Lithium brine project has industry-leading operating costs

Q&A with Rodinia Lithium (V.RM) President & CEO William Randall

Since we last spoke in July what has Rodinia Lithium done to increase shareholder value?

Rodinia Lithium (TSX: V.RM, Stock Forum) has been very active over the course of 2011 and has managed to accomplished a number of key milestones that should help drive shareholder value – the Salar de Diablillos Project has come a long way this year.

In March we completed, what was at the time, the most significant milestone in the company’s history; we delivered an initial National Instrument 43-101 compliant lithium brine resource. This was an in-situ resource and reported an estimate of 4.9 million tonnes inferred lithium carbonate resource and 19.8 million tonnes inferred potash resource. A month later, we defined a recoverable resource estimate for Diablillos from the in-situ base. This included 2.8 million tonnes lithium carbonate and 11.3 million tonnes potash.

We spent the spring work program focused on advanced exploration, which included additional RC drilling, some diamond drilling and the drilling of pilot production well.

We picked up two additional research opinions when David Talbot of Dundee Securities initiated on Rodinia in June and Raymond Goldie of Salman Partners initiated in August.

More recently, we announced the completion of our initial pump tests, which confirmed the high transmissivity and effective porosity of the brine at Diablillos. This confirmed the high likelihood for recovery of our in-situ brine resource.

We also announced our preliminary processing results for lithium recovery at Diablillos. We received excellent results with average recovery of lithium of 65%. We also learned that we will be able to utilize a conventional solar evaporation process and can expect to recover potash at a rate of 4:1 relative to lithium carbonate, and boric acid at a rate of 1:1 relative to lithium carbonate.

All this work culminated in the release of our Preliminary Economic Assessment on November 7, 2011. This was by far the most significant development in our corporate lifespan and should really drive shareholder value going forward.

On November 7, 2011, your company reported results of the Preliminary Economic Assessment (PEA) completed on your 100% owned Salar de Diablillos lithium brine project in Argentina. What is the significance of these results?

This is a very significant milestone for the company as it represents an independent engineering firm’s assessment of the project’s production potential and estimated capital costs and operating costs, all within a +/-30% threshold.

The PEA indicated a pre-tax NPV of US$561 million for a 15,000 tpa lithium carbonate operation and US$964 million for a 25,000 tpa lithium carbonate alternative. These are fantastic numbers supported by favourable capital costs, and industry leading operating costs. Factoring in the potash and boric acid co-products, Diablillos ends up with negative cash costs. This essentially allows us to be profitable without selling any of the lithium carbonate.

What is the timeline for production at Salar de Diablillos?

We expect to hit commercial production at Diablillos in 2015.

Is Rodinia Lithium planning another financing in the near future?

Rodinia continually monitors its capital position and what opportunities exist for additional financing. At this stage we have no offerings in the works. We have sufficient cash on hand to continue to advance the company well into 2012. Our goal is to finance in a smart and timely manner that maximizes shareholder value and we will investigate a number of opportunities in order to achieve this.

Are you presently in discussions with any joint venture partners?

We remain in dialogue with Shanshan, who has already made one strategic investment in the company, and we are talking to a number of other strategic groups. Each strategic group has a different opinion of optimal business relationship and structure.

What is your outlook for the lithium market?

We remain bullish on the lithium carbonate market. It is difficult to see the dynamics at play when you’re living in North America, other than the increased consumption of smart phones, tablets and other electronic devices that powered by lithium-ion batteries. In Asia, you can see firsthand that there are electric vehicles on the street and the market is shifting more and more towards these fully electric and hybrid electric vehicles. In Europe, the car market is starting shift as well, but you also see countries that are seriously investigating alternative power solutions and in order to use these new technologies, they need proven large scale batteries for storage. The application side has not slowed despite the challenging capital markets.

What provides even more comfort for us, however, on the outlook front, is the number of inbound calls we field from groups looking to better understand our eventual product and how they might be able to buy it. These are real companies looking to commit real dollars. This tells us that the buyers of lithium carbonate are not keen to rely solely on the current producers.

How does Argentina’s recent decision to repatriate all future oil, gas and mining companies export revenue affect Rodinia Lithium?

We are aware of the proposed changes for both mining and oil & gas companies in Argentina, requiring exporters to repatriate all of their export revenue. Rodinia’s view is that the new regulations are intended to bring export revenue back into the banking system, build reserves and allow greater control over foreign exchange rates. These changes are not expected to have a significant impact on Rodinia as the company does not have existing arrangements in place for export production. As we move towards production, and finalizing an off-take agreement, we will take these changes into consideration. In the mean time, we continue to monitor their developments.

What other challenges do you face going forward?

Rodinia’s toughest challenge remains investor education on the company and on lithium in general. There aren’t any real good comparables to point to illustrate what success is in the lithium space or to help gauge value. This is evidenced in two key ways. First, relative to our brine developer peers, we have managed to accomplish a number of very significant corporate milestones on the Diablillos asset in a shorter time period and with a more efficient capital spend, yet we suffer from a significant valuation lag when compared to them. Secondly, relative to other commodities developers, we suffer an even larger valuation disconnect. We have recently issued a PEA with a net present value just shy of US$1 billion, an IRR of 36%, an industry low capex requirement and negative cash costs. If this were any commodity other than lithium, be it gold, copper, potash, etc. there is no way we would have a sub $50-million market cap. This is our challenge. But we have some very intensive marketing initiatives that we’re setting in place with hopes of helping to break down these disconnects.

Where does Rodinia Lithium go from here?

Rodinia continues to advance its Diablillos asset. We have a great asset, a large resource, robust economics and we’re located in the right province in Argentina. We will continue to develop this asset on a smart but aggressive timeline and we will continue to close the development gap between us and some of the other juniors. Our goal is to be the first brine junior into production.

We will also soon begin to revisit the Clayton Valley Project. This project will give us a second very strategic asset, and will provide investors with additional exploration upside as we advance Diablillos to production.

Disclosure: Rodinia Lithium is a Stockhouse client