Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Chris Doornbos pulled up to Alberta’s foundational oil field in a baby-blue Tesla Model Y, a not-so-subtle nod to a new world order. It was a crisp January afternoon in Canada’s top-polluting province and a biting -5C (23F), and the 40-year-old mining executive squinted at a patch of dirt that midcentury prospectors had once scoured for oil. It doesn’t look like much now, he admitted, but what counts is the lithium beneath the soil.
The Leduc oil field was discovered in the 1940s, when a group of Imperial Oil Ltd. workers stumbled upon a well so profuse with petroleum that, on first drill, it burped a gaseous fireball almost 15 meters (49 feet) into the air. The discovery effectively birthed Canada’s oil and gas industry. Before long, prospectors were drilling thousands of holes across Alberta in pursuit of black sludge. Oil companies drilled more than 4,000 holes in the Leduc field alone.
Today many of those wells have been depleted and abandoned. The cavities have been filled with cement, and some of the salvageable areas are now occupied by wheat farmers. What remains underneath these vast expanses, now that the oil’s gone, are large deposits of saltwater known as brine that contain traces of lithium, the coveted ingredient in electric-vehicle batteries. Early-stage mining companies such as the one Doornbos runs, E3 Lithium Inc., are betting they’ll one day be able to extract lithium from those underground aquifers at commercial scale.
Doornbos’s company leased a chunk of the Leduc field in 2018 to test technology designed to refine and process lithium. The silvery-white mineral has been lingering in aquifers underneath Alberta’s oil rigs for a century, but refining it into an acceptable grade of the metal isn’t straightforward. It requires a type of technology that’s very much in its infancy and barely used to produce lithium at scale. In addition to being E3’s chief executive officer and president, Doornbos is a geologist, and if he figures it out, he’ll be the first to extract commercial-grade lithium from an abandoned oil field.
Several upstart miners appear to have had the same idea at about the same time. Spurred by increasing global demand for EVs, companies such as Prairie Lithium and LithiumBank Resources Corp. have bought land rights to nearby abandoned oil fields and begun developing extraction technology of their own. Doornbos, who spent years working in the oil industry, sees it as a small way for Big Oil’s detritus to lend itself to the energy transition. “We have to transition away from oil, and that’s going to take 20 or 30 years. But I’d rather be on the transition-away side than the more-of-the-same side,” he says.
The vast majority of the world’s lithium is mined from salt flats and hard rock using an expensive, lengthy process that requires specialized equipment and a staggering amount of fresh water. It’s a paradox in the move to clean energy: Getting away from fossil fuels presents environmental hazards of its own. Although the world’s automakers have relied exclusively on this kind of mining to produce EV batteries, other kinds of mining will likely also be needed to meet skyrocketing demand. Annual demand for lithium for electric batteries is expected to jump ninefold, to almost seven million tons, between 2023 and 2050, according to BloombergNEF.
Enter direct lithium extraction, an early-stage technology that seeks to hasten extraction while reducing water consumption—at a fraction of the cost. DLE consists of relatively small, modular machines that suck brine from the ground and separate the lithium, kind of like a coffee filter. Proponents say the technology is far less destructive than traditional mining; it operates on a much smaller scale, for one, and it doesn’t require carbon-heavy evaporation ponds that miners typically use to process lithium. DLE offers “significant promise” for increasing supply while reducing the environmental impact of lithium mining, according to a 2022 report by McKinsey & Co. But it’s still so young that only one company uses it commercially.
A profusion of small companies, including E3, have spent years trying to develop the chemical sorbents needed to separate lithium from brine. One of the problems they’ve encountered, though, is that there’s no one-size-fits-all solution. Based on different sediments and geological formations, the sorbent needed for brines in Argentina is different from the sorbent needed in Alberta. As a result, most extractors have to build their own technology from scratch.
The long and winding research and development process has delayed DLE companies and sparked impatience among investors. In the past year, some companies have seen their share price fall as hedge funds short their stock and investment research firms publicly question their commercial viability. The stock market hasn’t been particularly kind to E3, either: Doornbos watched his company’s share price drop 16.1% in 2022, despite announcing a roughly C$6.4 million ($4.6 million) investment from Imperial Oil and C$27 million in funding from the Canadian government’s innovation arm.
He acknowledges scale is a challenge but insists DLE can get there. When E3 started experimenting in 2016, “there was no technology out there, and that caused risk,” he says. “Today the landscape is drastically different. Tons of companies have matured their technology, so the risk factor that was there a few years ago has been reduced.”
Alberta’s two major universities, meanwhile, have devoted funding to advance DLE technology as startups look to the province’s oil fields for lithium extraction. Daniel Alessi, a chemist at the University of Alberta and co-founder of another DLE startup, Recion Technologies, says he believes a breakthrough is coming soon.
“What a lot of these companies are finding is that they can recover lithium from brine pretty easily, but the operating costs are way too high because of how early-stage this is,” Alessi says. “They aren’t turning a profit now, but I think you’ll see them operating commercial plants in the near future.”
The car ride to the Leduc field takes about 45 minutes from downtown Calgary, a winding cruise out of the city’s suburbs and into the yellow pastures and meadows of Canada’s prairies. E3’s potential has much to do with its location. Some mining companies spend years studying unexplored terrain in remote regions, where road access is limited and permitting is no sure thing. In Alberta, where oil drilling dates back more than a century, getting shovels in the ground tends to be easier.
The gas industry has accumulated decades’ worth of research and data on the sediments that lie under Canada’s midwestern geography; when Doornbos founded E3, he had most of the information pointing to lithium at his fingertips. “We didn’t have to go through the expensive and high-risk exploration stage,” he says. “We understood what was in the aquifer already and whether we could drill into it” because the oil industry had done so already.
Doornbos doesn’t pretend it will be simple, but if DLE technology advances, he says it could become a major disruptor in the lithium industry and offer Alberta a profitable alternative to oil. “Extracting the first bit of lithium is always the hardest,” he says. “But then I think it gets easier.”
(By Jacob Lorinc and Robert Tuttle)
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