Preliminary Economic Assessment
Lithium Chemicals, Feldspars, High Purity Silica
LITHIUM & OTHER ADVANCED MATERIAL POTENTIAL
Avalon’s Separation Rapids Lithium Project has the potential to produce high purity lithium compounds for two distinct markets: an industrial mineral product for glass-ceramics and a lithium chemical for energy storage. It also has potential for several by-products including feldspars, high-purity silica and tantalum.
The Separation Rapids deposit is one of the largest “complex-type” lithium-cesium-tantalum pegmatite deposits in the world, unusual in its enrichment in the rare, high purity lithium mineral petalite.
The Separation Rapids lithium deposit
Petalite is the preferred lithium mineral feedstock for certain specialty glass-ceramic products. The most familiar consumer applications are Corningware® cookware and Ceran® stovetops. Petalite is preferred over other lithium alternatives in glass-ceramic products for technical reasons, notably its consistently low impurity levels.
The petalite found at the Separation Rapids deposit contains very low levels of impurities, also offering potential for a high purity lithium chemical product at a relatively low-cost, to serve the needs of lithium ion re-chargeable battery manufacturers.
Growing demand for rechargeable batteries in electric vehicles and home energy storage is expected to result in continued rapid growth in global consumption of lithium. Many industry analysts are predicting that the demand for lithium will double over the next 5-10 years, creating a supply deficit, as existing producers struggle to meet the new demand.
LOCATION, ACCESS, OWNERSHIP AND TOPOGRAPHY
The 100% owned Separation Rapids property is situated approximately 70 km by road north of Kenora, Ontario. The property consists of 15 Mineral Claims and one Mining Lease covering approximately 5,982 acres (2,421 hectares). Tenure for the mineral resource is held under a 421 hectare, 21 year Mining Lease (Ontario CLM469). Avalon also added three claims to the property covering 28 units (448 hectares), covering a corridor over the property access road.
LOCATION AND INFRASTRUCTURE MAP
The Separation Rapids property is directly accessible by a private road. The main line of the Canadian National Railway passes by 50 km south of the Separation Rapids property while the main line of the Canadian Pacific railway passes by 27 km further south.
Since acquiring the property in 1996, Avalon has expended approximately $10 million on exploration and development work, primarily focused on the deposit’s lithium potential. Initial exploration work conducted in 1997-2001 included geological mapping, trenching, ground magnetic surveys, mineralogical studies and diamond drilling totalling 10,152 m in 69 holes. Subsequent work focused on tantalum potential and other potential industrial mineral products.
Early exploration work culminated in 1999 with the completion of a comprehensive Pre-Feasibility Study on the viability of producing petalite with by-product feldspars, by independent consultant Micon International Inc. The business model at the time involved production of high purity concentrates of petalite for sale to glass-ceramics manufacturers. While the study produced a positive result, Avalon was unable to secure the necessary commitments on off-take from consumers to justify further investment at that time and the project was put on hold.
Over the next decade, Avalon continued to study alternative lithium product ideas for markets in glass, ceramics and specialty composite materials.
In 2014, Avalon re-activated the project after receiving expressions of interest in its potential petalite product from several international glass manufacturers. The process flowsheet was greatly simplified and in 2015 new petalite samples were produced for analysis by these customers - all of whom confirmed they met the desired specifications in terms of lithium grade and impurity levels. Avalon then conducted a pilot plant trial to successfully produce one tonne of concentrate for further evaluation by the customers in glass-ceramics applications.
Avalon is concurrently investigating how its petalite and lepidolite can be used to produce high purity lithium chemicals for the battery industry relatively inexpensively compared to other existing alternative lithium source materials.
Flotation cells in operation producing petalite during pilot plant trials.
Market studies suggest that lithium hydroxide will be in increasing demand as a feedstock for lithium ion battery cathode chemistries. Consequently, Avalon has developed a process flowsheet to make lithium hydroxide from its petalite. The potential for production of high grade lithium hydroxide (99.9%) was demonstrated through laboratory test work performed in 2015. and this testwork was included within a positive Preliminary Economic Assessment completed in September 2016 (see section below).
