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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 1800 km along the
Central Andes and attains a width of 350-400 km. The Puna covers a portion of
Argentina, Chile and Bolivia and hosts an estimated 70 - 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 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's 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 - 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 lithium producers, 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 please 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 - 70% 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%.
Potash
is Fuel for Food
According
to the United States Geological Survey (USGS) Canada has the world's largest
reserves of potash - roughly 50%. Coming in second is Russia with just over
25% and trailing a distant third is Belarus at 9% of world reserves.
In
a presentation at the 2010 Prospectors and Developers Association Conference
in Toronto Ontario, Canada, T.D. Newcrest minerals analyst Paul D'Amico
forecast significant growth of offshore potash demand. D'Amico said the
potash supply situation is complicated by the fact there hasn't been a green
field potash development in 30 years. D'Amico also estimated that global
annual potash demand growth will average 3% compounded annually.
Potash
is used as a major agricultural component in 150 countries but the largest
importers of potash are China, India, the US and Brazil.
Potassium
sulfate is commonly used in fertilizers, providing both potassium and sulfur.
Potash is the common name for potassium chloride.
Because
the financial markets crashed and the economy contracted in 2008 farmers put
off buying potash - potash use fell 20%, phosphate fertilizer use declined
10% and the price per tonne of potash dropped by two thirds. This lack of
fertilization drastically depleted the soil nutrient base and global soil
nutrient levels need to come back to the trend line.
"Failure
to feed the fields is a trend that can't last for long, while the global
recession severely impacted fertilizer demand, the
science of food production has not changed. The significant volumes of potash
and phosphate that have been mined for crop production must be replaced to
sustain the productivity of the soil." Potash Corp.
The
basic fundamentals of the global potash market are hard to ignore:
•
An increasing global population - the world's population is steadily
increasing and is expected to reach +9 billion people by 2050. The United
Nations Food and Agriculture Organization (FAO) reported they think that the
total world demand for agricultural products will be 60 percent higher in
2030 than it is today.
•
Increasing incomes in developing countries will lead to more people being
able to afford protein rich diets - a western style diet heavy in meat -
which means more grain consumption.
•
Decreasing arable land - arable land is being lost at the rate of about
40,000 square miles per year. Land is being used for production of bio-fuels,
topsoil is eroded away by wind and water and the agriculture land base is
being paved over as we become more and more urbanized. Farmers need to
produce more food on less land. There is only one way this can be done and
that's with an increase in the use of fertilizer.
The
current potash market is estimated at 50 million tonnes annually and is
projected to grow at a compounded annual rate of 3-4%. Potash is a crucial
element in fertilizer and has no commercial substitute. Quite simply, we have
to grow more food on less land.
There
are several ways farmers can get increased yields, Genetically Modified
Organism (GMO) seed, pesticides, fertilizers, and satellite (GPS) farming.
Improved
seeds, pesticides and new farming techniques are all going to be needed,
improved and used. But the nutrients in soil are soon used up by ever more
intensive farming - and Mother Nature can't replace them fast enough. These
nutrients need to be replaced or you have land where crops cannot grow.
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 1kg 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 per cent of lithium-ion batteries are produced in Japan, 39 per
cent in China and 20 per cent 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
Sodium
Chloride (rock salt or halite)
The
principal use for salt is in the chemical manufacturing business -
chloralkali and synthetic soda ash producers use salt as their primary raw
material.
Salt
is used in many applications and almost every industry:
•
Cooking
• Manufacturing pulp and paper
• Setting dyes in textiles and fabric
• Producing soaps, detergents, and other bath products
• Major source of industrial chlorine and sodium hydroxide
Global
demand for salt is forecast to grow 2.5 percent per year to 305 million
metric tons in 2013.
Solar
evaporation is the most popular and most economical method of producing salt.
China is the world's largest consumer of salt - other than the dietary needs
of 1.3 billion people - there's an enormous chemical manufacturing industry
being built in China.
Boron
Boron
combines with oxygen and other elements to form boric acid, or inorganic
salts called borates.
Borates
are used for:
•
Insulation fiberglass
• Textile fiberglass
• Heat-resistant glass
• Detergents, soaps and personal care products
• Ceramic and enamel frits and glazes
• Ceramic tile bodies
• Agricultural micronutrients
• Wood treatments
• Polymer additives
• Pest control products
• Boron is an essential component in the manufacture of borosilicate
glass used in LCD screens
Boric
Acid uses:
•
As an antiseptic/anti-bacterial compound
• Insecticide
• Flame retardant
• In nuclear power plants to control the fission rate of uranium*
• As a precursor of other chemical compounds
*Boric
acid is used in nuclear power plants to slow down the rate at which fission
occurs. Boron is also dissolved into the spent fuel cooling pools containing
used fuel rods. Natural boron is 20% boron-10 which can absorb a lot of
neutrons. When you add boric acid to the reactor coolant - or to the spent
fuel rod cooling pools - the probability of fission is reduced.
The
first half of 2009 saw a sharp drop in demand for borates, but in the second
half of the year markets for both textile-grade fibreglass and borosilicate
glass recovered.
