Is Lithium 21st Century's Oil? Part II

Includes: FMC, SQM
by: Erik Bethel

<<<Click here for Part I

What is Lithium?

Lithium is considered the lightest solid element on earth. It is a highly reactive silvery metal and quickly tarnishes in air after just a few minutes. Due to its high reactivity, it only appears naturally in the form of compounds. The first lithium compound discovered was Petalite (lithium aluminum silicate) by a Brazilian chemist named José Bonifácio de Andrade e Silva in 1800. Several years later in 1817, pure lithium was extracted from Petalite by Johan August Arfwedson.

For a long period of time, lithium was considered not much more than a laboratory curiosity. But over the years, lithium’s commercial applications have expanded tremendously. First, the pharmaceuticals industry discovered that lithium had properties that affected brain chemistry (i.e. mood stabilizers used to treat bi-polar disorder). And later, lithium was discovered to have ideal qualities for laptop, camera, and mobile phone batteries. In the coming years lithium will have a significant global impact as hybrid and electrical vehicles switch to lithium-ion technology.

Lithium occurs in a number of rock minerals, but the lithium used in batteries is commonly obtained from brine deposits (i.e. dry salt lakes).

Where is Lithium Found?

There are two major types of lithium deposits: (a) Spodumene - a hard silicate mineral (i.e. glass), and (2) Brine Salt Lake Deposits – dry salt lakes containing lithium chloride (in South America these are called “salares”). Today, most of the world’s lithium comes from dry salt lakes because these deposits are more economically viable for making Li-Ion batteries. These lakes result when pools of salt water containing lithium chloride (LiCl) accumulate in places lacking drainage. Over the centuries the water evaporates leaving a dense layer of salt behind. Underneath the salt crust is a layer of brine — salty groundwater with a high concentration of lithium chloride. It is this brine that is pumped out and converted to lithium.

An estimated 70-75% of the world’s salt lake lithium deposits are found in South America. Chile is the world’s largest producer — not only because Chile already has highly developed mining, transport and processing infrastructure, but also because its climate and geography is favorable for the optimal solar evaporation that is central to producing lithium. Neighboring Bolivia purportedly has the largest known reserves but it does not currently produce any lithium.

Until 1997, most lithium carbonate was made from Spodumene, a silicate that is a compound of lithium and aluminum. In order to make lithium chloride from Spodumene, it must be first ground to a powder, calcinated at 1100 degrees Celsius, treated with sulfuric acid at 250 degrees C, put in a solvent to extract lithium sulfate, put in a separator to extract aluminum sulfate, and finally the lithium is precipitated out using soda ash. By comparison, the extraction from a salt lake is relatively simple and therefore considerably more economical and viable.

Is Spodumene irrelevant? No, because Spodumene still has characteristics that make it quite suitable for certain types of glass and high-temperature ceramics.

Commercial lithium deposits are found along high-altitude belts in the earth’s desert regions. Most of them are in South America where the salt lakes are known as salares. According to industry experts, South American salares in three countries alone (Bolivia, Chile and Argentina) hold 70-75% of the world’s global lithium reserves. Information on some of the major South American salares is provided below.

Argentina: Salar de Hombre Muerto – Owned by FMC Lithium (NYSE: FMC), a New York Stock Exchange-listed firm with a stock market value of US$4 billion. Hombre Muerto which literally translates as “Dead Man” is located in the remote north of Catamarca Province, 4,000 meters above sea level.

· Reserves: 360,000-400,000 tons at 0-30 meters of depth; 850,000 tons at 0-70 meters of depth with brine grades of 0.062%

· 100% of the production is for export. The product is transported by rail to Antofagasta (Chile) where it is exported

· Neighboring Salar de Olaroz is being developed by Australian-listed Orocobre. Bankable Feasibility study expected in 2010

· Salar de Rincon was being developed by Australian-listed Admiralty Resources but they sold it to the Sentient Group, a natural resources-focused private equity fund

Bolivia: Salar de Uyuni - It is located in the Potosí and Oruro departments in SW Bolivia 3,650 meters high. It purportedly holds half of the world's reserves of lithium. There is currently no mining plant at the site and the Bolivian government doesn't want to allow exploitation by foreign corporations. Instead it intends to build its own pilot plant.

· Reserves: 5,400,000 tons (different estimates suggest 9 million tons)

· Comibol (Bolivian State Mining Company) is investing roughly US$6 million in a small plant near the village of Río Grande on the edge of Salar de Uyuni, where it hopes to begin Bolivia’s first industrial-scale effort to mine lithium

· In early February 2010 the Bolivian government created “Empresa Nacional de Evaporíticos,” a national entity responsible for the development of the lithium, boron, phosphates and potash

· Indigenous groups near the Salar de Uyuni are pushing the government to grant them total or partial ownership of the lithium in the area. The new Constitution that Bolivia just passed in January 2009 could grant the demands of the indigenous groups. One clause could give the indigenous group control over the natural resources in their territory, strengthening their ability to win concessions from the authorities and private companies, or even block mining projects. Yet none of this has discouraged foreign enterprises from attempting to gain access to Uyuni’s lithium.

· Assuming Uyuni began operating, it could take as long as 5 years before the lithium carbonate would hit the market

· Other than Uyuni there are many other much smaller salt lakes in Bolivia in which the government has little involvement. These opportunities are being developed by private mining companies such as New World Resources

Chile: Salar de Atacama - is the largest salt flat in Chile. It is located south of San Pedro de Atacama, is surrounded by mountains. The Salar de Atacama contains one of the largest and best quality reserves of lithium-brine in the world with high concentrations of potassium, lithium and boron. A US Geological survey estimate pegs the reserve base of the Salar de Atacama to be around 3MM tons while the Chilean State mining agency (CORFO) estimates it to be 4.5MM tons.

· There is some friction between the local communities and the mining companies over water rights. Mining already consumes 65% of the limited water in the Salar de Atacama region

· The largest lithium chloride producer in Chile is SQM, a US$10 billion stock market value firm listed on the New York Stock Exchange

· Environmentalists are also concerned about the unique flora and fauna of the region, including damage to the habitat of the famous pink flamingoes

· SQM only employs several hundred people at the evaporation plant. Therefore, an expansion in lithium production will not bring great employment benefits to the region, adding to the complexities of balancing growth and the environment.

Disclosure: No stocks

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