Brian Zinchuk is editor and owner of Pipeline Online
Hub City Lithium’s test well at Viewfield. Photo courtesy ROK Resources
REGINA – The company that has reported the highest concentrations of lithium in brine in Canada has just released its preliminary economic assessment (PEA) on Jan. 9, laying out its plans for commercialization of lithium production.
Hub City Lithium is 75 per cent owned by EMP Metals of North Vancouver and 25 per cent owned by Regina-based ROK Resources Inc., a Saskatchewan-based oil and gas producer with operations concentrated in southeast Saskatchewan. ROK is the operator and technical advisory team for Hub City.
The PEA outlines a project near Stoughton, Saskatchewan, that, if fully financed as envisioned, would pay out in 2.4 years after tax. Over 23 years, estimated production of battery-quality lithium carbonate equivalent (lithium carbonate or LCE) represents an estimated pre-tax internal rate of return (IRR) of 55 per cent and a pre-tax net present value (NPV) of $1.49 billion USD, at an 8 per cent discount rate.
That makes Hub City one of three companies operating in Saskatchewan which have outlined similar plans in recent months, with commercialization plans in the next few years. And if they are successful, it means the advent of a multi-billion dollar industry for this province.
Pipeline Online spoke to ROK Resources president and chief operating officer Bryden Write on Jan. 11 in depth about their plans.
Fundamentals
The PEA is based on a constant battery-grade lithium carbonate price of $20,000 USD per tonne. It projects all-in operating costs (OPEX) of $3,319 USD per tonne LCE, $40 million USD annually, including all direct and indirect costs.
The PEA encompasses approximately 11,000 net hectares, or 14 per cent of Hub City Lithium’s lands in Southern Saskatchewan. That 11,000 net hectares represents 46 per cent of Hub City Lithium’s Viewfield land holdings.
In other words, they have seven times as much land already secured that could potentially be developed, and could potentially double what is being planned at Viewfield.
Just as oilfields are often highgraded first, with the best resources produced in the early years, a similar model is envisioned for Hub City.
The weighted average lithium concentrations of 128 mg/L from seven target zones over the project life (range of 84 mg/L to 259 mg/L). The PEA sees a 23-year project-life producing a total of 282,090 tonnes of battery-grade lithium carbonate, an average of 12,175 tonnes LCE per year.
Preliminary Economic Assessment Results
| Values | |
| Production (LCE) | 12,175 tonnes/year |
| Project Life | 23.2 years |
| Total Capital Cost | $571 million USD |
| Average Annual Operating Costs | $40 million USD |
| Average Selling Price (LCE) | $20,000 USD/tonne |
| Pre-Tax Net Present Value (8% discount) | $1.493 billion USD |
| After-Tax Net Present Value (8% discount) | $1.066 billion USD |
| Pre-Tax Net Present Value (10% discount) | $1.213 billion USD |
| After-Tax Net Present Value (10% discount) | $0.859 billion USD |
| Cash Operating Costs | $3,319 USD/tonne |
| Pre-Tax Internal Rate of Return | 55% |
| After-Tax Internal Rate of Return | 45% |
| Payback Period (Pre-Tax) | 2.1 years |
| Payback Period (After-Tax) | 2.4 years |
| Profitability Index (PI8% Before-Tax) | 3.2 |
| Profitability Index (PI8% After-Tax) | 2.3 |
Project Development
When it comes to how many wells are involved, Wright said, “Thirty-six production wells and 30 disposal wells. Right now, the way it’s modeled is no different than the other Saskatchewan players. It’s basically brine disposal versus brine reinjection. That may change over time. In fact, it likely will change over time where reinjection is required for reservoir support. But that will come later, when we get further into feasibility studies and such. So as far as the PEA is concerned, it’s straight disposal into other zones.”
Reinjection into the same zone would likely be needed for pressure maintenance. “There’s a 50 per cent recovery factor, assumed on the reservoir, and we believe that’s doable without pressure maintenance. But anything beyond that, we will require it.”
The high permeability of the targeted Duperow formation is in sharp contrast to the Bakken formation above it, which required hydraulic fracturing to unlock the resource.
Wright said the Duperow is “very porous, very permeable, and it’s, it’s just water right? So water is going to flow a lot easier than, say, oil and gas in a three phase fluid.
“It’s just a pure aquifer. So it’s just a pure water drive. It comes at you like the ocean at times at the start. So, you have a completely different drive mechanism compared to oil and gas, compared to say, solution gas reservoir.”
Exploitation of the resource will occur in two production stages via multi-leg, horizontal wellbores. All project capital (minus end-of life capex) is allocated at the beginning of the project, with production estimated to commence in Q1 2027.
