability.
Pursuant to the Stream Agreement, the drawdown or release of funds will each be subject to the satisfaction of certain conditions precedent, including evidence that, at the relevant time, the construction and commissioning of the Whabouchi Project is proceeding in accordance with the project budget and the project schedule, and that project completion continues to be capable of being met within the scope of funds available thereunder and in conjunction with other funds from the existing financing package. In the event that the costs of developing the Whabouchi Project are higher than anticipated, certain proceeds of the existing financing package may not be available to the Corporation, in which case it would not have sufficient financing to meet the anticipated development expenditures required to advance the Whabouchi Project to the commencement of commercial production as described herein. Such a lack of financing could result in the delay or indefinite postponement of further development of the Whabouchi Project, which in turn would materially and adversely affect the financial and operating results of the Corporation and the market price of the Corporation’s securities and, ultimately, could result in the loss of the NMX Property. Accordingly, there is no assurance that the Whabouchi Project, will ever be brought into a state of commercial production or that the Corporation’s activities will result in profitable mining operations.
Rock Mechanics and Hydrogeology
There are always unknown rock mechanics and hydrogeological conditions that cannot be predicted ahead of mining. These unknown conditions, such as faulting, zones of weak rock, or zones of unanticipated water inflow, may only be discovered during mining. There can be no certainty that there will not be in the future unanticipated water inflows or other unknown conditions encountered which may require significant changes to the mining plan resulting in additional costs and delays.
Infrastructure, Supplies and Inflation
The Whabouchi Property is located in the Eeyou Istchee / James Bay area of the Province of Québec, Canada, approximately 30 km east of the Nemaska community and 300 km north-northwest of the town of Chibougamau. The Whabouchi Property is accessible by the Route du Nord, the main all-season gravel road linking Chibougamau to Nemaska, and crossing the Whabouchi Property near its center. The Nemiscau airport is 18 km west of the Whabouchi Property. Due to the location of the Whabouchi Property, the Corporation will rely on air transport for the transport of its employees and also for some goods and services that may not be otherwise available at an economic cost.
The Commercial Electrochemical Plant will be installed and constructed in the City of Shawinigan, Province of Québec, Canada. The Shawinigan site was selected because of the readily available existing infrastructure (roads, rail, building, electricity and natural gas).
The spodumene concentrate is expected to be trucked from the Whabouchi Property to a transloading facility, where it is to be transloaded into rail cars to be shipped directly to the Commercial Electrochemical Plant. The transloading facility is not currently built. It could be built by third parties and then the Corporation would have to negotiate a contractual arrangement with such third parties for the use of the facility. Should the transloading facility not be available in time for the initial shipment of spodumene concentrate or in the event the Corporation is not able to negotiate an agreement for the use of the
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transloading facility on favorable terms, then the Corporation will need to source different alternatives to ship its concentrate. One such possibility will be to truck its concentrate directly to the Commercial Electrochemical Plant or, alternatively to truck its concentrate to an existing transloading facility located elsewhere, where it can be transloaded into rail cars. The Corporation may also decide to build its own transloading facility in or near Matagami. Any of the alternative scenarios would result in higher costs of the spodumene concentrate.
Prices for goods and services will fluctuate in relation to the level of investment in the mining and industrial sectors; it is reasonable to expect that increased demand could impact the Corporation’s future economic projections and competitiveness, as it may entail a meaningful increase in costs for various goods and services during construction and operation. Improvements in the economic conditions for the mining and industrial sectors as a whole will typically result in increases to both the costs of planned development and construction activities, which must also be factored into economic models used in projections for future development and potential operations. Increased demand for, and costs of, goods or services could result in delays if they cannot be obtained in a timely manner due to inadequate availability, and it may cause scheduling difficulties and delays due to the need to coordinate their availability, any of which could materially increase project development and/or construction costs. These factors could have a material adverse impact on the Corporation’s operations and profitability.
Information Systems Security Threats
The Corporation relies on secure and adequate operations of information technology systems in the conduct of its activities. Access to and the security of the information technology systems are critical to the Corporation’s operations. These systems are subject to disruption, damage or failure from a variety of sources, including, but not limited to, cable cuts; damage to physical plants; natural disasters; terrorism; fire; power loss; hacking, cyber-attacks and other information security breaches; non-compliance by third party service providers; computer viruses; vandalism and theft. The Corporation’s operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, information technology systems and software. The systems that are in place may not be enough to guard against loss of data due to the rapidly evolving cyber threats.
The Corporation may be required to increasingly invest in better systems, software, and use of consultants to periodically review and adequately adapt and respond to dynamic cyber risks or to investigate and remediate any security vulnerabilities. Any of these and other events could result in information system failures, delays and/or increase in capital expenses. Failures in the Corporation’s information technology systems could translate into operational delays, compromising, loss or disclosure of confidential, proprietary, personal or sensitive information and third-party data, or destruction or corruption of data. Accordingly, any failure of information systems or a component of information systems could adversely impact the Corporation’s reputation, business, financial condition and results of operations, as well as compliance with its contractual obligations, compliance with applicable laws, and potential litigation and regulatory enforcement proceedings. Information technology systems failures could also materially adversely affect the effectiveness of the Corporation’s internal controls over financial reporting.
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Social Media and Other Web-Based Applications
As a result of social media and other web-based applications, companies today are at much greater risk of losing control over how they are perceived. Damage to the Corporation’s reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. Although the Corporation places a great emphasis on protecting its image and reputation, it does not ultimately have direct control over how it is perceived by others. Reputation loss may lead to increased challenges in developing and maintaining community relations, decreased investor confidence and act as an impediment to the Corporation’s overall ability to advance its projects, thereby having a material adverse impact on the Corporation’s business, financial condition or results of operations.
Processing Technology and Off-take Specifications
The Corporation’s proprietary process of preparing lithium hydroxide and lithium carbonate from spodumene concentrate using membrane electrolysis has only been developed recently. This process, for which the Corporation has filed several patent applications and which is key to its business strategy and the economics of the Whabouchi Project, has not been used on a commercial basis and there is no certainty that results achieved during small scale testing (including at the Phase 1 Plant) will be replicated in commercial quantities, which could have a material adverse impact on the conversion abilities at the Whabouchi Project. The production and capital costs associated with the process may also differ from those used in the 2019 Technical Report which could have a direct impact on the economics of the Whabouchi Project.
Pursuant to the Corporation’s definitive supply arrangements, and any future definitive supply agreements entered into, the Corporation is, and will be, required to provide lithium products that meet certain purity and grade specifications. The inability of the Corporation to fully commission and scale-up its operations at the Phase 1 Plant and the Commercial Electrochemical Plant to produce battery grade lithium would have an adverse effect on the Corporation’s ability to meet its obligations under its off-take arrangements which would have a material adverse effect on the Corporation.
Lithium Demand
Lithium is considered an industrial mineral and the sales prices for the different lithium compounds are not public. Lithium is not a traded commodity like base and precious metals. Sales agreements are negotiated on an individual and private basis with each different end-user. Therefore, it is possible that the sales prices used in the 2019 Technical Report will be different than the actual prices at which the Corporation is able to sell its lithium compounds. In addition, there are a limited number of producers of lithium compounds and it is possible that these existing producers will try to prevent new-comers from entering the chain of supply by increasing their production capacity and lowering sales prices. Factors such as foreign currency fluctuation, supply and demand, industrial disruption and actual lithium market sale prices could have an adverse impact on operating costs and stock market prices and on the Corporation’s ability to fund its activities. In each case, the economics of the Whabouchi Project could be materially adversely affected, even to the point of being rendered uneconomic. The Corporation intends to mainly produce lithium hydroxide monohydrate to address the increasing demand for such compound, which is favoured in the making of cathodes for rechargeable batteries. If cathode manufacturers use less lithium hydroxide than expected, or if the demand for rechargeable batteries, mainly used in electric and hybrid vehicles, is less than forecasted, it could have a material adverse effect on the sales price, profitability and development strategy of the Corporation.
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Life of Mine Plan
The Corporation will, once in production, periodically reviews its LOM planning for its Whabouchi Property. Significant changes in the life of mine plan can occur as a result of experience obtained in the course of carrying out the Corporation’s mining activities, changes in mining methods and rates, process changes, investments in new equipment and technology, lithium price assumptions and other factors. There can be no assurance that the estimates in the Corporation’s LOM plan will be consistent with future economic factors or actual results and performance or that the Corporation will not amend its existing life of mine plan for its Whabouchi Property in the future. A decline in net cash flow may also require the Corporation to record an impairment charge against the carrying value of its net assets.
Uncertainty of Mineral Resources and Mineral Reserves
The estimates of mineral resources and mineral reserves for the Whabouchi Property have been prepared in accordance with NI 43-101 guidelines regarding the Standards of Disclosure for Mineral Projects. There are numerous uncertainties inherent in estimating mineral resources and mineral reserves and no assurance can be given that the anticipated tonnages and grades will be achieved, that the indicated level of recovery will be realized or that any categories of mineral resources or reserves will be upgraded to higher categories. The estimation of mineralization is a subjective process and the accuracy of estimates is a function of quantity and quality of available data, the accuracy of statistical computation and the assumptions and judgments made in interpreting engineering and geological information. Mineral reserves at the Whabouchi Property have been determined to be economic ore in the context of the 2019 Technical Report in accordance with NI 43-101 guidelines regarding the Standards of Disclosure for Mineral Projects. However, factors such as market price fluctuations, increased production costs, reduced recovery rates, and changes to other assumptions applied to the estimates, may render the mineral reserves uneconomic.
It should be understood that the mineral resources and mineral reserves presented in the 2019 Technical Report are estimates of the size and grade of the deposits based on a number of drillings and samplings and on assumptions and parameters available. The level of confidence in the estimates depends upon a number of uncertainties. These uncertainties include, but are not limited to, future changes in product prices and/or production costs, differences in size and grade and recovery rates from those expected, and changes in project parameters. There is no assurance that the Whabouchi Project implementation will be realized or that the current estimates of volume and grade of minerals mined/processed or of cash flows derived from production will be achieved.
Governmental and Environmental Regulations, Permits and Licenses
The current operations of the Corporation and anticipated future operations, including further exploration, development activities and commencement of production for the Whabouchi Project are subject to various federal, provincial and local laws and regulations governing prospecting, development, mining, construction, production, exports, taxes, standards of work, labour standards, occupational health (diseases and the occupational safety), waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in exploration activities, and in the construction, development and operation of mines and related facilities, generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permitting requirements.
