Germans Promise The Earth To Build Lithium And Magnesium Hydroxide Plants And Further Develop The Lithium Downstream In Bolivia

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Includes: ALB, BCCMY, DMLRY, PCRFY, PKX, SSUMF, TSLA
by: Juan Carlos Zuleta
Summary

It has just been known that the Bolivian government has chosen the German firm ACI Systems GmbH as a partner for industrialization of the lithium of Salar de Uyuni.

ACI Systems is expected to invest US$1.3 billion for a cathode and battery plants while Bolivia would contribute with US$0.9 billion for production of lithium and magnesium hydroxide.

The project would start in 2018 and construction of the four plants will take between 18 months and 3 years.

A gross profit of US$1Billion a year and the generation of thousands of direct and indirect jobs are estimated for the entire project.

There are many incongruities in this information which I deemed it necessary to discuss first with subscribers to my exclusive research service denominated Lithium Investing & Beyond.

A previous version of this article was first published on April 22, 2018, as a Marketplace piece for my subscribers only.

This article discusses a series of confusing news items regarding the recent decision by the Bolivian government to select the German firm ACI Systems GmbH as a partner for lithium industrialization.

At the outset, let me explain the origin of the lack of clarity. Since the end of 2016 until about a year ago the former Evaporite Resources General Management (Gerencia Nacional de Recursos Evaporíticos - GNRE, in Spanish) was in charge of two contractual processes involving lithium in Bolivia, one (related to construction of an industrial lithium carbonate (Li2CO3) plant in Salar de Uyuni) more formally carried out than the other (referring to selection of a partner for lithium industrialization in Bolivia). Towards the end of April 2017 the newly-created lithium agency Bolivian Lithium Deposits (Yacimientos de Litio Bolivianos – YLB, in Spanish) came into play not to contribute to clarifying things in any way though. The lack of transparency in management of lithium in Bolivia has permeated all actions by the government ever since president Evo Morales inaugurated the construction of the pilot lithium project more than a decade ago, but has reached intolerable levels of acceptance in the last three years or so. Let’s review some of the facts.

First, after a number of unsuccessful attempts to develop its own lithium extraction technique, in August 2015 the former GNRE hired the German firm K-Utec Ag Salt Technologies for 10 months to elaborate the final design and detailed engineering of the aforementioned industrial Li2CO3 plant. As I told my readers in a previous article, K-Utec failed to deliver its consultancy products on time but neither GNRE nor YLB provided a convincing explanation as to the reasons for a delay that may have more than doubled the term of the original contract. What happened? It all indicates that they simply tried all along to cover their back while K-Utec strove to complete not only the consultancy assignment for which it was commissioned but also the new process of lithium extraction it also had to develop for which it was not hired. So by the time (August 2016) Mr. Heiner Marx, CEO of K-Utec, and I were interviewed by Industrial Minerals my supposition that the German firm would have started from scratch and hence would require more time to complete its task was confirmed. It was also clear by then that without K-Utec’s consultancy products, it just didn’t make sense to start a bidding process for construction of the industrial Li2CO3 plant. However, presumably pressured by the government and public opinion, in November 2016 GNRE called for expressions of interest from foreign specialized firms to undertake this task. As shown in an archived note available on the web, on April 24, 2017, twenty six firms submitted their expressions of interest in spite that K-Utec’s consultancy products were not yet delivered. This was deemed by the former GNRE as a real success albeit only a few days later the government canceled the call on the grounds that none of those firms had been able to complete correctly the forms included in the call inviting them to resubmit their expressions of interest by May 25. Despite the celerity of this action, it’s highly likely that YLB was only trying to gain some time in the absence of results from K-Utec’s work. According to Technical Report GNRE-DPL-018/2017 dated June 8 (no longer available on the web), ten out of seventeen new expressions of interest submitted to YLB in May, qualified for the second round of the bid aimed at requesting proposals. Although we don’t know for certain when K-Utec actually delivered the final design of the industrial plant, as indicated in a previously mentioned contribution, there is evidence that by November 20, 2017 the detailed engineering was already available. Last thing we know about this contractual process is that on January 24, 2018, only four out of ten firms that expressed interest in constructing the industrial Li2CO3 plant submitted their technical and economic proposals and that YLB was supposed to select the best proposal in the following 30 days to sign a contract with the chosen firm in March or April. To close this argument, it’s important to emphasize that ACI Systems appears to have participated all along this contractual process, first in association with Kaiser S.R.L and Fima and later on in partnership with AFK.