- Stage 1: Wymark C, D and E (Years 1-7)
- These zones are the shallowest and highest concentration (160 mg/L to 259 mg/L) zones and will be produced first through to depletion
- Average LCE output during Stage 1 is 18,850 tonnes per year with average OPEX of $2,332 per tonne USD
- Stage 2: Wymark A, B and Saskatoon A, B (Years 8 onward)
- These zones are lower concentration (84 mg/l to 145 mg/L) and will be exploited after depletion of Wymark C, D and E
- Average LCE output during Stage 2 is 10,200 tonnes per year with average OPEX of $4,166 per tonne USD
So far, the Duperow formation which underlays much of southern Saskatchewan, has shown the most promise for lithium development. But as seen from this set of Duperow core, there is great variety within the formation itself. In other words, it’s “heterogenous.” Photo by Brian Zinchuk
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Complex well design
Multi-leg open hole horizontal wells are becoming common for oil production about 30 kilometres to the north, in the halo of the Bakken play. But those eight-leg wells are quite a bit different from the ones Hub City is envisioning.
Wright said, “We have seven zones that we’re targeting. So it would be a seven leg horizontal well and they’d be stacked versus herringbone design.
“And that’ll evolve, too. Maybe once we start to drill these wells, start to kind of see the flow dynamics, we may be able to frack horizontal legs and get access to three or four of these zones.”
In that scenario, instead of drilling multiple legs on top of each other, one frac could possibly provide contact to several of the zones above and below.
“I think the simplest right now from a modeling perspective is multi-leg laterals. But I think that will change over time as we start to actually exploit the reservoir horizontally,” Wright said.
The PEA assumes the capital is deployed up front and all seven legs are drilled, and a bridge plug put in to separate the different Wymark zones. He said they would produce from the Wymark C, D and E zones, and once that’s depleted, the bridge plug would be pulled and then the lower zones produced.
It would effectively be highgrading production within the same wellbore, producing the best upfront, and then picking up the rest.
Wright said, “When you look at it from an economic perspective, you want to try and achieve payout as quickly as you can, right. And from an IRR perspective, you know, producing the high concentration reservoir first is optimal. We modelled it both ways for comparison.”
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Hub and spoke
The PEA is modelled on five different locations for processing, using a hub and spoke model. A total of five DLE sites and two concentration, refining and conversion (CRC) sites will process a daily average of 62,000 cubic metres per day of brine, resulting in an average output of 12,175 tonnes per year of battery-grade LCE.
Each of those hubs would have a capacity to do about 4,000 tonnes of lithium per year. They would cost in the ballpark of C$40 million a piece.
The artificial lift would all be electric submersible pumps (ESP), running 2,000 to 3,000 cubic metres per day of fluid per horizontal production well. And disposal wells would run similar scale horizontal pumping systems (HPS) at surface.
The fluid would all move by flowlines, none of it by truck. Six inch fibreglass pipe would be the standard, large enough to accommodate the flow.
Everything is flowlined to one of those DLE hubs, and from there, it would go into one of two CRC facilities. The CRCs may end up being co-located with some of the DLE hubs.
The DLE facilities would concentrate the product into an eluent of high-concentration lithium chloride solution that would be pumped to the CRC sites, where they’re refined into battery-grade lithium carbonate. The remaining fluid gets disposed of downhole.
The final product would 99.9 per cent pure, battery-grade LCE in powder form.
“It would essentially get bagged and shipped offsite. It’s a full process, from start to finish,” Wright said.
He noted assumption is it would be shipped by rail out of Stoughton.
If fully built out, the first seven years would see almost 19,000 tonnes of lithium processed per year. As the high-grade material is depleted, the lower-grade brine will result in a lower yield.
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Big fluid-handling exercise
There are a lot of similarities to oil production in the area, something ROK is well-skilled in. Wright said, “It’s a big fluid-handling exercise, really.
“The only thing that’s unique about it is that direct lithium extraction,” he said, noting that makes ROK a good fit with EMP. As an oil company, they’re experienced in operating basically all the above.
“We feel like we have a good team, and the ability to actually execute,” he said.
But does DLE actually work?
The big question a year ago is does direct lithium extraction actually work? It’s a lot different than the massive salars (evaporation ponds) used in South America, or the hard-rock mining in Australia.
Since then, the players in Saskatchewan have been doing tests with the fluid from their wells. That includes Hub City. So far, so good.