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The Corporation’s operations are also subject to various laws and regulations with the federal, provincial and local levels governing the protection of the environment. Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. These laws and regulations impose high standards on the mining industry, in order to control the rejects of waste water and to force the participants to account for such controls to the lawful authorities, to reduce or eliminate the impact that are generated by certain production activities; extraction and of treatment and which are later on deposited on the ground or are rejected into the air or the water, to complete work of restoration of the mining properties, to control dangerous waste and materials and to reduce the risk of industrial accidents.
A breach of such legislation may result in the imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a direction of stricter standards and enforcement, and higher fines and penalties for non-compliance. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has the potential to reduce the profitability of operations.
Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws. The Corporation believes it is in substantial compliance with all material laws and regulations which currently apply to its activities. However, there is no assurance that future changes to existing laws and regulations will not adversely impact the Corporation. Amendments to current laws, regulations and permits governing the operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Corporation and cause increases in capital expenditures or production costs, reduction in levels of production or require abandonment or delays in the development of current or new mining projects.
The Corporation’s activities and operations require obtaining on a timely manner and maintaining permits and licences from various governmental authorities. The Corporation considers that it holds all the permits and licences required for the activities it currently carries on, in accordance with the relevant laws and by- laws. Changes brought to the laws and regulations could affect these permits and licences. There can be no assurance that various permits and all the necessary licences which the Corporation may require in the normal course for its current and anticipated exploration, development and construction activities as well as mining operations, including without limitation, on the Whabouchi Project, will be obtainable on reasonable terms or on a timely basis or that such laws and regulations would not have an adverse effect on any mining project which the Corporation might undertake, including, without limitation, the Whabouchi Project. Furthermore, any delays in obtaining the anticipated construction permits in respect of the Commercial Electrochemical Plant, would have an adverse effect on the Corporation’s timing and costs associated with start-up. Such delays could also allow other third-party projects to commence production before the Whabouchi Project, thereby potentially reducing the Corporation’s target market share, which would have an adverse impact on the level of product sales and economics of the Whabouchi Project.
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Anti-Corruption Laws
The Corporation’s operations are governed by, and involve interactions with, many levels of governments. The Corporation is required to comply with anti-corruption and anti-bribery laws, including the Criminal Code and the Corruption of Foreign Public Officials Act (CFPOA). In recent years, there has been a general increase in both the frequency of enforcement and the severity of penalties under such laws, resulting in greater scrutiny and punishment to corporations convicted of violating anti-corruption and anti-bribery laws. Furthermore, a corporation may be found liable for violations by not only its employees, but also by its contractors and third-party agents. Although the Corporation has adopted steps to mitigate such risks, including the adoption of a corporate policy by the Board (a copy of which is posted on its website) as well as the implementation of training programs and policies to ensure compliance with such laws, such measures may not always be effective in ensuring that the Corporation, its employees, contractors or third-party agents will comply strictly with such laws. If the Corporation finds itself subject to an enforcement action or is found to be in violation of such laws, this may result in significant penalties, fines and/or sanctions imposed on the Corporation resulting in a material adverse effect on the Corporation’s reputation, business, financial condition and results of operations.
Climate Change
Climate change is an international concern and, as a result, poses risk of both climate changes and government policy in which governments are introducing climate change legislation and treaties that could result in increased costs, and therefore, could decrease profitability of the Corporation’s operations.
The Canadian government has established a number of policy measures in response to concerns relating to climate change. The impacts of these measures will most likely be to increase costs for fossil fuels, electricity and transportation; restrict industrial emission levels; impose added costs for emissions in excess of permitted levels; and increase costs for monitoring and reporting. Compliance with these initiatives could have a material adverse effect on the Corporation’s results of operations.
The Corporation’s current regulatory risks associated with climate change mainly fall under its obligations under the Québec carbon market trading scheme. Increased public awareness and concern regarding global climate change may result in more legislative and/or regulatory requirements to reduce or mitigate the effects of GHG emission. If the current trend of increasing regulation continues, this may result in the increase of costs of the operations of the Corporation.
In addition, the physical risks of climate change may also have an adverse effect on the operations of the Corporation. Global climate change could exacerbate certain of the threats facing the Corporation’s business, including the frequency and severity of weather-related events, resource shortages, changes in rainfall and storm patterns and intensities, water shortages and changing temperatures, which can disrupt the Corporation’s operations, damage its infrastructure or properties, create financial risk to Corporation’s business or otherwise have a material adverse effect on its results of operations, financial position or liquidity. These may result in substantial costs to respond during the event, to recover from the event and possibly to modify existing or future infrastructure requirements to prevent recurrence. Climate changes could also disrupt the Corporation’s operations by impacting the availability and cost of materials needed for mining operations and could increase insurance and other operating costs.
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Public Company Obligations
As a publicly listed corporate entity, the Corporation is subject to evolving rules and regulations promulgated by a number of governmental and self-regulated organizations, including the Canadian Securities Administrators (CSA), the TSX, and the International Accounting Standards Board, which govern corporate governance and public disclosure regulations. These rules and regulations continue to evolve in scope and complexity creating many new requirements, which increase compliance costs and the risk of non- compliance. The Corporation’s efforts to comply with these rules and obligations could result in increased general and administration expenses and a diversion of management time and attention from financing, development, operations and, eventually, revenue-generating activities.
Currency Fluctuations
Currency fluctuations may have an effect on the Corporation’s costs, revenue and cash flow. Although the Corporation raised equity in Canadian dollars, certain of the Corporation’s estimated capital costs in connection with the Whabouchi Project were converted from quotes obtained in foreign currencies and converted into Canadian dollars applying a fixed exchange rate. The Corporation may be pursuing debt financing which may be denominated in United States dollars. Accordingly, adverse fluctuations in the relative prices of Euros, Canadian and United States dollars could increase the cost of development and production in connection with the Whabouchi Project or increase the cost of borrowing and could materially and adversely affect the Corporation’s earnings and financial condition.
Conditions of the Industry in General
The exploration and development of mineral resources, including construction, start-up and operation of a mine, involves significant risks that even an allied neat evaluation with experience and know-how cannot avoid. Although the discovery of a deposit can prove extremely lucrative, few properties where exploration and development work are carried out become producing mines thereafter. Important expenditures are necessary to establish ore reserves, to work out the metallurgical processes and to build a concentration or milling plant on a particular site. It is impossible to provide assurance to the effect that the exploration and development programs contemplated by the Corporation will generate a profitable mine.
The mining activities comprise a high level of risks. The activities of the Corporation are subject to all the dangers and the risks usually dependent on the exploration and the development, including the unusual and unforeseen geological formations, explosions, collapses, floods and other situations which can occur during drilling and the removal of material and of which any could cause physical or material or environmental injuries and, possibly, legal responsibility.
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Insurance Risk
Any industries are subject to significant risks that could result in damage to or destruction of property and facilities, personal injury or death, environmental damage and pollution, delays in production, expropriation of assets and loss of title to mining claims and mining lease. No assurance can be given that insurance to cover the risks to which the Corporation’s activities are subject will be available at all or at commercially reasonable premiums. Therefore, the Corporation could be held responsible for pollution or for other risks against which it could not be insured or against which it could choose not to be insured, given the high cost of the premiums or for other reasons. The Corporation currently maintains insurance within ranges of coverage that it believes to be consistent with industry practice for companies of a similar stage of development. The Corporation carries liability insurance with respect to its exploration and development operations, including certain limited environmental liability insurance coverage. The payment of any such liabilities would reduce the funds available to the Corporation. If the Corporation is unable to fully fund the cost of remedying an environmental problem, it might be required to suspend operations or enter into costly interim compliance measures pending completion of a permanent remedy. The payment of sums in this respect could also involve the loss of the assets of the Corporation.
Dividend Policy
No dividends on the common shares of the Corporation have been paid to date. The Corporation has no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, the Corporation’s financial results, cash requirements, contractual restrictions and other factors that the Board may deem relevant. In addition, the Corporation’s ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness that the Corporation or its subsidiaries incur. As a result, investors may not receive any return on an investment in the Corporation’s securities unless they sell the securities for a price greater than that which they paid for them.
Volatility of Share Price and Market Price of the Common Shares
The price of the shares of resource companies tends to be volatile. Fluctuations in the world price of lithium and many other elements beyond the control of the Corporation could materially affect the price of the common shares of the Corporation.
There can be no assurance that an active market for the common shares of the Corporation will be sustained after any offering of securities. Securities of companies with smaller capitalizations have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include global economic developments and market perceptions of the attractiveness of certain industries. There can be no assurance that continuing fluctuations in price will not occur. If an active market for the common shares of the Corporation does not continue, the liquidity of a purchaser’s investment may be limited. If such a market does not develop, purchasers may lose their entire investment in the common shares of the Corporation.
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As a result of any of these factors, the market price of the common shares of the Corporation at any given point in time may not accurately reflect the long-term value of the Corporation. Securities class-action litigation often has been brought against companies following periods of volatility in the market price of their securities. The Corporation may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages, and also divert management’s attention and resources.
Protection and Maintenance of Intellectual Property
The Corporation’s success could depend in part on its ability to protect and maintain its intellectual property rights. The Corporation has identified specific markets of interest for lithium compounds produced from the transformation of spodumene concentrate and has completed, among other things, numerous metallurgical bench scale, pilot plant scale and demonstration scale production in order to develop different processes to produce lithium hydroxide from spodumene concentrate and to produce lithium carbonate from lithium hydroxide.
No assurance can be given that the rights used by the Corporation will not be challenged, invalidated, infringed or circumvented, nor that the rights granted thereunder will provide competitive advantages to the Corporation. Patent applications have been filed and several have been granted to the Corporation regarding methods of transforming spodumene and producing lithium hydroxide from lithium sulfate and lithium carbonate from lithium hydroxide. Moreover, it is not clear whether the patents granted or pending applications for patents to be issued regarding these methods will be challenged by third parties, whether the patents of others will interfere with the Corporation’s ability to use those patents and know-how to produce lithium compounds. There is no assurance that the Corporation will be able to develop or obtain alternative technology in respect of patents issued to third parties that incidentally cover its production processes. Moreover, the Corporation could potentially incur substantial legal costs in defending legal actions which allege patent infringement or by instituting patent infringement suits against others. The Corporation’s commercial success also depends on the Corporation not infringing patents or proprietary rights of others.
Competition
The lithium industry is intensely and increasingly competitive, and the Corporation competes with many companies with greater financial resources and technical facilities than those of the Corporation. Competition in the lithium industry could adversely affect the Corporation’s ability to put the Whabouchi Project into production and to secure sale agreements for all (100%) of its products.
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Price of Lithium Salts and Spodumene Concentrate
The lithium industry is heavily dependent upon the market prices of the metals or minerals being mined and the converted lithium salts. There is no assurance that a profitable market will exist for the sale of the same. There can be no assurance that mineral or lithium salts prices will be such that the Corporation’s properties can be mined at a profit. The price of the common shares, financial results of the Corporation, its activities; could undergo in the future important negative effects because of the fall of the prices of the lithium compounds, resulting in an impact on the capacity of the Corporation to finance its activities. The prices of lithium compounds may fluctuate in an important way and are tributary to various factors which are independent of the will of the Corporation, such as the sale or the purchase of lithium compounds by various brokers, the rates of interest, foreign exchange rates, the rates of inflation or deflation, the fluctuations in the value of the Canadian dollar and other currencies, the regional and world offer and demand, the economic conjuncture and policy which prevails in the countries of the world which are large lithium compounds producers. Lithium compounds, which are not traded on any exchange and the fact that sales contracts are negotiated on an individual basis, can see their prices fluctuates sometimes positively or negatively and any serious fall could prevent the continuation of the development activities of the properties of the Corporation.
Dependence on, and Protection of, Key Personnel
The success of the Corporation is currently largely dependent on the performance of its directors and officers as well as its operations and technical leaders. The loss of the services of any of these persons could have a materially adverse effect on the Corporation’s business and prospects. There is no assurance the Corporation can maintain the services of its directors, officers or other qualified personnel required to operate its business. The loss of their services could have an unfavourable impact on the Corporation. The Corporation has contracted key-man insurance in order to mitigate such unfavourable impact on the Corporation.
Labour Relations
While the Corporation has good relations with its employees, there can be no assurance that it will be able to maintain positive relationships with its employees. In addition, relations between the Corporation and its employees may be impacted by regulatory or governmental changes introduced by the relevant authorities in whose jurisdictions the Corporation carries on business. Adverse changes in such legislations or in the relationship between the Corporation and its employees could have a material adverse impact on the Corporation’s business, results of operations and financial condition.
Cree Nation Mining Policy and Related Agreements
Under the current mining policy adopted by the Cree Regional Authority, any mineral production on the Eeyou Istchee/James Bay territory shall be subject to specific agreement among the Corporation, the Cree Nation of Nemaska (the First Nations on whose traditional territory the Whabouchi Property is located), the Grand Council of the Crees (Eeyou Istchee) and the Cree Nation Government (collectively, the “Cree Parties”).
On November 7, 2014, the Corporation signed the Chinuchi Agreement with the Cree Parties (the “Chinuchi Agreement”) concerning the development and operation of the Whabouchi Property in Eeyou Istchee/James Bay territory. The Corporation thereafter assigned its rights and obligations under the Chinuchi Agreement to NMX Whabouchi pursuant to an assignment and assumption agreement dated April 2, 2018
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(the “Chinuchi Assignment and Assumption Agreement”). The Chinuchi Agreement is a binding agreement that governs the long-term working relationship between NMX Whabouchi and the Cree Parties during all phases of the Whabouchi Project. It provides for training, employment and business opportunities for the Crees during project construction, operation and closure, and sets out the principles of social, cultural and environmental respect under which the Whabouchi Property will be managed.
In consideration for the consent of the Cree Parties to the Whabouchi Property and their support thereof, which ensures a stable regional environment for the development and operation of the Whabouchi Property and the Whabouchi Project, NMX Whabouchi is subject to several obligations, including in respect of the foregoing opportunities and principles, and including payment of fixed and ongoing variable amounts throughout the life of the Whabouchi Project. The said fixed payments, which first become payable upon the satisfaction of a specified milestone, are subject to a one-time adjustment mechanism at a specified time after commencement of commercial production has been achieved at the Whabouchi Property and at the Commercial Electrochemical Plant, which might result in a larger payment.
The obligations of NMX Whabouchi under the Stream Agreement are secured by, among other things, a security package which will cover, to the extent legally possible, all material mining titles and all titles to the Shawinigan site. In the event of a default under the Stream Agreement, Orion will be entitled, subject in all cases to the terms of the Stream Agreement and all intercreditor agreements entered into to exercise all rights and remedies in respect of the security package and to commence any enforcement action, including but not limited to selling, transferring or disposing of, in whole or in part, the Whabouchi Property. Pursuant to the terms of the Chinuchi Agreement, upon (i) a transfer of the Whabouchi Property to a third party that is not affiliated with NMX Whabouchi or (ii) the sale of, or acquisition of a controlling interest in, NMX Whabouchi (or of any permitted assignee of NMX Whabouchi ’s rights and obligations under the Chinuchi Agreement), payment of the aggregate balance of all outstanding fixed payments, together with any accrued interest in respect thereof, is accelerated. This accelerated payment (which may be substantial), together with any variable payments owed to the Cree Parties at the date of such transfer, sale or acquisition of control, become payable within thirty days of the closing thereof. Moreover, any transferee of the Whabouchi Property must assume the rights and obligations of NMX Whabouchi under the Chinuchi Agreement in order to avail itself of the benefit thereof. The consent of the Cree Parties to, and their support of, the Whabouchi Project, as set forth in the Chinuchi Agreement, is essential to the success of the Whabouchi Project. Non- compliance with the obligations of NMX Whabouchi under the Chinuchi Agreement could have a material adverse effect on the Corporation.
Titles Matters and Territorial Claims
While the Corporation has reviewed and is satisfied with the titles to its mineral properties, and, to the best of its knowledge, such titles are in good standing, there is no guarantee that titles to such properties will not be challenged or impugned. The properties may be subject to prior unregistered agreements of transfer or aboriginal land claims, and titles may be affected by undetected defects. In addition, according to the applicable mining legislation in the Province of Québec, the Corporation will need to incur expenditures on its properties and pay a rent in order to renew claims upon their expiry. There can be no assurance that the Corporation will be successful in renewing all such claims. The properties in which the Corporation holds an interest are not currently subject to territorial claims on behalf of First Nations. No insurance can however be provided to the effect that such will not be the case in the future.
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Tax Risks
The Corporation was partly financed by the issuance of flow-through shares. However, there is no guarantee that the funds spent by the Corporation will qualify as Canadian exploration expenses, even if the Corporation has committed to take all the necessary measures for this purpose. Refusals of certain expenses by tax authorities could have negative tax consequences for investors and, in such an event, the Corporation will have to indemnify each flow-through share subscriber for any additional taxes.
Conflicts of Interest
Some of the directors and officers of the Corporation are engaged as directors or officers of other Corporation’s involved in the exploration and development of mineral resources, and situations may arise where these directors and officers will be in direct competition with the Corporation. Such engagement could result in conflicts of interest. Conflicts, if any, will be dealt with in accordance with the relevant provisions of the Canadian Business Corporation Act. Any decision taken by these directors and officers and involving the Corporation will be in conformity with their duties and obligations to compromise in an equitable way and in good faith with the Corporation and these other corporations. Moreover, these directors and officers will declare their interests and will abstain to vote on any question which could give place to a conflict of interest. Some of the directors and officers of the Corporation may become in the future directors of other companies engaged in same or other business ventures.
Dilution
Additional financing needed to continue funding the development and operation of the Corporation may require the issuance of additional securities of the Corporation. The issuance of additional securities and the exercise of common share purchase warrants, options and other convertible securities will result in dilution of the equity interests of any persons who are or may become holders of common shares.
Structural Subordination of the Common Shares
In the event of a bankruptcy, liquidation or reorganization of the Corporation, holders of certain of its indebtedness and certain trade creditors will generally be entitled to payment of their claims from the assets of the Corporation before any assets are made available for distribution to the shareholders. The common shares of the Corporation will be effectively subordinated to most of the other indebtedness and liabilities of the Corporation.
Lack of Revenue and History of Losses
As the Corporation does not have revenues, it is dependent upon future financings to continue its plan of operation, yet stay in business. The Corporation has not generated any revenues since its incorporation. The Corporation’s business objectives include the construction and operation of the Whabouchi Project. There is no assurance that it will be commercially viable.
The Corporation does not have a history of profitable operations. It sustained net losses in the fiscal years ended June 30, 2018 and 2019. Management of the Corporation does not expect any income until its first sales of spodumene concentrate and/or lithium salts as mentioned hereinabove, and assesses that the Corporation may incur ongoing losses in the near future, as there is no guarantee it will become profitable
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in the short term.
The Corporation’s future success will depend to a large extent on its ability to ensure the respect of its contractual commitments which are important from an operational and financial point of view.
In general, the Corporation’s revenues will also be affected by economic conditions and the capacity of the Corporation to start production and manage its growth.
Forward-Looking Statements
Investors are cautioned not to place undue reliance on forward-looking statements. By their nature, forward- looking statements involve numerous assumptions, known and unknown risks and uncertainties, of both a general and specific nature, that could cause actual results to differ materially from those suggested by the forward-looking statements or contribute to the possibility that predictions, forecasts or projections will prove to be materially inaccurate.
Mining Joint Ventures Risk
Mining projects are often conducted through joint ventures. Joint ventures can often require unanimous approval of the parties to the joint venture or their representatives for certain fundamental decisions, such as an increase or reduction of registered capital, merger, division, dissolution, including indebtedness and the pledge of the joint venture assets, which means that each joint venture party has a veto right with respect to such decisions, which could in turn lead to a deadlock. Future joint venture partners may veto the Corporation’s future business plans, with regard to a specific joint venture, and prevent the Corporation from achieving its objectives. Also, any failure of any partner to meet its obligations to the Corporation or other third parties, or any disputes with respect to third parties’ respective rights and obligations, could have a negative impact on the Corporation.
Litigation and Other Legal Proceedings
Like most companies, the Corporation is subject to the threat of litigation and may be involved in disputes with other parties in the future which may result in litigation or other proceedings. The Corporation’s operations are subject to the risk of legal claims by employees, unions, contractors, debt holders, lenders, suppliers, future joint venture partners, shareholders, governmental agencies or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation.
