Lithium One Inc. (TSX VENTURE:LI), has reported that it has signed a Memorandum of Understanding ("MOU") with Galaxy Resources Limited (ASX:GXY) of Australia, under which Galaxy can acquire up to 70% of the James Bay lithium pegmatite project in Quebec through an earn-in and joint venture agreement. Subject to the necessary approvals, the Company expects to close this transaction with a Definitive Agreement before Dec 24, 2010.
Under the terms agreed in the MOU, Galaxy will initially acquire 20% of the James Bay Project for a cash payment of C$3 million. Galaxy may earn up to 70% through the completion of a Definitive Feasibility Study ("DFS") within a 24 month period, including a committed investment of at least C$3 million in the next 12 months.
Lithium One President and CEO Patrick Highsmith remarked on the benefits of the agreement: "Lithium One is pleased to be working with one of the world's most aggressive developers of hard rock lithium assets. Having recently commissioned their Mt. Cattlin Mine in Western Australia, Galaxy has demonstrated its ability to develop a hard rock lithium deposit and successfully market the production. This agreement with Galaxy brings hard rock experience together with strong connections in the lithium marketplace to fast track the development of the James Bay project, while Lithium One continues to develop the core Sal de Vida lithium brine project in Argentina. Entering into this arrangement with Galaxy also means that both the Sal de Vida and the James Bay projects are now funded through to completion of feasibility by our joint venture partners."
As part of the feasibility study to be undertaken, Galaxy will evaluate the most suitable location for a battery grade lithium carbonate plant either in Quebec or in Jiangsu, China, where its first lithium carbonate plant is currently under construction. The James Bay project has similar geology and physical characteristics to Mt. Cattlin, so the proposed operational scale and process designs are expected to be similar, which should assist with fast tracking the feasibility study.
Galaxy Resources Managing Director, Iggy Tan, commented on the similarities and synergies of the James Bay and Mt. Cattlin projects: "Galaxy expects to be able to fast track the development of this project by using the same capacity and design of the plants constructed at Mt Cattlin and Jiangsu. Preliminary test work shows that the James Bay spodumene is comparable in its coarse particle size to the Mt Cattlin ore. This lends itself to similar processing and upgrading methods to those adopted at Mt Cattlin, where simple crushing and heavy media separation are used to produce a 6% lithium oxide spodumene product."
The James Bay Project is a significant lithium resource in northwestern Quebec. Lithium One announced a NI 43-101 compliant mineral resource last month (see Company news release dated November 18, 2010). Applying a 0.75% lithium oxide cutoff grade, the mineral resource includes 11.75 million tonnes at 1.30% lithium oxide in the indicated category, and 10.47 million tonnes at 1.20% lithium oxide in the inferred category. The resource was described by SRK as likely amenable to open pit extraction and as having potential for an increase in both tonnes and grade with further drilling.
Subject to approvals and execution of the Definitive Agreement, the key parameters of the proposed transaction are:
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Initial acquisition of 20% of the James Bay lithium pegmatite project for a C$3 million cash payment;
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Upon Galaxy fulfilling its obligation to spend a minimum of C$3 million within a 12 month period towards the DFS, Galaxy will earn a further 31%, increasing its ownership to 51% of the James Bay project;
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Once Galaxy completes a DFS, within a maximum 24 month period from execution of the Definitive Agreement, Galaxy will earn a further 19%, increasing its ownership to 70% of the James Bay project;
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The DFS will include metallurgical test work, engineering design, capital and operating cost estimation for a mine and concentrating plant at the James Bay project location;
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In addition, the DFS will include lithium carbonate conversion test work, design and costing of a 17,000 tpa battery grade lithium carbonate plant in either Quebec, Canada, or near the Jiangsu lithium carbonate plant in China, which is currently under development.
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On completion of the DFS, both parties will be responsible for their respective equity interests of the project capital costs;
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If Galaxy earns at least a 51% interest, Galaxy will have 100% exclusive marketing rights for all products from any future operation at James Bay except for any sales concluded with parties with whom Lithium One has already commenced discussions.
The transactions contemplated by the MOU are subject to customary conditions including, without limitation, the execution of the Definitive Agreement and the approval of the TSX Venture Exchange. The date for the completion of the Definitive Agreement for the transaction is expected to be December 24, 2010; however, there is no certainty that the parties will be able to successfully negotiate the Definitive Agreement or complete the transaction.