Hub City has done two large lab-scale pilot testing with ESM out of California, which were finished in November with 110 cubic metres of fluid. They’ve now agreed to do a field pilot with Koch Technology Solutions, which will be done at a commercial facility not too far from the test well. The fluid will be trucked to that facility where the tests will be done at reservoir temperatures, around 60 to 70 Celsius. That test is scheduled to start soon and run three to four months.
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Crown land and royalties
The PEA was based on a purely Crown land base, so the wells’ horizontal legs are one mile, 1.5 miles and two miles assumed in the report. They also have freehold land that is not included in the report.
The PEA assumes a three per cent royalty, and the Ministry of Energy and Resources confirmed that is the rate, with a two-year royalty holiday. That’s quite low compared to oil and gas, from which the new industry is largely modelled on. But it’s also right in line with solution potash mining, which it is also based on.
Wright said they are expected lithium-specific regulations to be rolled out this spring. “From a freehold perspective, we’re looking to have Crown-equivalent terms,” he said.
With regards to the royalty rate, Wright pointed out, “It’s a massive capital risk when it comes to this industry. There’s nobody that’s done it in the world with direct lithium extraction.
“Basically, oil and gas is the only resource I believe, that has royalty rates of 15 to 30 per cent. I know potash is in that low, that low three to five per cent range. I’m not exactly sure what helium is.”
He suggested lithium production will be a similar process to potash solution mining.
Asked how sensitive their PEA is to possible royalty changes, he responded, “If our project doesn’t work, then none of the other projects in the province will work, because we have the highest concentrations, the highest grades to date. So it would be a challenge for the province if they go that route, but obviously if that happens, we’ll reevaluate the project.”
Hub City Lithium’s test well at Viewfield. Photo courtesy ROK Resources
Finances
While the PEA envisions the large-scale deployment, albeit one at $571 million USD to provide an apples-to-apples compare with similar projects in the province. That $571 million USD is about C$800 million. Wright expects it will be executed in a smaller, step-wise fashion, similar to what one of their peers is discussing for initial commercialization.
The smallest they would start with would be the capacity to process 12,000 cubic metres of brine per day, resulting in 4,000 tonnes per year. “I would think that’s the smallest we could start with,” he said, adding “It’s all modular. So basically, you’re adding on these trains to increase the size and throughput of these technologies.”
Capital Costs
The anticipated capital costs are:
| Capital Costs | Description | Costs
(Million USD) |
| Wellfield Infrastructure | Wellbores, associated equipment and pipelines | $138.9 |
| DLE and Surface Equip Infrastructure (Koch) | Pre-filtration and DLE | $147.9 |
| CRC and Surface Equip Infrastructure (Saltworks) | Concentration, Refining and Conversion | $232.5 |
| Contingency | Applied to direct capital costs | $51.9 |
| Total | $571.2 |
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Operating Costs
he anticipated operating costs are:
| Description | Total Annual Costs (Million USD) |
Cost Per Tonne LCE (USD) |
|
| Wellfield | Electrical, field personnel, repair and maintenance, lease rentals and tax, etc. | $13.6 | $1,115 |
| DLE and Surface Equip (Koch) | Pre-filtration, electrical, gas, water, LSS media, field personnel, etc. | $8.6 | $711 |
| CRC and Surface Equip (Saltworks) | Chemicals, electrical, gas, field personnel, repair and maintenance, etc. | $18.2 | $1,493 |
| Total | $40.4 | $3,319 |
Sensitivity Analysis
The economic sensitivities are as follows:
| LCE Price (USD/Tonne) | After-Tax NPV 8%
(Million USD) |
After-Tax IRR |
| Base ($20,000) | $1,066 | 45% |
| Base -20% ($16,000) | $728 | 34% |
| Base +20% ($24,000) | $1,403 | 56% |
Lithium Pricing and Production
A detailed future pricing study for lithium carbonate was not completed for this PEA. A constant price of $20,000 USD per tonne of battery-grade lithium carbonate was chosen by reviewing publicly available pricing data and peer released economic assessments of similar lithium resources. Certain industry peers have used a constant price of $25,000 USD per tonne LCE in PEAs released over the last 12 months, however in light of current global pricing for lithium, Hub City Lithium selected a base case of $20,000 USD per tonne with price sensitivities included at +/-20 per cent.
Next steps
Wright said post-breakup, ROK and EMP would be looking to drill additional wells, at least one horizontal to validate flow rates. It’ll probably be single leg at first, then additional legs through re-entries. They will also likely drill one or two vertical wells to the north and east in the Viewfield area to delineate the area. They could also drill a well at Mansur, closer to Griffin, to explore that area and add additional data points.
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