In any case, the outcome of litigation and other legal proceedings, in which the Corporation is involved now, such as the Livent Arbitration and the proceedings under the CBCA (including the application seeking the discharge of the security package which secured the Bonds described under the section “Uncertainty on the Discharge of the Security Package Securing the Bonds”), or may be involved in the future, particularly regulatory actions, is difficult to assess or quantify. Plaintiffs may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. Defense and settlement costs can be substantial, even with respect to claims that have no merit. Due to the inherent uncertainty of the litigation process, the litigation process could take away from the time and effort of the Corporation’s management and could force the Corporation to pay substantial legal fees. There can be no assurance that the resolution of any particular future legal proceeding will not have an adverse effect on the Corporation’s financial position and results of operations.
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Livent Arbitration
On February 18, 2019, the Corporation announced that it had terminated the Livent Agreement, which prompted Livent to resume the arbitration proceedings it had started in July 2018 (and which the parties suspended in September 2018 to allow discussions with a view to amending the Livent Agreement). The said arbitration is still ongoing and its outcome remains uncertain. As at the date of this Annual Information Form, the first arbitration hearing on this matter is scheduled for October 2020. More specifically, there is no assurance as to the ability of the Corporation to obtain an arbitral award (i) that confirms its right to terminate the Livent Agreement, (ii) that orders the discharge of the security package implemented in connection of the Livent Agreement and (iii) that does not award the payment by the Corporation of substantial sums to Livent as costs and expenses of the arbitration process, and damages. In addition, there is no assurance that the Livent Arbitration will not have an adverse effect on the Corporation’s financial position and results of operations.
5. DIVIDENDS AND DIVIDENDS POLICY
During the three most recently completed fiscal years and as of the date of this Annual Information Form, the Corporation has not paid any dividends or made any distributions on its issued and outstanding common shares.
The Corporation’s current policy is to reinvest future earnings in order to finance the growth and development of its business. The Corporation does not intend to pay dividends in the foreseeable future. Any future determination to pay cash dividends is at the discretion of the Board and will depend on the Corporation’s financial condition, results of operation, capital requirements and such other factors as the Board deems relevant.
6. GENERAL DESCRIPTION OF THE CAPITAL STRUCTURE
6.1 Common Shares
The Corporation’s authorized capital is made up of an unlimited number of common shares without par value. As of June 30, 2019, 847,634,338 common shares were issued and outstanding as fully paid and non- assessable. As of the date of this Annual Information Form, September 30, 2019, 847,634,338 common shares are issued and outstanding as fully paid and non-assessable. The holders of common shares of the Corporation are entitled to vote at all shareholder meetings. They are also entitled to dividends, if, as and when declared by the Board and, upon liquidation or winding-up of the Corporation, to share the residual assets of the Corporation. The common shares do not have any pre-emptive, conversion or redemption rights, and all have equal voting rights. There are no special rights or restrictions of any nature attached to any of the common shares, all of which rank equally as to all benefits which might accrue to the holders of the common shares.
6.2 Stock Options Issued Under the Stock Option Plan
As of June 30, 2019, an aggregate number of 37,114,902 stock options issued by the Corporation were outstanding, collectively entitling the holders thereof to purchase an aggregate of up to 37,114,902 common shares as follows:
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Number of Stock Number of Vested Exercise Price Expiry Date Options Stock Options 250,000 250,000 $0.20 December 17, 2019 250,000 250,000 $0.40 December 17, 2019 354,500 354,500 $0.92 December 17, 2019 1,000,000 1,000,000 $1.04 December 17, 2019 50,000 50,000 $1.11 December 17, 2019 100,000 100,000 $0.10 December 27, 2019 2,288,250 2,288,250 $0.20 March 2, 2020 50,000 50,000 $1.19 March 15, 2020 133,334 133,334 $1.38 March 15, 2020 120,000 120,000 $1.04 March 15, 2020 120,000 120,000 $1.04 April 2, 2020 166,667 166,667 $1.10 April 2, 2020 50,001 50,001 $1.11 April 2, 2020 100,000 100,000 $0.20 July 6, 2020 1,675,000 1,675,000 $0.40 December 24, 2020 4,432,150 4,432,150 $0.92 April 14, 2021 100,000 100,000 $1.11 April 26, 2021 200,000 166,667 $1.10 July 20, 2021 200,000 166,667 $1.10 July 25, 2021 300,000 250,000 $1.16 September 7, 2021 500,000 416,667 $1.38 September 16, 2021 75,000 62,500 $1.41 September 18, 2021 500,000 416,667 $1.26 October 11, 2021 75,000 62,500 $1.34 October 21, 2021 75,000 62,500 $1.32 October 24, 2021 75,000 50,000 $1.37 January 9, 2022 100,000 66,668 $1.44 January 11, 2022 75,000 50,000 $1.32 March 20, 2022 150,000 150,000 $1.11 May 11, 2022 100,000 50,001 $1.43 October 13, 2022 75,000 25,000 $1.34 March 13, 2023 17,200,000 10,975,000 $1.04 May 29, 2023 75,000 25,000 $1.03 June 5, 2023 75,000 12,500 $0.85 July 9, 2023
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Number of Stock Number of Vested Exercise Price Expiry Date Options Stock Options 1,500,000 250,000 $1.04 August 13, 2023 200,000 33,334 $1.04 August 15, 2023 75,000 12,500 $1.04 September 17, 2023 125,000 20,834 $1.04 October 10, 2023 150,000 25,000 $1.04 October 22, 2023 100,000 16,667 $1.04 October 29, 2023 75,000 12,500 $1.04 November 12, 2023 225,000 37,500 $1.40 November 13, 2023 75,000 12,500 $1.04 December 3, 2023 1,000,000 - $1.04 January 3, 2024 225,000 - $1.04 January 7, 2024 375,000 - $1.04 January 28, 2024 250,000 - $1.04 February 12, 2024 75,000 - $1.04 February 18, 2024 150,000 - $1.04 February 25, 2024 175,000 - $1.04 March 25, 2024 450,000 - $1.04 April 1, 2024 75,000 - $1.04 April 9, 2024 225,000 - $1.04 April 15, 2024 375,000 - $1.04 April 29, 2024 125,000 - $1.04 June 17, 2024 Total 37,114,902 24,669,074
For further details about the stock options issued by the Corporation as of June 30, 2019, reference is made to note 13 to the Corporation’s audited consolidated financial statements for the last fiscal year ended June 30, 2019 which are available on SEDAR at www.sedar.com.
Between July 1, 2019 and up to the date of this Annual Information Form, the Corporation issued 150,000 options having exercise price of $1.04, cancelled 275,000 options that were issued at an exercise price of $1.04, no option expired and no options were exercised. As a result and as of the date of this Annual Information Form, an aggregate number of 36,989,902 stock options issued by the Corporation were outstanding, collectively entitling the holders thereof to purchase an aggregate of up to 36,989,902 common shares as follows:
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Number of Stock Number of Vested Exercise Price Expiry Date Options Stock Options
250,000 250,000 $0,20 December 17, 2019 250,000 250,000 $0,40 December 17, 2019 354,500 354,500 $0,92 December 17, 2019 1,000,000 1,000,000 $1,04 December 17, 2019 50,000 50,000 $1,11 December 17, 2019 100,000 100,000 $0,10 December 27, 2019 2,288,250 2,288,250 $0,20 March 2, 2020 120,000 120,000 $1,04 March 15, 2020 50,000 50,000 $1,19 March 15, 2020 133,334 133,334 $1,38 March 15, 2020 120,000 120,000 $1,04 April 2, 2020 166,667 166,667 $1,10 April 2, 2020 50,001 50,001 $1,11 April 2, 2020 100,000 100,000 $0,20 July 6, 2020 250,000 250,000 $1,16 August 9, 2020 62,500 62,500 $1,32 August 30, 2020 12,500 12,500 $1,04 September 19, 2020 1,675,000 1,675,000 $0,40 December 24, 2020 4,432,150 4,432,150 $0,92 April 14, 2021 100,000 100,000 $1,11 April 26, 2021 200,000 200,000 $1,10 July 20, 2021 200,000 200,000 $1,10 July 25, 2021 500,000 500,000 $1,38 September 16, 2021 75,000 75,000 $1,41 September 18, 2021 500,000 416,667 $1,26 October 11, 2021 75,000 62,500 $1,34 October 21, 2021 75,000 62,500 $1,37 January 9, 2022 100,000 83,334 $1,44 January 11, 2022 75,000 62,500 $1,32 March 20, 2022 150,000 150,000 $1,11 May 11, 2022
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Number of Stock Number of Vested Exercise Price Expiry Date Options Stock Options
100,000 50,001 $1,43 October 13, 2022 75,000 37,500 $1,34 March 13, 2023 17,200,000 12,220,000 $1,04 May 29, 2023 75,000 25,000 $1,03 June 5, 2023 75,000 25,000 $0,85 July 9, 2023 1,500,000 500,000 $1,04 August 13, 2023 200,000 66,668 $1,04 August 15, 2023 75,000 25,000 $1,04 September 17, 2023 125,000 20,834 $1,04 October 10, 2023 150,000 25,000 $1,04 October 22, 2023 100,000 16,667 $1,04 October 29, 2023 225,000 37,500 $1,40 November 13, 2023 75,000 12,500 $1,04 December 3, 2023 1,000,000 166,667 $1,04 January 3, 2024 225,000 37,500 $1,04 January 7, 2024 375,000 62,500 $1,04 January 28, 2024 250,000 41,667 $1,04 February 12, 2024 75,000 12,500 $1,04 February 18, 2024 150,000 25,000 $1,04 February 25, 2024 175,000 29,167 $1,04 March 25, 2024 450000 - $1,04 April 1, 2024 75,000 - $1,04 April 9, 2024 150,000 - $1,04 April 15, 2024 300,000 - $1,04 April 29, 2024 125,000 - $1,04 June 17, 2024 75,000 - $1,04 September 16, 2024 75,000 - $1,04 September 23, 2024 Total 36,989,902 26,814,074
The Board may grant stock options in accordance with the Amended and Restated Nemaska Lithium Inc. 2011 Stock Option Plan as adopted by the Board on October 28, 2011, as amended on November 1, 2012,
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December 16, 2013, January 26, 2016 and November 8, 2016 to employees, officers, directors or consultants of the Corporation or any subsidiary thereof, and to persons employed to perform investor relations activities.