Second, we have no idea when the second contractual process ever started neither do we know anything about the specific terms under which it was carried out. This is indeed surprising given the importance of the matters involved. In what follows, we rely on two sources of information (a news article published by La Razon on July 2017 and YLB’s 2017 Annual Report disseminated in the first months of this year) to describe the process of selection of the company to be in charge of lithium industrialization in Bolivia. According to La Razon, towards the end of July 2017 the executive manager of YLB informed that six foreign companies were competing to be Bolivia’s strategic partner in the production and trade of lithium batteries. As he explained, to become partners of Bolivia, they would have to: (1) Accept Bolivia as the major shareholder in the partnership; (2) guarantee markets; and (3) have cutting-edge technology. In the following days, he added, they will get in touch with some embassies of those countries that possess this type of industry to communicate them that Bolivia is open to receive proposals from specialized companies in the field. He then concluded that one of those countries is the Republic of Korea known for having private companies with sufficient experience in manufacturing of this product. In this regard, the ambassador of Korea in Bolivia declared that Korean companies such as Samsung Engineering and LG Chemical not only have enough experience but also developed their own technology and for that reason they are interested in becoming strategic partners of Bolivia for this project. By contrast, YLB’s 2017 Annual Report refers to more concrete activities performed by YLB to begin face-to-face meetings and actual negotiations with four foreign companies interested in industrializing the Bolivian lithium: 1) ACI Systems GmbH (Germany); 2) Central America Nickel Inc. (CAN) – Cvmr Corporation (Canada); 3) Penxing International Mining Co., Ltd.; and 4) Rosatom (Russia). We can only guess at this point that more significant players refused to participate mainly due to the first rather restrictive condition (in relation to control of the new joint venture) imposed by the Bolivian government but I wouldn’t discard other reasons such as lack of credibility in handling of the contractual process either.

Based on the above considerations, we are now in a position to discuss the recent decision by the government of Bolivia to choose ACI Systems GmbH as a partner for lithium industrialization in the country, which was in line with what I anticipated in a previous article.

As shown in the previous versions of the present analysis (available for my Marketplace subscribers only), the earliest news about the resolution of the government was given by another article published by La Razon, citing YLB’s general manager, according to which: (i) the strategic alliance includes "the production of lithium hydroxide (LiOH) based on residual brine, the installation in Bolivia of cathode materials and battery plants on industrial scale that will be destined for the European market, specifically the German electromobility industry and the alternative energy systems that are used in Europe"; (ii) YLB will form a joint venture in which it will have a 51% majority stake; (iii) the project would start in April of this year and the industrial lithium-ion plant would position Bolivia "ahead of the curve in development of projections of lithium industrialization in our region"; (iv) ACI Systems is expected to invest approximately US$ 1,300 million for the two plants (cathode material and batteries), while Bolivia would contribute to the JV with US$ 900 million programmed for the pilot and industrial phases of production (no longer of Li2CO3 but) of LiOH, "of which 50% have already been executed"; (v) the construction of the battery factory will take 18 months, but it is likely that the LiOH plant will be completed "a few months earlier"; and (vi) a gross profit of 1,000 million a year for the Li-ion battery plant and "the generation of 1,200 direct jobs and thousands of indirect jobs" are estimated for the entire project.

However, following three more recent reports published by Pagina Siete, Urgentebo.com, and ABI, another Bolivian newspaper, a respected news website, and the government news agency, respectively, citing mainly the Vice-minister of High Energy Technologies, it has also been known that ACI Systems will (i) use residual brines, meaning those already existing in Salar de Uyuni or that will require no further pumping from wells, in four plants, including one for magnesium hydroxide [Mg(OH)2], that should be “ready [for production] in about three years”; and (ii) guarantee markets in Germany and Europe for lithium batteries through its strategic alliances with companies that “are devoted to sale of batteries for cars such as Varta”, whose “production of batteries for cars in 2009 was 700,000 per month.”

I just found too many incongruities in all this information.

