Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Is the Winner of the U.S. Presidential Election - 31st Oct 20
Gold and Silver Prepare For Another Price Advance - 31st Oct 20
Gold Is Likely to Win This Election - 31st Oct 20
Why Trump Can Still Win 2020 Election - Establishment Mainstream Media Wrong Again? - 31st Oct 20
Why Budgies Need their Own Feeders - Parakeets Feeding UK - 31st Oct 20
Can Trump Still Win? US Presidential Election Forecast Matrix 2020 - 30th Oct 20
Why a Biden Win will Keep Metals Prices Rocking - 30th Oct 20
Is Silver the Next Bitcoin? - 30th Oct 20
A New World Monetary Order Is Coming - 30th Oct 20
Do These Explanations Make Sense for This Intraday Stock Market Turn - 30th Oct 20
US Presidential Election Forecast Matrix, Stock Market Uncertainty - 29th Oct 20
Stock Market Turning? Look For These Support Levels - 29th Oct 20
Silver: A Conceivable Dead-Cat-Bounce on the Cards - 29th Oct 20
Stocks are Strong but be Aware of this Continuing Pattern - 29th Oct 20
The Most Profitable Way To Play The Gold Boom - 29th Oct 20
Why You Should Hire An Accountant To Complete Your Tax Return - 29th Oct 20
Global Banking: Some Sectors Look as "Precarious as Ever" - 28th Oct 20
Silver Price Minor Dip Possible Before 2nd Major Upleg Starts - 28th Oct 20
�� How to Carve a Simple and Scary Pumpkin Face for Covid Halloween 2020 �� - 28th Oct 20
Gold Price One Last Dip Likely Then Major Upleg to New Highs - 28th Oct 20
Smart Money Is Going All-In On This New Gold Frontier - 28th Oct 20
Gold Stocks Still Correcting - 27th Oct 20
Gold and Crypto: Is This How Charts Look Before A Monetary Collapse? - 27th Oct 20
Silver's Coming Double Trigger Shotgun Price Explosion - 27th Oct 20
The $126 Billion Gold Opportunity in Australia - 27th Oct 20
Tips to Breeze through Your Spanish Classes Online - 27th Oct 20
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Australian Lithium Mines NOT Viable at Current Prices

Commodities / Lithium Nov 10, 2019 - 06:45 PM GMT

By: Richard_Mills

Commodities

Australia’s Mineral Resources (ASX:MIN) said last week it is pausing operations at its Wodgina lithium project, a joint venture with US-based Albemarle, due to “challenging lithium market conditions.” 

“Given the current challenging market conditions for lithium, the MARBL Lithium Joint Venture believes there is more value to be delivered in the long term by placing Wodgina on care and maintenance now,” MIN Managing Director Chris Ellison said, on the same day a transaction concluded giving US-based Albemarle a 60% stake in the facility, located in Western Australia. 

Market conditions are difficult primarily for two reasons: low prices due to oversupply from Australian hard-rock lithium producers, most of whom sell their spodumene concentrate to China; and reduced Chinese demand for lithium, after Beijing cut EV subsidies that made electric vehicles more affordable. 

Demand has also been dented by bottlenecks in Chinese chemical conversion facilities, that make lithium hydroxide from spodumene concentrate. 


According to Benchmark Mineral Intelligence, the price of spodumene concentrate containing 6% lithium fell 5% in October to between $480 and $550 a tonne, nearly half of the $900 per tonne it fetched in July, 2018. 

The lithium market tracker said industry sources “expect spodumene prices to stabilize in the coming months, however there will be little upward pressure and the supply chain will have to clear a significant backlog of material before margins improve.” 

Prices are better in South America, where China buys lithium carbonate from lithium brines produced by Chile and Argentina. There, free-on-board prices have slipped 30% but are still over $10,000 a tonne, Benchmark Minerals states in a Nov. 3 market summary

China imports lithium from two sources: hard-rock lithium mines in Australia, and South American lithium brines. China is also the third largest lithium producer in the world, behind Australia and Chile - but most of what China produces is technical-grade lithium, unsuitable for batteries without being upgraded. Australia’s 6% spodumene concentrate must also be converted into battery-grade material, at considerable expense. 

Not all lithium is created equal. 

Even with the best market conditions, hard-rock lithium mines have a tough time competing with brine operations. We knew this before the lithium price boom of 2014-17 made previously uneconomic spodumene deposits viable. Now that prices have dropped, the chickens are coming home to roost. 

Understanding this requires an explanation of the difference between lithium brines and hard rock/ spodumene mines. 

Hard rock lithium miners have two problems facing them when competing with brine economics – first, most have large capital costs for start-up, and second, their production costs are roughly twice what they are for the brine exploitation process. These higher production costs are because of the different extraction processes used.

In brine operations, when lithium chloride reaches optimum concentration in a pond, the brine 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 1,100 degrees Celsius to produce acid-leachable beta spodumene
  • Treated with sulfuric acid at 250 degrees Celsius
  • Conversion of the lithium sulfate solution with sodium carbonate

The high expense and complexity of processing spodumene means that most mines ship it to China for further refining.