7. MARKET FOR SECURITIES
7.1 Market
The common shares of the Corporation were listed on the TSX-V on January 20, 2010 under the trading symbol “NMX”. Effective as of July 8, 2016, all of the issued and outstanding common shares of the Corporation, including the warrants issued under the 2016 Public Offering, commenced trading on the TSX under the trading symbol “NMX” for the common shares and “NMX.WT” for the warrants. As a result, the common shares of the Corporation were concurrently delisted from the TSX-V.
7.2 Trading Price and Volume
The following table shows the variation in price and the trading volume of the common shares of the Corporation on the TSX from July 1, 2018 to September 30, 2019 (as reported by www.stockwatch.com), on a monthly basis for each month of the financial year ended June 30, 2019 and up to the date of this Annual Information Form.
Month High ($)(1) Low ($)(2) Trading volume(3)
July 2018 0.92 0.65 51,578,037 August 2018 0.84 0.60 56,309,288 September 2018 0.94 0.66 56,435,370 October 2018 0.83 0.70 43,627,098 November 2018 0.88 0.73 34,047,025 December 2018 0.80 0.55 27,694,813 January 2019 0.75 0.61 23,921,531 February 2019 0.63 0.27 138,896,659 March 2019 0.40 0.305 47,678,165 April 2019 0.34 0.25 33,446,074 May 2019 0.355 0.27 40,311,530 June 2019 0.295 0.25 11,402,946 July 2019 0.40 0.215 45,234,588 August 2019 0.305 0.25 10,069,806 September 2019 0.325 0.225 29,737,446
Notes: (1) Includes intra-day high prices. (2) Includes intra-day low prices. (3) Total volume traded in the relevant period.
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8. DIRECTORS AND OFFICERS
8.1 Name, Occupation and Securities Holding
The following table contains certain information on the Corporation’s directors and executive officers as of the date of this Annual Information Form. The directors of the Corporation are elected at the annual general meeting of shareholders for a term of office ending at the following annual general meeting or until their successor is duly elected, unless their position becomes vacant earlier.
It must be noted that, on February 15, 2019, the Board has established a Special Committee comprised of independent directors to review all Financing and/or Strategic Alternatives for the Corporation and oversee management’s endeavors in respect thereof. The Special Committee’s mandate as well as its workings since its creation are more particularly described above, under “Fiscal Year Ended June 30, 2019 and Up to the Date of this Annual Information Form”.
Michel Baril Mr. Michel Baril has graduated from Montréal’s École Polytechnique in June 1976 with a mechanical engineering degree. Since 2003, Mr. Baril has served on several Québec, Canada boards of directors. He held the title of Director of The Hockey Co. from June 2003 Chairman of the Board to June 2004. He also acted as Director of Groupe Laperrière & Verreault Inc., a corporation that specializes in the fields of pulp and paper and water treatment, from Director of the Corporation since September 2004 to August 2007. He was a Director of Raymor Industries Inc, a October 2008 corporation specialized in the production of metallic powder and carbon nanotubes, Member of the Corporate Governance from January 2005 to February 2009 and from June 2009 to February 2010. Also, & Social Responsibility Committee he was a Director of Komet Ressources Inc., a corporation specialized in the and of the Human Resources, manufacturing of vanities and kitchen cabinets, from June 2007 to September 2011. Compensation & Nominating He is currently a Director of Imaflex Inc., a corporation specialized in the Committee manufacturing of polymer-based films, since April 2008 and of Monarch Gold Corp, a mining corporation, since February 2011. Imaflex Inc. is a corporation listed on Number of common shares held: the TSX-V and Monarch Gold Corp. is a corporation listed on the TSX. From June 1,183,000 1979 to November 2003, he held various senior executive positions with Bombardier Inc. Notably, he was President, Mass Transit Division, responsible for all Bombardier Transportation activities in Canada and the United States; Executive Vice President, Operations, Bombardier Aerospace Group, responsible for all manufacturing and procurement activities of Canadair, De Havilland, Learjet and Shorts; Executive Vice President, Bombardier Transportation Group, responsible for the worldwide operations of Bombardier Transportation; and President and Chief Operating Officer of Bombardier Recreational Products Inc.
Robert Beaulieu Mr. Robert Beaulieu has more than 25 years of experience in the mining industry and brings valuable knowledge of project start-ups. He was notably at the helm of Québec, Canada the technical commissioning and production ramp-up of Glencore’s Koniambo Vice President, Operations of the Nickel mine, in New Caledonia, from 2012 to 2018. Prior to that, he has worked in Corporation since January 2019 strategic and technological environments, leading multidisciplinary teams in the achievement of critical targets for companies including Stornoway Diamond Number of common shares held: nil. Corporation, SNC-Lavalin, Canadian Royalties inc and Metallurgy Magnola inc. Mr. Beaulieu is a member of the Ordre des ingénieurs du Québec.
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François Biron Mr. Francois Biron is a senior professional mining engineer with 43 years of experience in the mining industry. He is a director of Sphinx Resources Ltd., a junior Québec, Canada mining exploration company since July 2016. Of specific interest to the Director of the Corporation since Corporation’s mining project, Mr. Biron was, from August 2005 to June 2010, the November 2015 General Manager of the Troilus Division of Inmet Mining Corp., an open-pit mine in Eeyou Istchee James Bay region about 125 km North of Chibougamau, with Chairman of the Corporate 260 employees, including 65 native people. He was Project Manager of the Mine Governance & Social Responsibility Arnaud Project owned by Investissement Québec, a financing corporation that Committee provides guidance and financial solutions to corporations, from July 2010 to Member of the Audit & Risk May 2015. Mr. Biron has extensive experience in mining operations and has acted Committee in several senior site-based positions with well-known international mining companies. Throughout his career, he has worked in gold, base metals and industrial Member of the Special Committee minerals sectors. He has participated in the management of major open-pit mines with the state-of-the-art operations and standards. Mr. Biron is very experienced in Number of common shares held: public consultations and social acceptability for new mining projects and well versed 175,000 in the latest automation mining technologies that improve mining processes.
Guy Bourassa Mr. Guy Bourassa graduated in law from Université Laval, Québec, in 1983. He was member of the Barreau du Québec (Law Society) from 1983 to October 2011. Québec, Canada During his career as an attorney, he has mainly worked with Québec mining President and Chief Executive Officer exploration businesses. He is currently a director of Monarch Gold Corp., a mining of the Corporation exploration corporation, since February 2011 and was President and Chief Executive Officer of that corporation from March 2011 to October 2012. Director of the Corporation since May Mr. Bourassa was also a director of Nouveau Monde Graphite Inc. from 2007 February 2017 to June 2019, a director and President of Radisson Mining Resources Number of common shares held: Inc. from November 1988 to June 1991, was President and a director of Dufresnoy 6,120,000 Industrial Minerals inc. from May 1994 to November 1996, and Corporate Secretary of Mazarin Inc. from September 1991 to June 1994. Mr. Bourassa is also President and Chief Executive Officer of the Corporation’s subsidiaries and a director of Nemaska Lithium P1P Inc. and NMX Shawinigan since March 2016, a director of NMX Whabouchi since August 2016 and a director of Nemaska Lithium Innovation Inc. since April 2019.
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Paul-Henri Couture Mr. Paul-Henri Couture has over 35 years of experience as a financial director and Québec, Canada investment professional. He has a bachelor’s degree in business administration from HEC Montréal. He is a Chartered Financial Analyst (CFA) and member of several Director of the Corporation since July professional associations. Mr. Couture held various positions at Caisse de dépôt et 2013 placement du Québec (the “Caisse”) from May 1983 to June 2009. For many years, Member of the Audit & Risk he built and led a team responsible for the management and development of a Committee and of the Corporate $3 billion investment portfolio in financial institutions and natural resources sectors. Governance & Social Responsibility Prior to leaving Caisse in 2009, he was Senior Vice-President responsible for the Committee natural resources, distress and restructuring, and new products portfolios. At the Caisse, he was a member of the Private Equity Investment Committee among others. Chairman of the Human Resources, As such, Mr. Couture had to evaluate hundreds of transactions. Mr. Couture put Compensation & Nominating forward innovative projects that included the launch of two mining funds: Gestion Committee Sodémex Inc., involved with mining exploration corporations, and MinQuest Capital Chairman of the Special Committee Inc., a $225 million private equity capital development mining fund seeking investment opportunities worldwide. In June 2009, he led Sentient Asset Number of common shares held: Management Canada Ltd., a subsidiary of The Sentient Group, an important 415,000(1) manager of private equity funds in the mining sector, as President and Director. Since April 2013, Mr. Couture is the President of Minvest Capital, an enterprise that provides management and investment consulting services. He worked at the Business Development Bank of Canada for the first six years of his professional career.
Marc Dagenais, LL.B. Mr. Marc Dagenais has 30 years of experience in the mining industry, both in North Québec, Canada America and internationally. Prior to joining the Corporation in September 2016, he was Vice-President, General Counsel & Corporate Secretary of Graymont Limited, Vice President, Legal Affairs and an international lime producer headquartered in the Greater Vancouver Area from Corporate Secretary of the Corporation March 2014 to January 2016. Prior to joining Graymont Limited, he was Vice- since September 2016 President & General Counsel – Africa of Kinross Gold Corporation, a senior gold producer headquartered in Toronto. With Kinross Gold Corporation, he built the Number of common shares held: African legal function from the ground up, from April 2011 to March 2014, and was 10,940 based in Las Palmas de Gran Canaria, Spain. Prior to that, Mr. Dagenais worked for 15 years with Cambior Inc. (now part of IAMGOLD Corporation), during six of which years (2000-2006) he served as Vice-President, Legal Affairs. In this latter position, he played a major role in Cambior Inc.’s financial restructuring as well as the development of the Rosebel Gold Mine in Suriname and the acquisition of the Linmine bauxite complex in Guyana. He also was a partner of Lavery, de Billy, LLP, a major Montréal law firm and a partner of MinQuest Capital Inc., a private equity fund specialized in mining investments. Mr. Dagenais holds a Bachelor of Laws from Université de Montréal, as well as Bachelor of Management Accounting from Université du Québec à Montréal. He has been a member of the Barreau du Québec (Law Society) since April 1990.