In February 2017, Avalon announced that laboratory testwork on the lithium mica lepidolite found at Separation Rapids confirmed a 99.88% pure lithium carbonate product could be made from this material. Avalon and Lepidico Ltd. of Perth, Australia subsequently entered into a non-binding letter of intent under which it is contemplated that Avalon would sell a minimum of 15,000 tpa of lepidolite concentrate produced from its planned demonstration-scale pilot plant to Lepidico for processing at Lepidico's planned Phase 1 commercial lithium carbonate production facility.
Petalite and lepidolite are not the only minerals of interest at the Separation Rapids project. Highly fractionated pegmatites, like the Separation Rapids deposit, contain many minerals of economic importance. The deposit has the potential for recovery of several valuable by-products including high purity silica, feldspar, rubidium, cesium and tantalum. By-product recovery offers the possibility of significantly increased revenues and reduced amounts of waste material to dispose of.
PRELIMINARY ECONOMIC ASSESSMENT (SEPTEMBER 2016)
On September 27, 2016, Avalon announced the results of a positive Preliminary Economic Assessment on the Separation Rapids Lithium Project. The PEA was conducted to investigate the potential for recovery of a lithium product suitable for the battery market from the resource. The results confirm a technically viable process and positive economics for the recovery of a battery-grade lithium hydroxide product. The full news release can be read here. Highlights include:
An average mining rate (open pit) of 950,000 tonnes per year would yield an average annual production of 14,600 tonnes of lithium hydroxide for 10 years and 100,000 tonnes per year of feldspar mineral concentrate for 20 years, as it would continue to be recovered from previously processed material for an additional 10 years after the initial 10 year mine life.
The discounted cash flow ("DCF") analysis yields a 19% internal rate of return ("IRR") on a pre-tax basis and a 16% IRR on an after-tax basis, assuming 100% equity financing. The Project's net present value ("NPV") at an 8% discount rate is CAD$343 million pre-tax and CAD$228 million after-tax.
Total Project construction capital costs are estimated at $514 million, which is inclusive of $86 million in contingencies and $7 million in sustaining capital.
The average lithium hydroxide price assumption used for this PEA was US$11,000/tonne and the CAD:USD exchange rate assumption was US$1.00 = CDN$1.30.
Measured and Indicated Mineral Resources, as currently delineated, total 8.0 million tonnes averaging 1.29% lithium oxide and 39% feldspar. Inferred Mineral Resources contribute an additional 1.63 million tonnes at 1.42% lithium oxide and 39% feldspar to a maximum vertical depth of 260 metres. The deposit is open to depth and along strike.
The PEA development concept includes an open pit mine, transitioning to underground mining in later years, with milling onsite to produce a lithium mineral concentrate and by-product feldspar. The lithium mineral concentrate would then be processed in a hydrometallurgical plant (presently contemplated for Kenora) to produce lithium hydroxide for the battery industry or sold directly into the ceramics industry.
Note the PEA is preliminary, includes inferred mineral resources considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the preliminary economic assessment will be realized.
Resource Estimate at 0.6% Li2O Cut-off Grade
As at October 21, 2016.
|Measured plus Indicated||8.00||1.29||39||0.006||0.021||0.352|
- CIM Definition Standards for Mineral Resources and Mineral Reserves, 10 May, 2014 were followed for this mineral resource estimate.
- The Qualified Person for this mineral resource is David Trueman, Ph.D., P.Geo. (MB).
- The resource estimate is constrained by a 3D geologic model of the mineralized material.
- Assay intervals for Li2O, Ta2O5, Cs2O and Rb2O were interpolated using the Inverse Distance Weighted method to create a 3D block model.
- The resource cut-off grade of 0.6% Li2O was chosen to capture mineralization that is potentially amenable to mining, mineral concentration and off-site processing.
