Teil 3:
There are several good examples of companies doing what I described. You've probably seen stories recently about Lithium One Inc. (TSX.V:LI) acquiring good properties on Salar de Hombre Muerto in Argentina. The area has historically good chemistries in terms of that magnesium-lithium ratio. Grab sampling on these sites indicates good lithium concentrations. That's the kind of property that is available if you look for it.Amerpro Resources Inc. (TSX.V:AMP.A) and Rodinia Minerals Ltd. (TSX.V:RM) would be two other examples. They're looking in Nevada near the old Foote Minerals operation, which Chemetall now owns and has been operating for a number of years. Those brines have historically had extremely good chemistries; they've produced in the range of 5,000-10,000 tons per year for decades. Interestingly, the brines in Nevada are more suited to producing lithium and not really economically viable potash.You obviously never know until you drill, but you'd expect them to be of similar quality for lithium for Amerpro and Rodinia. And of course Nevada is politically stable; it's a good part of the world with a good record with mining and no land claim issues outstanding. You know what you're getting into.Similarly, we like stories such as Orocobre Limited (ASX:ORE) and Lithium Americas Corp. that operate in Argentina. Lithium One's new property on Salar de Hombre Muerto, just down the road from FMC's great lithium-producing area, isn't the size of some of the others that are in the media more extensively (such as Salar de Uyun in Bolivia or Salar de Atacama in Chile), but it is regarded as one of the prime properties on earth because of its chemistry, its history and its hydrogeology.TGR: And Orocobre?JH: Orocobre has properties on the Salar de Cauchari and Salar de Olaroz in Argentina, and politically Argentina's stands head and shoulders above some other jurisdictions Again, a good project, a very good area, very accessible. And from what I've seen, hands down, Orocobre may have the most knowledgeable management team I've run across.Of the juniors in Argentina that are at the exploration stage, they're ahead of everyone else. They are test-pulling brine out of their deposit and have evaporation ponds up and running. I've seen them in action. They aren't full-scale yet, but everyone else is just starting to do their drills and their characterization if they're lucky. Orocobre has done all of that. If everything works out in terms of the chemistry, they could be one of the early players into production.It's relatively north of some of the other salars. Good access, probably only an hour or so from major highways, so transport issues are relatively minimal. That's a huge benefit, because some of the other salars are very remote.Lithium Americas also is on Cauchari, Olaroz and several other salars. Again, a very good group. All of these companies seem to have very tight, very good management teams, which is also critical because you want to get these projects into production.TGR: Any others?JH: A couple of other names I should highlight are New World Resources (TSX.V:NW) and Western Lithium Corp. (TSX.V:WLC). New World has properties
in Bolivia. Everybody is excited about Bolivia because it is the Saudi Arabia of lithium with Salar de Uyun. There are issues with de Uyun, chemical as well as political. It has very high levels of magnesium. As I explained, if the magnesium-lithium ratio is sort of 10:1 or better, you still might have something that's economic-but barely. In large portions of de Uyun, the ratio is 30:1-very difficult to be economical. New World also has property that I believe is south of de Uyun, on Salar de Pastos Grandes. The area they're in has extremely good magnesium-to-lithium ratios. Again, others have explored the area; the hydrogeology looks right. We won't know until drill holes and wells are in, but things look good, and the land claim they're on is private. The government has never stepped on private land claims in Bolivia. The management team there already has a good relationship with COMIBOL, the state-owned mining authority. John Lando, New World's president, and Joan McCorquodale, its Exploration VP, have worked in Bolivia for extended periods. They know the land, the people and what they need to do to get into production. So that's another story we like.
TGR: How about Western Lithium?JH: For scale and political stability, we like the clays and we like Western Lithium. If their process proves out, they should be able to produce a fair amount of potash along with the lithium, which will keep their relative costs down. If they're lucky and hit an absolute home run, they may even be able to produce hydrofluoric acid, which would be a cash cow for them. That's a bit "iffier" but they have a huge resource. They can scale up without damaging that reserve because it's basically open-pit mining. And they're in the United States (Kings Valley in northern Nevada). Everybody recognizes the value in producing in a politically stable jurisdiction, even if it does cost a little bit more. So, we like WLC; it's a good story.TGR: Any other suggestions?JH: In general, you need to look at the viability of the project, the viability of the management team and diversification. Don't put all your eggs in one basket, because there's always a chance that even if it's on a great property in an area that's historically been wonderful, a company could be an unlucky one that finds itself drilling into an isolated aquifer with bad chemistry, or that hits a rotten area that isn't as porous as everywhere else and they can pull only 1,000 tons a year production out of a site. You just don't know until the holes are in the ground and production begins.The economics favor even a small company that can produce 10,000 tons of lithium carbonate equivalent a year, because you're looking at $65 million in revenue. The cash-flow margin for a company with good brine in place is probably at least $4,000 a ton-probably more like $5,000 on a variable cost basis. You're looking at a complete payback in a year and a half or two years.TGR: And minimal capex.JH: The entire operation-to set up the facility, dig and line the ponds, do all the processing, everything-you might be talking about $60 million or $80 million. So for brine, very definitely; for hard rock, not necessarily. A few companies have found pegmatite (the spodumene-type deposits that are near surface) and maybe can establish a shovel-and-blast type operation from surface, but by and large, they have all the costs of setting up a hard rock mine.When you're doing this with brine, on the other hand, you dig a few pits; line them with polyethylene; basically start pumping water, and then sit back to let nature do its thing. You're really moving a fairly concentrated material out with no additional processing required, other than the wind and sun. This is neither the mining nor the capex that most people know.TGR: Is clay an attractive alternative to brine?JH: The advantage with the clays, such as the hectorite deposits in Nevada, is a substantially higher lithium concentration than in most of the brines you'll ever find. They're open-pit operations and the deposits are close to the surface, so their cost is relatively low. They've been proven out to some extent in terms of cost and the flow processes to get the lithium out. Engineering work completed by Chevron Corporation (NYSE:CVX), and later by the U.S. Bureau of Mines in the 1980s, is now being advanced by Western Lithium, the only company I know that's really actively working in this area today. They have a process that is likely to be more expensive in producing lithium than a good brine deposit, but it also may be substantially cleaner as an end product. With fewer contaminants than you'd derive from a brine, this would potentially mean much lower cost to a manufacturer who would be able to avoid all the secondary refining needed to produce battery-grade lithium extracted from brine. Bulk-grade lithium carbonate equivalent sells for about $6,500 per ton, but battery-grade lithium carbonate equivalent sells for about $45,000-$50,000 a ton. It's simply more valuable and it has undergone a number of other processes to basically create something that can be used in batteries.TGR: But won't prices like that drive the price point up high enough to hamper the growth in lithium demand we've been talking about?JH: Not really. Raw lithium accounts for only about 1% of final battery cost, so even refined lithium doesn't add a substantial amount to cost. So I stand by what I said. Lithium demand will continue to grow.Toronto-based Jon Hykawy, who earned his PhD in physics (University of Manitoba, 1991) and an MBA (Queen's University, 1997), spent four years in capital markets as a clean technologies/alternative energy analyst before being named lithium analyst at Byron Capital Markets in August. Jon began his career in the investment industry in 2000, originally working as a technology analyst concentrating on the lithium space. Jon has become a valuable resource on everything about the light, silver-white metal-from supply and demand to exploration and production. He has extensive experience in the solar, wind and battery industries, conducting significant research in the areas of rechargeable batteries, from alkalines to lithium-ion to flow batteries.