Chantal Francoeur Ms. Chantal Francoeur has more than 26 years of experience in the mining and Québec, Canada metallurgical industry, both in Canada and internationally. Prior to joining the Corporation in October 2016, she was Vice-President, Human Resources and Vice President Human Resources and Communications of Koniambo Nickel SAS, a green field start-up of a mine and Organizational Development since metallurgical nickel plant in New-Caledonia, one of the largest mining project in the October 2016 world, owned 51% by Glencore PLC and 49% by Société Minière du Sud Pacifique (SMSP), and was based in Koné, New-Caledonia from January 2010 to October 2016. Prior to joining Koniambo Nickel SAS in 2010, she was Human Resources Director from January 2008 to January 2010 for Xstrata Copper Canada
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Number of common shares held: Inc., which included one copper mine in Timmins, Ontario, two copper and zinc 68,000 smelters, situated in Timmins, Ontario and the Horne Smelter in Rouyn-Noranda, Québec as well as a copper refinery called CCR Refinery in Montréal, Québec and two copper recycling plants in the United States. Prior to that, Ms. Francoeur worked for five years for Noranda Inc. from June 2003 to January 2008 as Human Resources and Communications Director at the Horne smelter in Rouyn-Noranda. During this period, she was the spokesperson who negotiated two collective bargaining agreements. Prior to that, from 1997 to 2003, she was Human Resources and Communications director for Magnola Metallurgy Inc., a green field project of magnesium transformation, located in Asbestos, Québec and owned by Noranda Inc. and Société générale de financement du Québec. From 1990 to 1997, she also participated in another green field project as Organizational Development and Health and Safety Manager for Aluminerie Alouette Inc. in Sept-Îles, Québec. Ms. Francoeur holds a Bachelor of Industrial Relations from Université de Montréal.
Vanessa Laplante Ms. Vanessa Laplante has more than 25 years of experience in finance, accounting and taxation, including 13 years in the mining industry. Ms. Laplante is a member Québec, Canada of the board of directors and executive committee of the Québec Mining Association (QMA) since 2015, acts as vice-president, treasurer and chairs its tax committee. A Director of the Corporation since leader in her field, Ms. Laplante has developed expertise in mining management and December 2018 taxation through her experience with major Canadian gold producers. She currently holds the position of Director of Taxation for the Montreal Office of Canadian Malartic Partnership, a joint venture between Agnico Eagle Mines Limited and Chairwoman of the Audit & Risk Yamana Gold Inc., which operates the Canadian Malartic Mine. Ms. Laplante also Committee since May 10, 2019 acts as Treasurer of Canadian Malartic Partnership since its inception in 2014. From 2010 to 2014, she held the position of Director of Taxation for Osisko Mining Member of the Corporate Governance Corporation, which discovered, developed, built and commissioned in 2011 the & Social Responsibility Committee largest open-pit gold mine in Canada (Canadian Malartic Mine). Previously, from 2006 to 2010, Ms. Laplante held the position of Tax and Accounting Manager for Member of the Special Committee Iamgold Corporation (following the acquisition of Cambior Inc. in 2006). Before joining the mining industry, she held various senior positions in management and Number of common shares held: accounting both at the plant and at the head office for the Agropur cooperative. She 14,300 began her career as an auditor for a major Canadian accounting firm where she worked for 5 years. Ms. Laplante holds a Bachelor of Business Administration degree from the Université de Sherbrooke and completed the Advanced Tax Course of the Chartered Professional Accountants of Canada (In-Depth Tax Courses I and II). She is a member of the Ordre des comptables professionnels agréés du Québec.
Steve Nadeau, CPA, CGA Mr. Steve Nadeau has been a certified professional accountant since 1998. He Québec, Canada completed a bachelor’s degree in business administration at Moncton University in May 1991. Amongst other things, he brings more than 22 years of experience and Chief Financial Officer of the knowhow in management, financing structures, strategic planning, accounting, Corporation since May 2008 negotiation and finance, of which over 16 years has been in the mining industry. He acted as a key negotiator of the Chinuchi Agreement and also in other important Number of common shares held: financing and sales agreements. As an officer of the Corporation since 2008, he 1,071,195 (2) played a key role in raising over $1.3 billion through a combination of equity, debt, grants and advance payments in order to fund the Corporation’s development and projects. Prior to joining the Corporation, Mr. Nadeau held several senior financial positions for companies which were either mining or manufacturing products related to the granite industry, electronics and automotive field. Mr. Nadeau was also Chief Financial Officer of Monarch Gold Corp. from March 2011 to December 2015.
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Jacques Mallette Mr. Jacques Mallette is the President & Chief Executive Officer of Raymor Industries Inc., a company specialized in manufacturing advanced carbon materials Québec, Canada for batteries and electronics, and a seasoned director of companies. Apart from being an entrepreneur-investor in a high technology enterprise, he is a senior executive Director of the Corporation since and director with considerable experience within international companies, publicly March 2019 or privately-held. He was notably EVP and CFO of Québecor Inc. from 2003 to 2007 and president & CEO of Quebecor World Inc. from 2007 to 2009. He was CFO and then CEO of Cascades Paperboard International Inc. from 1994 to 2002. He Member of the Special Committee, of currently serves as Chairman of the Board of Marquis Imprimeur Inc. (Book the Audit & Risk Committee and of the printing) and as Director of Phildan Inc. (Wine Distributor and Agent). He was also Human Resources, Compensation & a Director of Knowlton Development Corporation (Contract Manufacturing) from Nominating Committee 2013-2018. He is a member of the Québec’s Order of Chartered Professional Accountants and graduated from HEC Montréal. Number of common shares held: nil.
Shigeki Miwa Shigeki (Sean) Miwa holds several positions concurrently within the SoftBank including Representative Director & CEO of SB Energy Corp. (from 2017), General Saitama, Japan Manager – CEO Project Office (from 2016) at SoftBank, Board Member of the Renewable Energy Institute (from 2014), Representative Director & CEO of Bloom Director of the Corporation since May Energy Japan Ltd. (from 2013) and Director of Clean Energy Asia LLC (from 2012). 2018 Before joining SoftBank in 2011, he worked for Mitsui & Co. Ltd., from 1991 mainly in the natural resources and energy sector, based in Tokyo, Sydney and Member of the Audit & Risk Brisbane. Mr. Miwa graduated from Waseda University in Tokyo with a BA in Committee history, received a Master of Financial Management and an MBA from the Graduate School of Management, Macquarie University in Sydney, and completed the General Management Program at Harvard Business School in Boston. Number of common shares held: nil.
Luc Séguin, ing. Mr. Luc Séguin is a former senior executive of Investissement Québec and of its predecessor Société générale de financement du Québec, and a seasoned director of Québec, Canada companies. He has a 25-year experience in operational and general management in Director of the Corporation since the industrial sector, including eight years in Europe, followed by 12 years in March 2019 corporate development and financing. He was notably senior vice president, mines, metals, energy & environment from 2003 to 2011 with the Société générale de Member of the Human Resources, financement du Québec, and vice president at Investissement Québec from 2011 Compensation & Nominating to 2015. He currently holds the position of Project Director at ArcelorMittal Long Committee Products Canada. He is a member of Québec’s Ordre des ingénieurs, graduated from Number of common shares held: nil. l’École Polytechnique in Montreal and is an administrateur de sociétés certifié (ASC – Certified Company Director).
Notes: (1) Mr. Couture personally holds 237,500 common shares, 70,400 common shares through Fiducie familiale (2010) Paul-Henri Couture, a trust whose trustee is Mr. Paul-Henri Couture and beneficiaries are immediate family members, 62,100 common shares through a registered education savings plans and 45,000 common shares through a registered retirement savings plan.
(2) Mr. Nadeau personally holds 926,000 common shares and 145,195 common shares through a registered retirement savings plan.
As of the date of this Annual Information Form, the Corporation’s directors and executive officers beneficially owned, directly or indirectly, an aggregate of 9,057,435 common shares representing approximately 1.0686% of the Corporation’s outstanding common shares.
8.2 Cease Trade Orders, Bankruptcies, Penalties or Sanctions
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To the knowledge of the Board and based on the information provided by the directors or executive officers of the Corporation, none of these persons:
(a) is, as at the date of this Annual Information Form, or has been, within ten years before this date, director, chief executive officer or a chief financial officer of any corporation, including the Corporation, which has been subject to one of the following orders:
(i) a cease trade order, an order similar to a cease trade order or an order that denied the corporation access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, while the person was acting in the capacity as director, chief executive officer or chief financial officer; or
(ii) a cease trade order, an order similar to a cease trade order or an order that denied the corporation access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, after the person ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while the person exercised these duties.
To the knowledge of the Board and based on the information provided by the directors or executive officers of the Corporation or shareholders holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation, none of these persons:
(a) is, as at the date of this Annual Information Form, or has been within ten years before this date, a director or executive officer of any corporation, including the Corporation, that, while the person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or
(b) has, within the ten years before the date of this Annual Information Form, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold its assets; or
(c) has been imposed any penalties or sanctions by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or has been imposed any penalties or sanctions by a court or a regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
Notwithstanding the above, Mr. Michel Baril was, until February 8, 2010, a director of Raymor Industries Inc., a reporting issuer in the provinces of Québec, Alberta and British Columbia that filed a notice of intention to make a proposal to its unsecured creditors under the Companies’ Creditors Arrangement Act (Canada) on January 16, 2009. The proposal was approved by the unsecured creditors, as amended and ratified by the Superior Court on January 27, 2010.
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Mr. Paul-Henri Couture carried out the functions of director of Strateco Resources Inc. while on September 21, 2015, the Autorité des marchés financiers and on September 23, 2015, the Ontario Securities Commission issued orders that all trading in the securities of Strateco Resources Inc. shall cease due to its failure to file the continuous disclosure materials as required by Regulation 51-102 respecting Continuous Disclosure Obligations for the six-month period ended June 30, 2015 and the certification of the foregoing filings as required by Regulation 52-109 respecting Certification of Disclosure in Issuer’s Annual and Interim Filings. The Alberta Securities Commission and the British Columbia Securities Commission enforce the cease trade orders already issued in Québec and Ontario in regards to Strateco Resources Inc. As of the date hereof, these cease trade orders still remain effective.
On June 9, 2015, Strateco Resources Inc. obtained an initial order under the Companies’ Creditors Arrangement Act (Canada) by the Superior Court of Québec, commercial division in the district of Montréal, which was amended and restated on July 8, 2015. This order authorizes, among other things, Strateco Resources Inc. to pursue the litigation for damages against the Government of Québec about the Matoush Uranium Project. This order from the Superior Court was obtained while Mr. Paul-Henri Couture carried out the functions of director of Strateco Resources Inc. This order has been since renewed and remains effective as of the date hereof.