- Li, Ta, Cs and Rb were originally analysed on all samples at XRAL Laboratory (Thunder Bay, Ontario) utilizing ICP (Li, Ta) and AA (RB and Cs) and check analyses completed at CHEMEX Laboratory (Don Mills, Ontario) utilizing AA (Li) and ICP (Rb).
- As well as due diligence to verify historic data, Avalon completed additional check analyses of historic drill core in 2016 utilizing ALS Laboratory (Vancouver) with a combination of fusion and ICP (method CCP-PKG01). Included as QAQC procedures was a lithium rock standard within the check analysis batches.
- Total Feldspar is the total of potassium feldspar (microcline) and sodium feldspar (albite) and the value reflects the mean and median value of all samples with quantitative mineralogy determined.
- The percentage Total Feldspar is based on analyses completed utilizing X-Ray Diffraction and Qemscan instrumentation on samples representing all lithological subunits of the mineral deposit. These analyses were completed at Carleton University in 1999 (XRD) and ALS Global Laboratory in 2016 (XRD and Qemscan, Kamloops). This is supported by quantitative mineralogy of metallurgical samples determined at SGS (Lakefield) and Anzaplan (Germany)
- All figures are rounded to reflect the relative accuracy of the estimates. Summation of individual columns may not add-up due to rounding.
- Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resource will be converted into Mineral Reserves.
This work will all contribute to a Feasibility Study on the Separation Rapids Project, targeted for completion in 2017/18, provided that the necessary funding is in place. With sufficient development capital available and no delays in receiving operating permits, the project could conceivably be brought into commercial operation as early as 2020/21.
In 2017, Avalon’s plans to carry out additional drilling with the objective of increasing the Separation Rapids resource, while continuing to optimize metallurgical processes to confirm design parameters and product properties. While the economics contained in the PEA are positive, ongoing metallurgical process development work, engineering and market research have identified opportunities to improve the overall project economics or reduce risk. These include:
- Recovery of lithium from other lithium-bearing minerals in the resource;
- Defining a low-cost, clean energy solution for the operations;
- Improvements in lithium recovery rates in the flotation process and in the hydrometallurgical plant while maintaining high product quality;
- Expansion of feldspar markets through product research and market development work;
- The recovery of high purity silica and tantalum by-products; and
- Integrating the production of petalite concentrate for glass-ceramics customers into the development model.
The development model presently contemplates connection to the hydro-electric grid near the Whitedog power generation station. Avalon has begun to investigate the potential to meet the power needs for the mine and concentrator (estimated at 5 MW) using local low-cost, run-of-river power generation supplemented by renewable energy delivered by an independent energy company. An initial reconnaissance study has identified a promising site close to the deposit capable of meeting most of the operation’s energy requirements at a lower total cost.
Please note that the projected timeline is reliant on a positive Feasibility Study as well as offtake commitments, project financing, and timely receipt of all permits and environmental approvals.
ENVIRONMENT, PERMITTING and COMMUNITY
Avalon completed environmental baseline studies in the project area in 1999, ensuring that local environmental sensitivities were identified at an early stage. This study was updated in 2007 and was further updated in 2013 to completion of a Species at Risk Act study. Avalon completed additional waste rock and tailing assessments and work is planned to further assess tailings from the new process to update the tailing management facility and water treatment plant design if necessary. In addition to these assessments, a draft site layout and water management plan has been completed for discussion with all communities of interest prior to finalizing the Project Description which, when submitted, formally starts the permitting process.
The property lies within the traditional land use area of the Wabaseemoong Independent Nations (“WIN”) of Whitedog, Ontario: an Aboriginal community located approximately 35 km southwest of the property. In August 1999, Avalon signed a Memorandum of Understanding with WIN which was renewed in May, 2013. Avalon is committed to developing the project in co-operation with WIN. In addition, Avalon has initiated discussions with the Métis Nation of Ontario.
*These programs are being conducted under the direction of David Marsh, Senior Vice-President, Metallurgy and Technology Development and the Qualified Person for the technical and scientific information.