Rodinia Lithium (CVE:RM) (OTCQX:RDNAF) said Tuesday that a drill has been mobilized to start the drilling of the first production well at its Salar de Diablillos lithium brine project in Salta Province, Argentina.
The first production sized well is to be drilled in the vicinity of DRC-01, which intersected averages of 713 mg/L lithium (Li), 9,000 mg/L potassium (K), and 543 mg/L boron (B) over the 120 metre drill hole depth, first announced in September 2010. The company said the production well is strategically located to access higher grade portions of the resource, potentially allowing higher grades during the initial production years.
"Initiating our first production sized well only 17 months after the discovery hole at Diablillos was announced, in our opinion, demonstrates the company’s strategy to fast track the development of the project,” said Rodinia president and CEO, William Randall.
"This marks yet another important step towards completing the work required for a feasibility study. This first production well, along with the majority of the subsequent evaluation work to follow, will be designed and executed in a manner such that they can also be incorporated into the commercial production facility.
"This is anticipated to save us time and capital as we continue to move towards production.”
Indeed, Rodinia said the drill site is located within the anticipated commercial production well field. The well will target the two largest aquifers modeled in the resource estimate, in addition to being located in one of the deepest portions of the basin.
The production well is designed to test the range of pumping rates, well efficiencies and drawdown/recharge characteristics of the middle and lower aquifers during a long-term, high-volume pump test.
The proposed pump test will proceed for 10-15 days, the company said, and will provide engineering data for a feasibility study.
Last November, Rodinia announces the results of a preliminary economic assessment (PEA) for its Salar de Diablillos project, indicating a potentially low cost operation with a net present value as high as US$964 million, and a mine life of 20 plus years.
The report outlined two production scenarios, the first being an operation producing 15,000 tonnes of lithium carbonate and around 51,000 tonnes of potash per year, and the second producing an increased 25,000 tonnes of lithium carbonate and 85,000 tonnes of potash per year.
The first scenario returned a pre-tax net present value of US$561 million, and an internal rate of return (IRR) of 34 percent at an eight percent discount rate and a lithium carbonate price of US$5,500, while the second alternative projected a much higher net present value of US$964 million, along with a pre-tax IRR of 36 percent.
Total initial capital costs were estimated at $144 million, and $220 million, with years to payback at 1.6 and 1.5 years, respectively. Capital costs were kept low due to an initial unlined evaporation pond, and a planned lithium carbonate plant offsite at an industrial park in Pocitos, with infrastructure, natural gas and power already in place.
Initial capital costs also excluded closure costs and sustaining capital, which are estimated at roughly $80 million.
The company's management sees the first option as the base case scenario, with the potential to produce as much as 25,000 tonnes per year in the first stage in the event that further offtake agreements are secured.
Rodinia, which has an existing strategic investment secured from China's largest lithium-ion battery materials provider Shanshan, said it is already in discussions with multiple groups on this front.
Operating costs per tonne excluding potash and boric acid credits were projected as low as $1,519 per tonne of battery-grade lithium carbonate for the base case, and $1,486 per tonne for the 25,000 tonne per year alternative.
However, including by-product credits that exceed the costs to produce lithium carbonate, combined operating costs were brought below zero, at negative $703 per tonne for the base case scenario. This means lithium carbonate could be stockpiled, and the company would still make money from potash and boric acid revenue.
The proposed operation for Diablillos will use conventional evaporation-based processing, similar to other lithium brine projects (considered the more economical and environmentally friendly process as opposed to hard rock), as brine is to be pumped from subterranean aquifers by a series of production wells to an initial unlined evaporation pond to increase concentration.
High grades and recovery rates, favourable lithologies, low magnesium ratios and high specific yield rates are required to ensure enough contained brine will drain out of a formation by pumping.
The Salar lithium recovery process is a combination of solar evaporation steps, in-field brine treatment, by product potash and boric acid recovery and chemical processing to produce lithium carbonate, resulting in a high lithium recovery of approximately 65 percent.
The process contemplates a series of six ponds from largest to smallest, where the largest is used to bring brine to saturation and is designed to be unlined reducing the capital cost of pond construction, the company said. Rodinia also said there is natural clay occurring near Diablillos that will allow for the construction of the initial pond, offering cost savings over lined ponds.
The Salar de Diablillos property, which rests about 145 kilometres southwest of the city of Salta, has a recoverable inferred brine resource of 2.8 million tonnes lithium carbonate equivalent from an in-situ inferred brine resource of 4.9 million tonnes lithium carbonate equivalent.
In addition to its Argentina project, Rodinia holds 100 percent mineral rights to approximately 70,000 acres in Nevada's lithium-rich Clayton Valley in Esmeralda County, placing it in a prime position to benefit from increasing lithium demand.
Lithium's characteristics make it suitable for a number of uses, but for many years, the metal was used mainly in the production of ceramics, glass and as a strong aluminum alloy. However, demand for lithium has since boomed due to the advent of the rechargeable lithium-ion battery, used in anything from watches and cell phones, to BlackBerrys, iPods and for electric vehicles, power tools and military equipment.
Throughout 2012, Rodinia will focus on continuing to develop the Diablillos project by completing additional evaluation work and advancing through feasibility study.
Shares of Rodinia rose more than two percent Tuesday in early morning trade, to 23.5 cents as of 9:34am ET.