Mr. Jacques Mallette was the recently appointed President and CEO of Quebecor World Inc., a company then listed on the TSX and NY stock exchange, when the company and its US subsidiaries filed for Creditor Protection under the Companies’ Creditors Arrangement Act (Canada) and Chapter 11 of the Bankruptcy Code (U.S.A) in January 2008. The Company successfully negotiated an arrangement with its creditors that was ratified by the Superior Court of Québec and by the Southern District of New York Bankruptcy Court and emerged from Creditor Protection in July 2009.
Mr. Jacques Mallette became a Director and the CEO of Raymor Industries Inc. on June 1, 2011, a reporting issuer in each of British Columbia, Alberta and Québec that had received orders partially revoking cease trade orders to allow its reorganization and re-capitalization (privatization) under the Bankruptcy and Insolvency Act (Canada) which was ratified by the Superior Court of Québec and completed in 2010. Full revocation of the cease trade orders and exemptive relief were ultimately obtained by the issuer in April of 2014.
9. LEGAL PROCEEDINGS AND REGULATORY ACTIONS
Since the beginning of the fiscal year ended June 30, 2019 and as of the date of this Annual Information Form, there was no legal proceedings outstanding or regulatory actions pending involving the Corporation or any of its properties or to which the Corporation is a party or to which its properties are subject, nor to the knowledge of the Corporation are any such legal proceedings contemplated or such regulatory actions threatened, as of the date hereof, which could become material to a purchaser of securities of the Corporation.
Notwithstanding the above, the Corporation exercised its contractual right to terminate the Livent Agreement which resulted in the Livent Arbitration. For additional details about the Livent Arbitration, reference is made to sections “Fiscal Year Ended June 30, 2019 and Up to the Date of this Annual Information Form” and “Risk Factors”, and to note 21 to the Corporation’s audited consolidated financial statements for the fiscal year ended June 30, 2019 which are available on SEDAR at www.sedar.com.
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In addition, the Corporation filed on September 16, 2019 an application with the Superior Court of Québec, seeking the discharge of the security which secured the Bonds in connection with the Set-Off Mechanism. For additional details about the application, reference is made to sections “Fiscal Year Ended June 30, 2019 and Up to the Date of this Annual Information Form” and “Risk Factors”, and to note 21 to the Corporation’s audited consolidated financial statements for the fiscal year ended June 30, 2019 which are available on SEDAR at www.sedar.com.
Since the beginning of the fiscal year ended June 30, 2019 and as of the date of this Annual Information Form: (i) the Corporation has not been the subject of penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority; (ii) the Corporation has not entered into any settlement agreement before a court relating to securities legislation or with a securities regulatory authority; and (iii) no penalties or sanctions has been imposed by a court or regulatory body against the Corporation that would likely be considered important to a reasonable investor in making an investment decision.
10. AUDIT & RISK COMMITTEE
10.1 The Audit & Risk Committee’s Charter
The Audit & Risk Committee’s charter describes the duties, responsibilities and skills required of its members as well as the terms of their nomination and dismissal and their relationship with the Board. The charter is attached to this Annual Information Form as Schedule “A”.
10.2 Composition of the Audit & Risk Committee
As of the date of this Annual Information Form, the Audit & Risk Committee is made up of the following individuals:
Name Independent Financially Literate Vanessa Laplante Yes Yes (Chairwoman) Paul-Henri Couture Yes Yes François Biron Yes Yes Jacques Mallette Yes Yes Shigeki Miwa Yes Yes
10.3 Relevant Education and Experience
All the members of the Audit & Risk Committee have the financial skills necessary to understand the accounting principles used by the Corporation in preparing its financial statements as well as the ability to assess the general application of such accounting principles. The Audit & Risk Committee members also have relevant experience in analyzing and evaluating financial statements that presents a level of complexity of accounting issues that can reasonably be expected to be raised by the Corporation’s financial statements, or experience actively supervising one or more individuals engaged in such activities. The members also understand the internal controls and procedures respecting the disclosure of financial information. For the
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relevant education and experience of the Audit & Risk Committee members, please refer to the table included in the “Directors and Officers” section of this Annual Information Form.
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10.4 Audit & Risk Committee Oversight
During the Corporation’s fiscal year ended June 30, 2019, there was no recommendation of the Audit & Risk Committee to nominate or compensate an external auditor that was not adopted by the Board.
10.5 Reliance on Certain Exemptions
Since the beginning of the Corporation’s fiscal year ended June 30, 2019, the Corporation has not relied on the exemption in Section 2.4 of Regulation 52-110 respecting Audit Committees or on an exemption granted by the securities authority under Part 8 of this regulation.
10.6 Pre-Approval Policies and Procedures
The Audit & Risk Committee has not adopted specific policies or procedures with respect to the awarding of contracts for non-audit services. However, the Audit & Risk Committee approves, from time to time, the expenses that were incurred in connection with non-audit-related services contracts.
10.7 External Auditor Service Fees
For the fiscal years ended June 30, 2018 and June 30, 2019, the following external auditor service fees were or will be invoiced to the Corporation by KPMG LLP (“KPMG”):
2018 2019
($) ($) Audit Fees 345,694(1) 152,000 Audit-Related Fees 70,669(2) 98,334(4) Tax and Tax related Fees 126,300(3) 61,035 Total 542,663 311,369
Notes: (1) Includes fees amounting to $230,694 related to work performed in relation to the Base Shelf Prospectus and the Supplement of the Corporation respectively dated March 29 and May 23, 2018 and related to the financing completed on May 29, 2018. (2) Translation services and assistance with regards to internal control over financial reporting. (3) These fees were incurred for the validation of the scientific research and experimental development (SR&ED) technical report as well as assistance with various tax matters. (4) Translation services and assistance with regards to accounting treatment of the different financing package elements, such as the Stream Agreement and the Bonds.
11. TRANSFER AGENT AND REGISTRAR
The Corporation’s transfer agent and registrar is Computershare Investor Services Inc. (“Computershare”). The register of transfers of the Corporation’s common shares and the warrants issued under 2016 Public Offering is held at Computershare’s offices located in its place of business at 1500, Robert-Bourassa Blvd., 7th Floor, Montréal, Québec H3A 3S8.
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12. INTERESTS OF EXPERTS
Certain information of a scientific or technical nature in respect of the Whabouchi Project contained in this Annual Information Form is based on the 2019 Technical Report. Each of the Authors of the 2019 Technical Report, being Daniel Maguran, P. Eng., Maxime Dupéré, P. Geo., Rock Gagnon, P. Eng., James Anson, P. Eng., Ph.D., David Anthony Boyd, P. Eng., Ph.D. , André-François Gravel, P. Eng., PMP, Jeffrey Cassoff, P. Eng., Ewald Pengel, M. Sc., P. Eng., Pierre Girard, P. Eng. and Dominic Tremblay, P. Eng., M.A. Sc., is a “qualified person” within the meaning of NI 43-101. As of the date hereof, the aforementioned persons had no beneficial or registered interests, direct or indirect, in the Corporation’s securities or properties.
Mr. Daniel Maguran, P. Eng. has reviewed and approved the scientific and technical information contained in or incorporated by reference in this Annual Information Form. Mr. Maguran is considered, by virtue of his education, experience and professional association, to be a “qualified person” within the meaning of NI 43-101.
KPMG are the Corporation’s auditors and are independent of the Corporation within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada.
13. MATERIAL CONTRACTS
The following lists any contract material to the Corporation that was entered into outside the normal course of business during the most recently completed fiscal year or before the last fiscal year that is still in effect:
a) the transfer agent and registrar agreement dated December 31, 2009 between the Corporation and Computershare;
b) the Shareholders Rights Plan dated October 28, 2010, as amended on October 27, 2011, between the Corporation and Computershare, as rights agent;
c) the Chinuchi Agreement, for which the Corporation’s rights and obligations were subsequently assumed by NMX Whabouchi pursuant to the Chinuchi Assignment and Assumption Agreement;
d) the License Agreement dated May 11, 2016 between the Corporation and JMBM pursuant to which the Corporation granted a non-exclusive license to use its process to convert lithium sulfate monohydrate into lithium hydroxide in favour of JMBM;
e) the License Agreement dated May 11, 2016 between the Corporation and 9671714 Canada Inc. (“9671714”) (now Nemaska Lithium P1P Inc.) pursuant to which the Corporation granted a non-exclusive license to use its process to convert lithium sulfate monohydrate into lithium hydroxide in favour of 9671714;
f) the Warrant Indenture dated July 8, 2016 between the Corporation and Computershare Trust, as warrant agent;
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g) the Stream Agreement; and
h) the Bond Terms.
14. ADDITIONAL INFORMATION
Additional information regarding the Corporation, including directors’ and officers’ remuneration and indebtedness, the principal holders of the Corporation’s securities and securities authorized for issuance under equity compensation plans, if applicable, are contained in the Corporation’s Management Proxy Circular dated November 13, 2018 prepared in connection with the most recent Annual General and Special Meeting of shareholders held on December 18, 2018.
Also, additional financial information is provided in the Audited Financial Statements and the Management’s Discussion and Analysis for the Corporation’s last fiscal year ended June 30, 2019.
Additional information regarding the Corporation is also available on SEDAR at www.sedar.com and on the Corporation’s Web site at www.nemaskalithium.com.
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SCHEDULE “A”
CHARTER OF THE AUDIT & RISK COMMITTEE OF THE BOARD OF DIRECTORS
I. PURPOSE
The Audit & Risk Committee (the “Committee”) is a committee of the Board of Directors (“Board”) of Nemaska Lithium Inc. (the “Corporation”).
Its primary role is to assist the Board in fulfilling its responsibilities with respect to:
1. the Corporation’s financial information and reporting, and its internal controls, and
2. its oversight of the Corporation’s business and operations risk;
toward the shareholders of the Corporation and the financial / investment community.
Its primary duties and responsibilities are to:
. Ensure the integrity of the Corporation’s financial statements, and r eview all financial reports and financial information provided by the Corporation to any government authority or issued to the public as well as all other document relating to the foregoing;
. Subject to the powers of the Board and the shareholders under the Corporation’s Articles and By-laws and pursuant to the Canada Business Corporations Act, the Committee is responsible for the selection, appointment, oversight, compensation, retention and, if necessary, replacement of the external, independent auditors (“Auditors”), which shall report directly to the Committee;
. Review and assess the Auditors’ efficiency, ensure their competence, effectiveness and independence, and maintain open line of communication between them, management and the Board;
. Act as an objective, outside party to oversee the methods of preparing the financial information, the application of internal controls and of rules respecting business management and financial risk, and compliance with legal, ethical and regulatory requirements;
. Provide open lines of communications between the Auditors, management and the Board for financial reporting and control matters; the Committee shall meet, periodically, with management and the Auditors;
. Review, evaluate and oversee the periodic replacement of the lead audit partner of the Auditors;
. Review the Corporation’s overall tax plan and any material tax planning initiatives; and
. Oversee the Corporation’s process for identifying and managing business risks and its use of hedging programs to manage operational, financial and currency risk.