Those that do this currently receive about $500 a tonne for their low-grade (6%) concentrate; brine lithium miners get around $12,000 a tonne for lithium hydroxide and $10,000 a tonne for lithium carbonate. 

$500 per tonne versus $10,000 or $12,000/t. Which business would you rather be in? At $900/t a few years ago, Australian lithium producers thought they could make a profit mining pegamites despite the higher capital and production costs. Many ramped up production to take advantage of record-high prices, creating a supply overhang. 

According to Benchmark Mineral Intelligence, by mid-2018, spodumene had overtaken brine as the leading source of chemical feedstock production. From just one spodumene mine in 2016 - Greenbushes in Australia - the number of active hard-rock mines grew to nine by 2018 year-end. 

Since then, the $400 plunge in spodumene prices has really hurt Australian lithium miners. On Sept. 2, Reuters reportedShares in Australian miners such as Mineral Resources, Galaxy Resources, Altura Mining, Lithium Australia, and Pilbara are down between 15% and 68% this year compared with a 20% fall in the price of spodumene.

They might be wishing they hadn’t all jumped on the spodumene wagon at the same time. 

By contrast, brine producers in Chile and Argentina, and Albemarle’s Silver Peak Mine in Nevada, produce battery-grade lithium through evaporation. 

Chile’s Salar de Atacama is ideal for lithium mining because the lithium-containing brine ponds evaporate quickly and the solution is concentrated into lithium carbonate and lithium hydroxide used in EV batteries. One complicating factor is the lithium often occurs with magnesium (Mg).

The Mg has to be removed by adding slaked lime to the brine, which reacts with the magnesium salts and removes them. A common industry axiom says that the ratio of Mg to Li in brines must be below 9:1 or 10:1 to be economical.

A more “political” obstacle is the social unrest happening in that part of the world, along with a newly invigorated sense of resource nationalism. 

Back when Chile was governed by right-wing dictator Pinochet, lithium was classified as a strategic resource due to its use in nuclear fission. As a result, private mining companies are required to partner with the state, as Albemarle has done, or obtain a special permit to mine lithium on their own. However the government has yet to provide guidelines on obtaining this permit, called a CEOL, and that has spooked a number of would-be foreign investors. A uniform royalty and tax regime is also lacking.

Since lithium prices started climbing in 2014, Wealth Minerals is the only new player to receive permitting required to complete exploration work in the Salar de Atacama, having partnered with Chilean state mining company Enami.

Earlier this year Santiago-based SQM delayed a planned expansion to more than double its production of lithium carbonate to 120,000 tonnes, until the end of 2021. Competitor Albemarle has sparred with the Chilean Economic Development Agency (CORFU) over increasing its quota to 2 million tonnes lithium carbonate equivalent (LCE), finally reaching an agreement this past January. 

Reuters quotes Joe Lowry, an independent lithium industry consultant, saying that Chile is “disappointing the industry” and that if expansion plans keep getting pushed farther out, it could cause “uncertainty and complexity in supply chains”. What would Tesla/ Panasonic, Chevy or Nissan do if they no longer had a steady supply of lithium?

The second largest producer also has problems with water

The number one and two lithium giants, SQM and Albemarle, for years have blamed each other for over-exploiting their water rights in the Salar de Atacama, where they operate just 12 miles apart. The Chilean government, fearing a water shortage, last summer put restrictions on water use in the salar.

Argentina is considered to be a risky place for mining companies to do business. Despite the end of 12 years of leftist rule, a shaky economy and a lack of regulatory clarity has meant the mining industry and its investors are hesitant. 

In September thousands of protesters hit the streets of Buenos Aires demanding the government take action to address the deepening economic crisis, amid reports of rising hunger. 

Also, lithium grades in Argentina are low, around 600 milligrams a liter, compared to Chile’s Salar de Atacama - the main production area - which average 863 mg/l.

How about Bolivia, the third side of the “lithium triangle” stretched across Chile, Argentina and Bolivia? Lithium contained in Bolivian salars are higher in altitude, not as dry, and contain more magnesium and potassium than in neighboring Chile, making the extraction process much more complicated, and costly.

The Salar de Uyuni’s higher rainfall and cooler climate mean that its evaporation rate is not even half that of Chile’s Salar de Atacama.

Bolivia also has limited infrastructure compared to Chile, Argentina or the US, and lacks access to the sea, not to mention a leftist government led by Evo Morales who has proven to be a resource nationalist prone to expropriating foreign-owned mines and oil and gas assets. 

For more read Bolivia: Where revolutionaries and lithium miners go to die

The Bolivian government this week canceled a joint venture with a German company, ACI Systems Alemania (ACISA), to develop a large lithium project in its southern highlands. Spanish news agency EFE said President Morales overturned an earlier order permitting the $250-million lithium operation, amid protests in Potosi, where the JV planned to build a lithium hydroxide plant. The protesters wanted a higher royalty percentage than they were offered. 

