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Resource Intelligence Interviews Nemaska Exploration’s Guy Bourassa, President and CEO

Apr. 15, 2011 10:54 AM ET
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Seeking Alpha Analyst Since 2009

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RI: Your Whabouchi Property is a fascinating project and it’s in a great location in Quebec. Would you give investors an overview of what this lithium project is and what it means to investors?

GB: We’ve got the third-largest lithium deposit in the world and the second richest with a 43-101 resource estimate. It is well located with existing infrastructure, it’s accessible by road year-round and it has electricity with more power than we need. 700 people live about 40 kilometers west, which is the Cree community of Nemaska.

RI: It’s a lithium and beryllium project. You’ve done a scoping study not long ago. What would the mine life be and what is the potential value of that for investors?

GB: Initially we outlined a 15 year mine life producing 1 million tonnes of ore a year, which was roughly 200,000 tonnes of concentrate per year. We’re talking a value of approximately $180 million NPV.

RI: That’s just the lithium and you’re still looking at the beryllium to see if that could add value.

GB: Yes. Initially we concentrated our metallurgical testing on the main product which is the lithium and we will be conducting additional tests to see how we could recover a beryllium concentrate, but there is no credit in the actual net present value for any beryllium.

RI: You halted your stock on some very good news recently. A 10% interest taken up by a major player in the lithium sector?

GB: Last Friday we announced an important Chinese group, Tianqi Lithium Group, who are the third-largest lithium producers in the world with the largest transformer of lithium oxide to all of the lithium products.

RI: So, having a lithium transformer is important to Nemaska because it’s essential to take the lithium ore and transform it into carbonate or other forms, and these are located primarily in China?

GB: Yes. In the world of lithium everybody talks about lithium carbonate because it is the main use for batteries. Everything is a converted into lithium carbonate equivalent and 85 percent of the lithium carbonate in the world is produced by three players in South America. The other 15 percent comes from the transformation of lithium oxide. There are six players in China that do that and they all import their product from elsewhere, mainly from Australia.

We looked at the market last year when we were realizing the size of the deposit and we decided that strategically it would be better to try to be an ally of the six Chinese players instead of being one additional competitor to 10 or 11 players around the world producing lithium carbonate and other lithium products. At the same time the Australian government announced that it has the intention of putting a 40 percent mining tax on all mining projects.

RI: In that case, you’re ideally located to provide China with lithium ores, and you’re also close to North American and European markets which are both buyers of the project.

GB: One of the increases for the demand of lithium products is going to be batteries and there is not presently a producer in North America for that. So geographically and politically if you want to divert your risk, Canada and Quebec is very well located for that.

RI: The Fraser Institute talks about Quebec as being one of the best mining jurisdictions in the world so you could not be better located. Explorers often smile because they get a tax refund on exploration dollars, is that correct?

GB: Yes. The flow-through shares, as we call them, where all of the cost of exploration can be rebated by up to 150 percent if you transfer the tax credit to the investor. If you are a mining company or exploration company and you do spend your own money and you don’t transfer the tax rebate to your investor you get up to 42 percent from the Quebec government to help you continue exploration.

RI: What are the steps coming up to prove to investors that this is a project that you can bring through to production?

GB: Firstly, we moved the project from just historical showings in 2009 to a preliminary economic assessment in less than 15 months. We are currently finishing 10,000 metres of additional drilling that will update the current resource estimate. We will be starting a 50-tonne pilot plant metallurgical test in the third week of May to optimize the metallurgical recovery, and to be able to design the planned concentration plant. We will then be able to complete a full feasibility study in September or October of 2011. Our goal is to be able to produce, ship and sell concentrate to China by the end of 2012.

RI: How well-funded is Nemaska for future exploration?

GB: Presently, with the closing that we announced with the Chinese group, we have over $9 million available which is more than enough to complete the full feasibility study and enough money to continue exploration on the rest of the property and have general administration costs taken care of for probably two years.

RI: I see you’re trading at $0.52 a share and you haven’t made a lot of movement lately. What do you think investors want to see before you see another leg up on your journey?

GB: I suppose that within the next couple of days and weeks we will try to make people really understand what the association with the Tianqi Lithium Group means and how important it is. It’s important because in the industrial mineral world it doesn’t matter how big your deposit is, it matters if you have somebody interested in buying your product. We’re showing here that we’re teaming up with buyers who need supply who want to diversify. The next step may be a long-term supply agreement with our Chinese partner.

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