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While the Committee has the responsibilities and powers provided in this charter, it is the responsibility of management and the Auditors to plan and conduct audits to prepare and determine that the Corporation’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles.
It is also the responsibility of management to establish, document, maintain and review systems of internal control and maintain the appropriate accounting and financing reporting principles and policies designed to assure compliance with accounting standards and applicable law. Absent knowledge to the contrary (the knowledge of which shall be promptly reported to the Board), each Committee member is entitled to rely on the accuracy of the financial and other information provided to the Committee by management and the Auditors.
II. COMPOSITION
The Committee, including its Chairman, is made up of at least three directors of the Corporation, the majority of whom may not be employees, officers or “Control Persons” of the Corporation as defined hereinbelow. The Board must ensure that all Committee members are “Financially literate” as defined hereinbelow. The Committee members are nominated by the Board, at its meeting closest to the annual general shareholders’ meeting, for the next year or until their successors are nominated or elected. The Board may dismiss a member of the Committee by resolution at any time, at its discretion. Unless the Committee Chairman is nominated by the entire Board, the Committee members may appoint the Committee Chairman by majority vote of all Committee members.
“Financially literate” means an individual who has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation’s financial statements.
“Control person” means any person that holds or is one of a combination of persons that holds a sufficient number of any of the securities of the Corporation so as to affect materially the control of the Corporation, or that holds more than 20% of the outstanding voting shares of the Corporation except where there is evidence showing that the holder of those securities does not materially affect the control of the Corporation.
III. DUTIES AND RESPONSIBILITIES
1. The Committee is responsible for the following as regards financial reporting, financial statements, internal controls and audit:
a. Review the audited annual and the unaudited quarterly consolidated financial statements, and recommend same to the Board for approval;
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b. Review with management and the Auditors, the Corporation’s financial operations, the financial statements, the management’s discussion & analysis, press releases and any other documents relating to the financial results before they are filed with regulatory agencies and reported to the public; c. Review any document that contains the audited annual and the unaudited quarterly consolidated financial statements or includes them by reference, such as prospectuses, press releases announcing financial results and interim results before they are reported; and d. Oversee the implementation of internal control measures and processes enabling the Chief Executive Officer and Chief Financial Officer to certify the financial statements and any other information document required under securities legislation; e. Oversee relations between management and the Auditors, including the review of any letter of recommendation or any other external auditor’s report, to discuss any significant difference of opinion or disagreement between management and the Auditors regarding financial reporting and to see that they are resolved; f. Review and report to the Board annually on all significant relations between the Corporation and the Auditors in order to evaluate the Auditors’ independence and discuss this with them; in addition, review the Auditors’ objectivity and professional skepticism, the sufficiency of resources provided by the Auditors and the integrity and candor of communications with the Auditors; g. Review the performance of the Auditors and approve any proposal for replacement when circumstances so warrant; examine, with management, the reasons for retaining the services of other firms; every five (5) years, perform a comprehensive review of the performance of the Auditors over multiple years to provide further insight on the audit firm, its independence and application of professional skepticism; h. Meet periodically with the Auditors, without management in attendance, to discuss the main risks, internal controls and any approach undertaken by management to control these risks, and to discuss the accuracy and completeness of the financial statements. Specific attention should be paid to the capability of internal controls to detect any payment, transaction or method that may be deemed illegal or otherwise inappropriate; i. See to the availability of the Auditors in accordance with the needs of the Committee and the Board; ensure that the Auditors report directly to the Committee and that they answer to the Board and the Committee as auditor representatives towards whom the Auditors are ultimately responsible; j. Oversee the work of the Auditors retained for the preparation and issuance of an auditor’s report or for other audit, review or attest services; k. Review and approve the Corporation’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the Corporation;
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l. Review the external audit program (including its scope and audit procedures) and fees; approve the audit fees and any other remuneration paid to the Auditors; m. Review the Auditor’s report on the audited annual financial statements; n. Review with management and the Auditors:
i. the problems identified during the audit and, if applicable, the limitations and restrictions imposed by management or any significant accounting issue for which management requests a second opinion;
ii. the observations, both positive and negative, made by the Auditors during their audit;
iii. the Corporation’s main accounting policies, the impact of other applicable accounting policies, and the forecasts and decisions of management that may have a significant impact on the financial results;
iv. new accounting issues and their potential impact on the financial information of the Corporation; o. Review and approve any request for consultation with Auditors and be informed of any request from management for non-audit services and the fees related thereto; prohibit the Auditors from providing the following non-audit services and determine which other non- audit services the Auditors are prohibited from providing:
i. bookkeeping or other services related to the accounting records or financial statements of the Corporation;
ii. financial information systems design and implementation;
iii. appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
iv. actuarial services;
v. internal audit outsourcing services;
vi. management or human resources functions;
vii. broker or dealer, investment adviser or investment banking services;
viii. legal services and expert services unrelated to audit;
ix. tax services to any person in a financial reporting oversight role, or an immediate family member of any such person;
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x. services related to marketing, planning or opinions in favor of the tax treatment of transactions that are confidential transactions under Canadian tax laws or transactions that would be considered aggressive tax position transactions; and
xi. any other services which the Public Company Accounting Oversight Board determines to be impermissible; p. Review with management, the Auditors and legal counsel, any legal proceedings or claim, including tax assessments, that could have a significant impact on the Corporation’s financial position and operating results, and to ensure that they are disclosed in an appropriate manner; q. Review the conclusions of the Auditor’s evaluation of the internal control system as well as management’s response; r. Review annually the legal requirements, the requirements of regulatory authorities, and the impact of any breach of these requirements on the financial information reported and on the Corporation’s reputation; s. Receive periodic reports on the nature and scope of compliance with security policies; the Board must be informed of any non-compliance having significant consequences, and of the corrective measures and schedule proposed for remedying it; t. See that adequate procedures are in place for the review of the Corporation’s public disclosure of financial information extracted or derived from its financial statements and must periodically assess the adequacy of those procedures; u. Review with management the accuracy and timeliness of the filings with regulatory authorities; review the disclosure in respect of the Committee’s work in the Corporation’s annual filings; v. Review the Corporation’s business plans periodically; w. Review annually the Corporation’s general insurance coverage to ensure sufficient protection of the Corporation’s assets, including without limitation, directors & officers liability insurance and coverage of key personnel; x. Review and approve in advance any proposed related-party transactions and required disclosures of such, in accordance with applicable law, and report to the Board on any approved transactions; y. Engage and compensate independent counsel and other advisors if the Committee determines such advisors are necessary to assist the Committee in carrying out its duties; z. Carry out any other task required by the Corporation’s Articles and any relevant securities policy or regulation; and aa. Establish procedures for:
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i. the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters; and
ii. the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.
2. The Committee is responsible for the following as regards the Corporation’s business and operational risks:
a. Review the principal risks of the Corporation’s business and operations, and any other circumstances and events that could have a significant impact on the Corporation’s assets and stakeholders;
b. Discuss with management potential risks of the Corporation’s business and operations, their likelihood and magnitude and the interrelationships and potential compounding effects of such risks;
c. Assess the actions and steps management has taken to minimize such risks in light the Corporation’s risk tolerance;
d. Assess the Corporation’s risk tolerance, the overall process for identifying the Corporation’s principal business and operational risks and the implementation of appropriate measures to manage and disclose such risks;
e. Review with management annually, the Corporation’s general liability, property and casualty insurance policies and consider the extent of any uninsured exposure and the adequacy of coverage;
f. Review disclosure respecting the oversight of management of the Corporation’s principal business and operational risks;
g. Review the Corporation’s privacy and data security risk exposures and measures taken to protect the security and integrity of its management information systems and company data;
h. Obtain, annually, “comfort” from management as regards legal title to the Corporation’s material properties;
i. Review with management the manner of ensuring and verifying the security of the Corporation’s assets (including intellectual property) and information systems, the competence of the personnel holding key positions, and improvement projects;
j. Amend or add to the Corporation’s security policies from time to time, and report to the Board annually on the relevance of the instructions in effect for the management of the Corporation’s security programs; and
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k. Receive periodic reports on the nature and scope of compliance with security policies; the Board must be informed of any non-compliance having significant consequences, and of the corrective measures and schedule proposed for remedying it.
3. The Committee may engage independent counsel and other advisors as it determines necessary to carry out its duties, set and pay the compensation for these advisors and communicate directly with internal auditors and the Auditors; for greater certainty, in every instance where the Committee requires outside assistance to carry its duties, exercise its prerogatives and/or fulfill its mandate, any such outside assistance shall be retained/hired directly (not through management) by the Committee and shall report to the Committee.
4. The Committee assesses all risks associated with its role and responsibilities, and sees that appropriate mitigation measures are implemented.
5. The Committee reviews its charter annually and recommends any amendment it deems appropriate to the Board.
IV. SECRETARY
The Corporate Secretary or, as applicable, the Assistant-Secretary of the Corporation shall act as secretary of the Committee meetings. He/she keeps the minutes of the Committee meetings.
V. MEETINGS AND QUORUM
1. The Committee shall meet on the dates, at the times and in the places determined by the Committee, and at least four times a year. The Committee meets with management and the Auditors separately at least once a year.
2. A majority of Committee members constitutes quorum at any Committee meeting.
3. The Committee members may meet in person, by telephone or by videoconference.
4. A written resolution signed by all members of the Committee has the same value as one adopted at a meeting of the Committee.
5. Meetings of the Committee will be held from time to time, as decided by the Committee or the Committee Chairman, upon 24 hours’ notice to all Committee members. A quorum of Committee members may waive the notice period.
6. A meeting of the Committee may be called by any member of the Committee or by the Auditors. The Auditors receive notice of all Committee meetings.
7. The minutes of each Committee meeting are tabled at the latest on the next quarterly Committee meeting.
Approved by the Board of Directors on November 13, 2018.
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