Cypress Development Corp. (TSX-V:CYP)

Given the problems we have outlined thus far in just about every country that mines lithium, where can an end-user go for stable pricing and secure supply? How about Nevada, in 2018 voted the best jurisdiction for mining investment in the world? 

Globally, battery makers and automobile manufacturers are scrambling to ensure they have enough supply of the silvery-white metal.

Reuters analysis shows that automakers are planning on spending a combined $300 billion on electrification in the next decade.

How will the United States obtain enough lithium for the electric-vehicle storm of demand that is brewing?

The US only produces 1% of global lithium supply and 7% of refined lithium chemicals, versus China’s 51%. The country is about 70% dependent on imported lithium. 

To lessen US lithium dependency will require the building of a mine to battery to EV supply chain in North America.

The first step is to develop new North American lithium mines.

According to Visual Capitalist, Silver Peak only produces 1,000 tonnes per year of lithium hydroxide, within a current lithium market of roughly 280,000 tonnes per annum of lithium carbonate equivalent (LCE), a term that encompasses both lithium hydroxide and carbonate used in EV batteries.

Silver Peak is the only producing lithium mine in the US, but there are other properties that could become the next big producer. The old adage, “To find a mine look around a mine” applies here. Most lithium juniors are within the same Clayton Valley as Silver Peak. All are in Tesla’s home state, Nevada.

Our favorite lithium property, Cypress Development Corp’s (TSX-V:CYP) Clayton Valley Lithium Project, hosts a non-hectorite claystone indicated resource of 3.835 million tonnes LCE and an inferred resource of 5.126 million tonnes LCE. A 2018 PEA showed a net present value of $1.45 billion at an 8% discount rate, yielding an internal rate of return (after tax) of 32.7%. Payback is just under three years. 

Cypress has successfully produced lithium carbonate and lithium hydroxide that can be marketed to end users, like electric vehicle battery manufacturers. Metallurgical testing shows 83% lithium recovery. A Pre-feasibility Study (PFS) is expected by year-end. 

According to the PEA Cypress also has a unique and potentially extremely lucrative opportunity to mine rare earths at its Clayton Valley Lithium Project. REEs were detected in leach solutions from hole DCH-2 in all samples, ranging from 100 to 200 ppm. The rare earths include scandium, dysprosium and neodymium, in order of economic value (ie highest to lowest price).

Cypress ran diagnostic leach tests and determined there is the potential to recover these elements, along with potassium, magnesium and other salts. From the PEA:

Using just the 1-hour leach test extractions and an annual feed rate of 5.475 million tonnes, the project, for example, could generate 10 to 15 tonnes of scandium, 25 to 40 tonnes of neodymium, and 5 to 10 tonnes of dysprosium in solution as potentially recoverable oxides. Additional test work is warranted.

Conclusion

Imagine being a lithium end-user requiring a secure supply of lithium carbonate or lithium hydroxide. If you get it from Australia, producers are under constant pressure to balance high cap-ex and op-ex against low spodumene prices, a situation that is likely to drag on. One operation has just been shuttered, to weather low prices. How many others will follow? 

Lithium brine producers are in better shape given they are receiving 20 times the price of a tonne of spodumene concentrate, for a tonne of lithium carbonate. Or $12,000/t if they can convert the carbonate to hydroxide. 

However, South American lithium brine production has been flat - with growth hampered by squabbles between producers, and the government, over access to water in the bone-dry Salar de Atacama. Chile doesn’t make it easy for foreign companies to mine lithium, which is still on the books as a strategic resource. Finally, a wave of social unrest has just washed over Chile, turning the Latin American lithium/ copper powerhouse from an economic miracle into a disaster, overnight. Its neighboring rival is no better off; Argentina’s economy under a conservative president has been sucking wind for years. The country just elected a left-wing government unlikely to be mining-friendly. 

Bolivia, despite having significant lithium reserves, has yet to develop even one mine - its socialist President Morales has an electoral responsibility to respect the wishes of the poor, and citizens opposed to mining. 

Cypress Development Corp has a monster lithium deposit right next to Silver Peak, America’s only producing lithium mine whose grades are rumored to be dropping. The PEA estimates all-in production costs to be around $4,000 per tonne. If lithium carbonate stays at $10,000/t, Cypress is looking at a $6,000 per tonne margin - a very profitable operation that can survive any cycle in the mining industry. 

Unlike Australia’s beleaguered spodumene producers who can’t possibly make ends meet at $500/tonne. Their only choice is to fold their tents and go home, or try to increase production to avoid losses, thus adding to the supply glut. Look for more mine closures Down Under to preserve cash in the months ahead, and marginal producers getting crushed, in what is setting up to be a lithium battle royale in Australia, where only the fittest hard-rock producers can survive.

By Richard (Rick) Mills

www.aheadoftheherd.com

rick@aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com
Site membership is free. No credit card or personal information is asked for.

Richard is host of Aheadoftheherd.com and invests in the junior resource sector.

His articles have been published on over 400 websites, including: Wall Street Journal, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

Copyright © 2019 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules