As a general rule, the most successful man in life is the man who has the best information.
The Puna plateau sits at an elevation of 4,000m, stretches for 1,800 km along the Central Andes and attains a width of 350 to 400 km. The Puna covers a portion of Argentina, Chile and Bolivia and hosts an estimated 70% to 80% of global lithium brine reserves.
The evaporate mineral deposits on the plateau, which may contain potash, lithium and boron, are formed by intense evaporation under hot, dry and windy conditions in an endorheic basin. Endorheic basins are closed drainage basins that retain water and allow no outflow. Precipitation and inflow water from the surrounding mountains only leaves the system by evaporation and seepage. The surface of such a basin is typically occupied by a salt lake or salt pan. Most of these salt lakes, called salars, contain brines, which are capable of providing more than one potentially economic product.
This Puna Plateau area of the Andean mountains—where the borders of Argentina, Bolivia and Chile meet and are bounded by the Salar de Atacama, the Salar de Uyuni and the Salar de Hombre Muerto—is often referred to as the Lithium Triangle, and the three countries mentioned are the Lithium ABC’s.
A Brine “Mining” Business Model
The salt-rich brines are pumped from beneath the crust that are on the salar and fed into a series of large, shallow ponds. Initial 200 to +1,000 parts per million (ppm) lithium brine solution is concentrated by solar evaporation and wind up to 6,000 ppm lithium after 18 to 24 months.
The extraction process is low cost/high margin and battery-grade lithium carbonate can be extracted. The cost effectiveness of brine operations forced even large producers in China and Russia to develop their own brine sources or buy most of their needed raw materials from brine producers.
The major producers of lithium derived from brine are the “Lithium Three”: Sociedad Quimica y Minera (SQM), Rockwood/Chemetall and FMC.
The Lithium Three are all extracting lithium from Puna Plateau salar brines. The majority of lithium produced today comes from brines in Chile, Argentina and Nevada.
These brines are considered primarily potash deposits with lithium as a by-product.
The above diagram was designed to show that several commercial products can be recovered from typical brine, and that the recovery takes place in a series of steps over the entire evaporation process. Note that the final product in each step may require processing in a specialized plant. Also note that the actual sequence of process steps may vary from brine to brine, and as such the process steps shown above may not be in the correct order for any specific brine.
SQM’s Atacama brine deposits have the highest lithium content on the Puna, yet just 11% of its 2009 revenues were from lithium. Seventy percent of SQM’s revenues are from fertilizers. SQM is the world’s largest producer of lithium, and lithium is SQM’s highest gross margin product at +50%.
The Demand for Lithium
The world’s future energy course is being charted today because of the ramifications of peak oil and a need to reduce our carbon footprints.
A whole new industry—a global wide automotive and industrial lithium-ion battery industry—is going to be built. As a result of lithium-ion battery demand for hybrid-electric and electric cars, the increase in demand for lithium carbonate is expected to increase four-fold by 2017.
Lithium-ion batteries have become the rechargeable battery of choice in cell phones, computers, hybrid-electric cars and electric cars. Chrysler, Dodge, Ford, GM, Mercedes-Benz, Mitsubishi, Nissan, Saturn, Tesla and Toyota have all announced plans to build lithium-ion battery powered cars.
Demand for lithium powered vehicles is expected to increase fivefold by 2012. The worldwide market for lithium batteries is estimated at over $4 billion per year.
Lithium carbonate is also an important industrial chemical:
• It forms low-melting fluxes with silica and other materials.
• Glasses derived from lithium carbonate are useful in ovenware.
• Cement sets more rapidly when prepared with lithium carbonate and is useful for tile adhesives.
• When added to aluminum trifluoride, it forms LiF which gives a superior electrolyte for the processing of aluminum.
• Lithium carbonate can be used in a type of carbon dioxide sensor.
Demand today is in the range of 120,000 tonnes of lithium carbonate equivalent (LCE) annually. Lithium is not traded publicly and is usually distributed in a chemical form such as lithium carbonate (Li2CO3). Instead it’s sold directly to end users for a negotiated price per tonne of Lithium carbonate (Li2CO3).
Production figures are often quoted in lithium carbonate equivalent quantities. By weight approximately 18.8% of lithium carbonate is lithium. Therefore, one kg of lithium is the equivalent of 5.3 kg of lithium carbonate.
“We are projecting 40% Li demand increase by 2014 with batteries accounting for 34% of use, the largest single end-use segment.” Jon Hykawy, analyst Byron Capital Markets
Lithium-ion batteries are quickly becoming the most prevalent type of battery used in everything from laptops to cell phones to hybrid and fully electric cars to short term power storage devices for wind and solar generated power. At present, 39% of lithium-ion batteries are produced in Japan, 39% in China and 20% in South Korea.
“With forecast 10% to 20% penetration rates by 2020 for pure and hybrid electric vehicles, we expect an incremental increase in demand of 286,000 tonnes of lithium carbonate equivalent, significantly outstripping current supply.” Canaccord Adams analyst, Eric Zaunscherb
“Our electric vehicle investment is not one-car innovation; it is a new way of looking at our industry. This is the beginning of the story.” Carlos Ghosn, Nissan chief executive officer
Considerations – may I see junior’s grades?
The key factors that determine the quality, economics and attractiveness of brines are the following:
A common industry axiom says that the ratio of Mg to Li in brines must be below the range of 9:1 or 10:1 to be economical. This is because the Mg has to be removed by adding slaked lime to the brine. The slaked lime reacts with the magnesium salts and removes them from the water. If the ratio is 1:1 in the original brine, then the added cost, due to today’s present cost per tonne of slaked lime, is $180/tonne of lithium carbonate produced. If the Mg to Li is 4:1 than the cost of removing magnesium is $720.00 per tonne of lithium carbonate.
The porosity of a rock is expressed as a percentage and refers to that portion of the rock that is void space—rock that is composed of perfectly round and equal sized grains will have a porosity of 45%. Fluids and gases will be found in the void spaces within the rock.
Ten million cubic metres of brine bearing rock with a porosity of 10% will contain one million cubic metres of brine fluid. A cubic metre is equivalent to a kilolitre.
Salar de Atacama apparently has a porosity of about 8%. By oil and gas standards 8% is quite low but brines are less viscous than hydrocarbon fluids and will flow more easily through rocks with lower porosity and permeability characteristics.
A major factor affecting capital costs is the net evaporation rate. This determines the area of the evaporation ponds necessary to increase the grade of the plant feed. These evaporation ponds can be a major capital cost. The Salar de Atacama has higher evaporation rates (3,200 mm pan evaporation rate per year (py) and <15 mm py of precipitation) than other salt plains in the world and evaporation takes place all year long.
Contributing to efficient solar evaporation and concentration of the Puna Plateau brines are the following:
• Low rainfall
• Low humidity
• High winds
• High elevations
• Warm days
Though its evaporation rate is only about 72% of Atacama’s, Salar de Hombre Muerto is still commercially successful because costs are low and are further offset by the sale of recoverable byproducts like boric acid.
Rockwood Holdings recover moderate tonnages of potassium chloride as a co-product at their Chile operation. SQM recovers potassium chloride, potassium sulphate and boric acid.
According to FMC’s website they have the following:
• High concentrations of lithium, reportedly between 680 and 1210 ppm Li
• High in potassium, concentrations from 0.24 to 0.97 wt% K
Chile and Argentina supply 78% of global lithium carbonate and hold more than 90% of the proven lithium carbonate reserves.
The Salar de Uyuni (Bolivia) has the lowest average grade of Li at .028 and has an extremely high ratio of Mg/Li at 19.9
Uyuni’s higher rainfall and cooler climate means that its evaporation rate is not even half that of Atacama’s. The lithium in the Uyuni brine is not very concentrated and the deposits are spread across a vast area. Bolivia also has limited infrastructure compared to that of Chile, Argentina or the U.S. and they lack free access to the sea.
Consider also the high “country risk” factor companies face doing business in Bolivia. Evo Morales, Bolivia’s President, has already nationalized the oil and gas industry.
“The state doesn’t see ever losing sovereignty over the lithium. Whoever wants to invest in it should be assured that the state must have control of 60% of the earnings.” Morales at a March 2009 press conference.
In 1990 hunger strikes and massive protests forced U.S.-based Lithco out of a $46 million investment into Bolivia’s Salar de Uyuni. The company set up operations at Argentina’s Salar de Hombre Muerto and eventually became part of FMC.
It’s not surprising to this author that while Chile and Argentina have thriving lithium and potash production, Bolivia lags far behind.
This author believes investors will see development financings and start-up capital flow towards advancing the easier, quicker to production and cheaper to produce brine deposits rather than the higher start up cost and more expensive to produce hard rock mining situations.
There is room in the market for first mover juniors now positioned with quality salar packages in Argentina and Chile. Competition in these markets will not hurt margins for any company, old or new, due to the potential for exponential demand growth of potash and lithium.
But the prime candidates have to be the lowest cost producers from both a capital—land package costs and capex—and variable cost point of view, that is removal of contaminants.
Conclusion
“We think lithium-ion batteries for electric vehicles are the best technology.” Don Walker, CEO Magna International Inc.
“Magna wants to be on the leading edge of any new technology, and so we jumped on this technology a few years ago. The high-cost is the battery. So, working on the supply chain, getting the price down, and working on new composites for the battery are all things we are working on.” Ted Robertson, Magna’s chief technical officer
We seem to be going through an Eco-Energy Revolution. Consider the ongoing nuclear renaissance, the surge towards energy retrofitting, cleaning up the environment and billions of dollars being given out to develop the technology behind the lithium-ion battery for the electrification of our transportation system.
This energy revolution is a serious investable long-term trend and we, as investors, have to take advantage of the opportunities being presented. This brine “mining” business model should be on every investors radar screen.
Is it on yours?
* Richard Mills is host of aheadoftheherd.com and invests in the junior resource sector. Disclaimers and terms of use can be found at http://www.aheadoftheherd.com/pages/terms-ahead-of-the-herd/.
Links and References