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Nemaska Lithium takes desperate steps to keep Whabouchi mine project afloat

BY Andre Simoneau Jan 30, 2020

Amid growing uncertainty surrounding the company’s future, Nemaska Lithium’s board of directors announced January 20 the appointment of Jacques Mallette as its new chairman.

In a press release distributed to its investors, the company claims Mallette brings much-needed experience in rebuilding the capital structure of companies in precarious financial situations.

Last December, Nemaska Lithium obtained creditor protection under the Companies’ Creditors Arrangement Act (CCAA), a move it claims will allow it to survive a recent drop in the global price of lithium, and to complete the financing of its Whabouchi mine project and electrochemical processing plant in Shawinigan.

“We are still convinced that the Whabouchi project is of great importance for Quebec’s economic development and a key player in the worldwide increasing lithium-ion battery industry,” Malette said.

“As such, we have at heart to successfully deliver the project in a timely manner and in the best interest of all stakeholders.”

Yet the decision to seek creditor-protection was only the latest in a string of confidence-shaking events that occurred for the company in 2019, despite its pulling in over $1 billion from investors throughout the year.

In February 2019, after a fire at the mine site’s cafeteria halted work for several weeks, the company estimated cost overruns of nearly $400 million due to unforeseen labour and engineering costs. Then, in October 2019, the company laid off 64 employees – nearly half of its staff – in order to cut losses.

That decision came amid litigation with bond holders Nordic Trustee over the terms of an initial $350 million investment, which Nemaska Lithium is seeking to pay back in order to be discharged from its obligations. Nordic Trustee claims they are owed $93 million in penalties, while Nemaska Lithium assert they have successfully discharged those bonds. A court ruling on that matter is due in February.

At the same time, negotiations over a vital $600 million investment from London-based Pallinghurst Group appeared to stall at the end of the year over concerns about Nemaska Lithium’s capital structure.

The company has also been delisted from the Toronto Stock Exchange while it restructures its finances.

Nemaska Development Corporation (NDC), along with the Grand Council of the Crees, have invested more than $20 million for unsecured stocks in Nemaska Lithium. That means that if the company defaults, that money could be lost.

Aaron Jolly, interim CEO of the NDC, told the Nation he hopes to see the company recover.

“As investors, we’re concerned about what happens to those shares,” Jolly said. “We have to wait and see. February is going to be a crucial time for them to see where they’re at.”

In a press release, Nemaska Chief Clarence Jolly reiterated the importance of the Chinuchi Agreement between Nemaska Lithium, the Cree Nation of Nemaska, the Grand Council of the Crees, and the Cree Nation Government. The Chinuchi Agreement provides for long-term benefits – employment, contracting opportunities and environmental monitoring of the Whabouchi project.

“Despite the current situation, our position is to continue to support Nemaska Lithium,” Chief Jolly said.

Meanwhile the Quebec government – currently Nemaska Lithium’s primary investor with a 13% stake in the company – has also expressed its continued support of the project, despite the loss of approximately $67 million in stock value.

In comments to the Canadian Press, Economy and Innovation Minister Pierre Fitzgibbon acknowledged concerns over the company’s capital structure, while also underlining the government’s support of the local lithium industry.

“If we look at the strategic sectors I’m working on,” Fitzgibbon said, “lithium, and lithium-ion batteries, are squarely at the top of the list.”

Despite growing demand for the electric vehicles that use lithium-ion batteries – expected to triple by 2025 – the market has seen prices for the mineral drop, as a massive increase in supply has surpassed current demand.

Fitzgibbon claims the government is moving forward with caution in its support for Nemaska Lithium, while seeking out risk-tolerant partners to help the project weather the current market storm until prices rebound.

“We can reassure people by saying that the government is still interested,” Fitzgibbon said. “We will do it with the right partners and the right capital structure.”

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Andre Simoneau is a writer and filmmaker from the Eastern Townships of Québec. He studied English literature and creative writing at Concordia University. He currently lives in Montréal.