World
production of borates remains mostly concentrated in the US and Turkey -
these two countries account for 75% of supply.
Chinese
boron - both in terms of quantity and grade - is inadequate to meet domestic
demand so the country is now the largest importer of both natural borates and
boric acid.
Silly
Putty was originally made by adding boric acid to silicone oil. J
Considerations
- may I see junior's grades?
The
key factors that determine the quality, economics and attractiveness of
brines are:
- Potassium content
- Lithium content
- Presence
of contaminants ie magnesium (Mg)
- Porosity
- Net evaporation rate
- Recoverable by-products
- Infrastructure - or lack thereof
- Country risk
- 100% control over production
- Low
capex, low production costs, high margin products
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 (3200 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:
•
Low rainfall
• Low humidity
• High winds
• High elevations
• Warm days
Though
its evaporation rate is only about 72 percent 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:
•
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 US - 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 - who's next?
"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
"The
previous imperialist model of exploitation of our natural resources will
never be repeated in Bolivia. Maybe there could be the possibility of
foreigners accepted as minority partners, or better yet, as our clients."
head of lithium extraction Saul Villegas
In
1990 hunger strikes and massive protests forced US 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.
A
company should have 100% control over the production rate from their salar.
It's possible an aquifer can become diluted - over producing can impact the
brine's salt concentrations and chemical compositions - or depleted by too
many wells sucking up more brine than should be produced.
If
two or more companies have straws (wells) into the same salar legal battles
might result over the sharing of the resources.
"Lithium
production via the brine method is much less expensive than mining. Lithium
from minerals or ores costs about $4,200-4,500/tonne
(€2,800-3,000/tonne) to produce, while brine-based lithium costs around
$1,500-2,300/tonne to produce." John McNulty, analyst Credit Suisse.
Global
lithium production was dominated by the US - until the 1980s - with hard rock
mining from spodumene. The better economics of the Chilean/Argentine salars
priced hard rock lithium mining out of the markets.
There
are exceptions - Talison Minerals has its Greenbushes operation (a combined
tantalum and lithium mine) in Australia. This is the largest, highest grade
lithium (spodumene) pegmatite deposit in the world and recent price increases
have enabled them to sell their production to China for transformation into
lithium carbonate. Two other producers of lithium ore concentrates are mostly
concerned with the glass industry.
Hard
rock lithium miners have two large problems facing them when competing with
brine economics - firstly most have large capital (capex) costs for start up
and secondly their production cost is roughly twice what it is for the brine exploitation
process. These higher production costs are because of the different
extraction processes used.
When
lithium chloride reaches optimum concentration - using nothing more than sun
and wind - the liquid is pumped to a recovery plant and treated with soda
ash, precipitating lithium carbonate. The carbonate is then removed through
filtration, dried and shipped.
In
the case of production from pegmatites the process is:
- Mining
- Concentration
to a higher grade
- Calcination
at 1100 degrees Celsius to produce acid-leachable beta spodumene
- Treated
with sulphuric acid at 250 degrees Celsius
- conversion
of the lithium sulphate solution with sodium carbonate
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.
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. We'd
be smart to get in early, ahead of the herd, to take advantage of the coming
global rush to electricity - generated by nuclear power and stored in
lithium-ion batteries.
"The
power of population is indefinitely greater than the power in the earth to
produce subsistence for man". Thomas Robert Malthus
The
U.N. calls the global food crisis a "silent tsunami" and faith in
the ability of local and global commodity markets to fill 6.6 billion
bellies, never mind the projected 2.7 billion more by 2050 (U.N. projections
say the world's population will peak at 9.3 billion in 2050) has been shaken.
Are
the words of Thomas Malthus coming back to haunt us?
In
order for a plant to grow and thrive, it needs a number of different chemical
elements. Three of these are the macronutrients nitrogen, phosphorus and
potassium (a.k.a. potash, the scarcest of the three). Potassium makes up 1
percent to 2 percent of any plant by weight and is essential to metabolism.
The availability of nitrogen, phosphorus and potassium in the soil, in a
readily available form, is the biggest limiter to plant growth.
"Strong
farmer returns, a depleted distributor pipeline and the agronomic need to
replace soil nutrients have kick-started a potash
rebound from 2009 lows." Potash Corp. CEO Bill Doyle
Potash
Corp - the world's largest fertilizer maker - issued cautious guidance in
January saying it expects first-quarter earnings to be between $1.30 and
$1.50 per share which is well above its previous forecast of .70 - $1.00 per
share.
"The
upward revision reflects a sharp rebound in potash demand that is expected to
drive a record quarter for North American sales volumes and strong offshore
shipments," the company said in explaining the revision.
This
Brine "Mining" Business Model should be on every investors radar
screen.
Is
it on yours?
If
you're interested in the junior resource market and would like to learn more
please come and visit us at aheadoftheherd.com
Richard Mills
Aheadoftheherd.com
Richard is host
of www.aheadoftheherd.com and invests in the junior resource sector. His
articles have been published on over 60 websites including - Wall Street
Journal, 24hGold, Kitco, USAToday, Safehaven, SeekingAlpha, The Gold/Energy
Reports, Gold-Eagle and Financial Sense.
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