Is 100 Tons Of Lithium Carbonate Per Hectare A Good Rule Of Thumb For Lithium Projects Potential In Argentina?

|
Includes: GALXF, LAC, OROCF, SQM
by: Juan Carlos Zuleta

Summary

In this short note, I put Michael Langford’s rule of thumb about the potential of lithium projects in Argentina under scrutiny.

Eight projects are analyzed based on whether they performed at least a technical report following NI 43-101 guidelines and procedures, and whether they contain at least some measure of resources.

The selected projects comprise an area equivalent to 50% of Salar de Atacama and 15% of Salar de Uyuni.

Overall, Langford’s rule of thumb is found to: (i) be useful when both resources and reserves are contemplated; (ii) collapse when only reserves are considered; and (iii) have high variability.

After applying it to the projects studied, it is concluded that Enirgi and the consortium formed between LAC and SQM appear as the most promising lithium ventures in Argentina today.

A previous version of the present article was first published on June 19, 2017, as a Marketplace piece for my subscribers only.

Michael Langford’s recent tweet prompted this short note:

As simple as it might be, this rule of thumb constitutes a quick way to describe the potential of lithium projects in Argentina. As shown in Table 1, however, much needs to be said before we can conclude anything about its reasonableness.

Table 1

Lithium Projects' Potential in Argentina

Sources: [1]: Orocobre (i); [2]: Orocobre (ii); [3]: Enirgi; [4]: Lithium Americas; [5]: Newswire; [6]: Galaxy Lithium; [7]: OTCIQ; [8]: Lithium X; [9]: Oil and Gas; [10]: Orocobre (iii); [11]: Marketwired; [12]: International Lithium (i); [13]: International Lithium (ii).

But let me refer now to the information contained in Table 1. To begin with, the key criteria used to decide what projects to include in the analysis are whether they: (i) performed at least a technical report along the guidelines and procedures of NI 43-101; (ii) completed an NI 43-101 study as such; and (iii) finalized a Definitive Feasibility Study. Note that most of these studies were disseminated between 2016 and 2017.

It was found that eight projects met the first criterion, five projects conformed to the second one and only four fulfilled the third, which also observed the second at the same time.

In addition, lithium carbonate was quantified mostly in terms of resources rather than reserves. In fact, the eight projects under consideration showed at least one measure of resources, whereas only three projects reflected some measure of reserves.

Moreover, the total area of analysis (147,857 ha, or 1,479 km2) amounted to almost 50% of Salar de Atacama in Chile (300,000 ha, or 3,000 km2) and about 15% of Salar de Uyuni in Bolivia (1,000,000 ha, or 10,000 km2).

Furthermore, only six projects estimated production numbers, only three offered information on recovery rates and only five indicated their projected life.

Lastly, except for two projects, the rest of them revealed lithium concentrations ranging between 490 and 795 mg/L.

We are now ready to extract the main conclusions from Table 1. First, the global average of lithium carbonate resources per hectare turned out to be 126 metric tons when all numbers are taken together and 120 metric tons when it is calculated from the mean values of the three different categories of resources (i.e., measured, indicated and inferred). The numbers go down to 103 and 81 when resources as well as both proven and probable reserves are considered. Overall, this would provide some support to Langford's rule of thumb.

However, there are at least two problems with this quick way to describe the true potential of lithium projects in Argentina. One, that the figures practically collapse to 24 and 21 when only reserves are taken into account, and two, that they exhibit a relatively high variability as measured by the corresponding standard deviations also shown in the table.

Second, the definitive feasibility study of Orocobre (OTCPK:OROCF), the only lithium project (of the list in Table 1) already in operation, does not provide any data on reserves of lithium carbonate which might be inflating the measured rule of thumb, placing some doubts as to the true potential of the project. This is of utmost importance, since, following the USGS, reserves are “that portion of an identified resource from which a usable mineral or energy commodity can be economically and legally extracted at the time of determination”. Likewise, lack of information on the recovery rate of the operation puts into question both the estimated production as well as the life of the project. Hence, perhaps the time has come for this company to update its 2011 definitive feasibility study as soon as possible.

Third, out of the following three companies on the list, Enirgi appears to hold the perfect overall score (103), the third-highest resource measured rule of thumb (120), and the highest measured reserve rule of thumb (50). Despite their low lithium concentration, Enirgi’s mining properties seem quite promising. Maybe now is also the perfect time for this company to go public.

Fourth, the consortium formed by Lithium Americas (LACDF) and Chemical & Mining Co. of Chile Inc. (NYSE:SQM) appears in second position in terms of its overall measured rule of thumb (94), but holds the number one place as regards its resource measured rule of thumb (166) and ranks third as far as its reserve measured rule of thumb is concerned (21). Considering their relatively high lithium concentration, LAC-SQM’s mining concessions situate the consortium as the best lithium option for investors in Argentina today.

Fifth, Galaxy Resources (OTCPK:GALXF) scores only 34 overall, 53 when only resources are considered and 15 when only reserves are taken into account. In addition, lack of a recovery rate for this company casts some doubts as to the estimated production and life of the project. Nevertheless, it also exhibits the second-highest lithium concentration (753) of all companies in the table, which gives it some attractiveness for investors. To the extent that this company seems to have access to the largest mining area (38,500 ha), one needs to wonder whether more exploratory work can be accomplished to improve its measured rule of thumb indicators in the years ahead.

Sixth, the numbers for the other four companies in Table 1 don’t seem to be worth commenting on except for saying that none of them provides information on reserves or a definitive feasibility study, which introduces a great deal of uncertainty into the analysis of the true potential of these lithium projects.

In closing, much has been said about Argentina's potential to triple its current lithium carbonate production (i.e., 30,000 metric tons a year) by 2019. What is not completely clear, though, is where the additional 60,000 tons of lithium carbonate will come from two years from now.

The first option is, of course, Orocobre. But, after a recent downfall in production by 21%, we can no longer be 100% sure. At this point, can’t even expect this company will manage to ramp up production up to 17,500 metric tons from 11,845 metric tons in 2016, letting alone starting a new phase of production for another 17,500.

Enirgi Group is next on the list. This company claims it can produce 50,000 metric tons of Li2CO3 a year as early as 2019 with a method of production that reduces the evaporation process from 12-24 months to less than 24 hours. Following a recent press release, Enirgi’s demonstration lithium carbonate processing plant (the “DXP Plant”) is already producing at Salar del Rincón in Salta, Argentina, on a daily basis. This would be the first commercial scale plant in the industry to “successfully produce lithium carbonate without the use of traditional solar evaporation techniques.” Notwithstanding all this progress, it doesn’t necessarily follow that Enirgi will start producing at full capacity in two years. Hence, it appears reasonable to assume that no more than 10,000 metric tons of Li2CO3 will come on-line from this company by 2019.

Finally, we can’t expect any additional supply from LAC-SQM or Galaxy Resources in such a short time frame, mainly because they have both announced that they will use traditional lithium extraction technology that requires at least 24 months for the evaporation process alone.

This leaves us with only about 10,000 metric tons of new lithium carbonate equivalent supply coming from Argentina by 2019, directing our attention to other parts of the world for more lithium in the midst of a lithium battery and EV revolution.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.