On November 19, 2015 Nemaska Lithium (V.NMX) announced a Memorandum of Understanding with Johnson Matthey Battery Materials Ltd. (link) For this Quebec based company the MOU is a huge step forward but understanding “why” is the challenge for investors.

Guy Bourassa, Nemaska Lithium’s CEO, begins the explanation with the fact that “This agreement is a confirmation of our technology. It moves us much closer to being in the supply chain. I believe this is the first time in the history of our industry that an end user agrees to pay for product upfront in advance of the production facility being built. I believe it speaks to how tight the supply is in the lithium market.”

Green technology is all about batteries. Whether it is a cellphone or an electric car or a home based stationary power reserve, most of the green tech revolution turns on batteries. And, for the moment, lithium ion batteries represent the state of the art. Supplying that green tech revolution with basic materials is a serious business proposition.

Having a substantial proven reserve of lithium, as Nemaska Lithium does, is a great start for a company. But it is just a start. Extracting the lithium, concentrating it and processing and purifying it to meet the requirements of battery makers has to be a large part of the story.

Just as importantly, while lithium mining outfits are always looking for off take agreements, finding the right, solvent, savvy, partner is not easy. For all the discussion of Elon Musk and the Tesla “gigafactory”, the fact is the lithium ion battery space is many times larger than that factory will supply.

Nemaska Lithium has a huge deposit of lithium at its Whabouchi property near the Cree community of Nemaska in the Province of Quebec. Nemaska is the administrative center of the Cree First Nation which lies close to James Bay. The Whabouchi property and its spodumene hard rock lithium deposit have been extensively explored and the company filed a 43-101 compliant Reserve Estimate of 27 million tonnes proven and probable in May 2014. The Company also filed a Feasibility Report in June of 2014.

Along with the Whabouchi lithium deposit Nemaska Lithium also brings a unique, proprietary and patentable technology to the mix. Taking the spodumene hard rock lithium concentrate from the Whabouchi deposit and processing it into the lithium hydroxide and lithium carbonate battery manufactures want and need is complicated. The concentrate has to be purified and then it has to be processed into the forms required.

Nemaska Lithium has developed its lithium processing technology to deliver the high purity lithium products its customers require. That technology received a terrific endorsement with the signing of a Memorandum of Understanding with Johnson Matthey Battery Materials Ltd, a subsidiary of a multi-billion dollar, 200 year old, British company heavily involved in the materials sciences, environmental products and chemistry.

The MOU calls for an upfront payment of 12 million dollars in exchange for services and products of the same value from the Nemaska Lithium Phase 1 Plant to be built in Shawinigan, Quebec. This Phase 1 plant is designed to produce 500 tons per year of lithium hydroxide and lithium carbonate. At least 80% of this Phase 1 Plant’s production will be taken by Johnson Matthey.

In the press release announcing the MOU Guy Bourassa, President and CEO of Nemaska Lithium stated, “We are very pleased to have entered into this strategic agreement with JMBM, a leading supplier of lithium iron phosphate cathode materials for automotive and non-automotive applications. We are confident in our ability to deliver very pure lithium salts from the Phase 1 Plant and in our ability to subsequently become a long term supplier to JMBM. Analysts and industry experts are predicting a coming shortage of lithium compounds as the lithium battery market continues to grow and companies execute on their growth plans (multiple gigafactories are under construction).”

For Nemaska Lithium the MOU provides the affirmation and the funding and the client to move toward full scale production of lithium products. “We’ll be producing commercial sized samples for other clients in addition to Johnson Matthey.” said Bourassa, “These clients will have qualified product to test and will have guaranteed itself a source of the lithium material it needs.”

Nemaska is ready to proceed on the Phase 1 Plant in Shawinigan where it has access to both low-cost hydro power and the natural gas required for its process. It is also ready to begin mining at Whabouchi. “We are doing the detailed mining engineering. We have our permitting completed and we are ready to make the construction decision.  We hope to start before snowfall in 2016.” said Bourassa.

With proprietary technology, a solid off-take partner, a substantial deposit and a production strategy Nemaska Lithium is poised to become a real player in the fast growing green world of lithium ion batteries. The only question is when the venture market will begin to value Nemaska Lithium’s near term potential.