To begin with, YLB would have indicated that ACI Systems will produce LiOH from residual brine without providing any concrete information on the specific technique to be utilized. One possibility is that this method of production might bear certain similarity to the one invented and patented in 1968 by Lithium Corp. of Americas Inc. This in essence would mean that after a previous process of concentration of lithium and sodium chloride (residual) brines, presumably in solar evaporation ponds, as well as some drastic reduction of the magnesium content, electrolysis would be applied to obtain LiOH. One problem with this method of extraction would be though that it doesn’t consider producing Mg(OH)2. In this sense, YLB would be thinking of pursuing two consecutive lines of production: One, to produce Li2CO3 with an improved process of production developed by K-Utec but still based on extensive use of solar ponds, and two, to produce LiOH and Mg(OH)2 out of the brines left over after application of the rather inefficient first method of production with a new (and unknown) technology most likely developed by K-Utec during the extra time it had while working on the final design and the detailed engineering of the industrial Li2CO3 plant. Nevertheless, something we can be certain about is that ACI Systems is not likely to produce LiOH (let alone Mg(OH)2) with the kind of technique developed by YLB as described in its 2017 Annual Report (see page 28) simply because that method would imply using Li2CO3 as a starting point of the process and YLB has been saying all along that those two compounds will be produced from residual brine. Before we touch upon in greater detail the magnesium question, we need to ask ourselves over and over again why ACI Systems was chosen by the government of Bolivia to produce lithium and magnesium hydroxide given the fact that it doesn’t possess any experience or knowledge to do so.

Secondly, as far back as 2011 I argued that in order for Bolivia to become the energy center of the world, it needed to introduce itself into the markets of three strategic energy resources: Lithium, magnesium and sodium. I then went on to emphasize that “this will only be possible if it utilizes alternative methods to extract its evaporite resources that are most likely to go beyond the use of solar evaporation. And here Bolivia may have an additional advantage. Unlike its neighbor competitors (Chile and Argentina), it does have considerable natural gas reserves that could eventually shift to this new promising application.”

In addition, I have since sustained in an interview disseminated by EVWorld.com in April 2017 that:

“Bolivia has focused its efforts on building solar evaporation ponds, which occupy hectares of land and require ‘a lot of land movement’ and ‘a lot of fuel’. In addition, this method of evaporation is recommended for places where there is practically no rainfall, such as Salar de Atacama (Chile), where the evaporation rate is more than twice that of Uyuni. In the Bolivian case, methods of chemical separation or thermal evaporation could have been applied taking advantage of the country's natural gas reserves. One of the problems of Bolivian lithium is its low concentration in brine when compared to what happens in Chile and Argentina. However, this relatively low concentration is accompanied, in contrast, by a high magnesium presence. It is known that magnesium today has industrial properties that (we) have not been able to take advantage of due to lack of knowledge and research, and that Chinese and Korean companies are interested in Bolivian salt lakes for that reason. The value of magnesium in the salt flats of Uyuni could be even higher than that of lithium, and magnesium alloys could make a real revolution, especially in the automotive sector. It would therefore be necessary ‘to change the chip’, something that ‘would consist of Bolivia's entry into the development of magnesium as a main resource and lithium as a secondary (one)’, something that will involve additional work because it would require a lot of energy.”

Chances are K-Utec got access to an elaborated version of some of these insights as early as July 2016 through a high-level lithium mining executive from Chile to whom I candidly handed over at the time a presentation of mine on the (later on unfulfilled) promise of a future consultancy and made a twist to accommodate the approach to its client’s needs. To the extent that K-Utec was fully aware that Bolivia had already spent hundreds of million dollars in the construction of solar ponds, it was no longer possible to strictly follow the Korean way to extract LiOH [and, consequently, Mg(OH)2, cathode materials, and even Li2CO3 as well] directly from brine (See Figure 1). So they may have been forced to reinvent the concept of “residual brines”, meaning the brines being left after the process of production of potassium chloride, which the government of Bolivia is eager to push with its newly built industrial plant.

Figure 1

Korean Process to Produce LiOH Directly from Brine

Source: Presentation by Korean Task Force to the Government of Bolivia, August 2010.

All of this would allow us to verify once again the ineffectiveness of both the former GNRE and the current YLB during the last 10 years in the discovery of Bolivia’s own process of lithium extraction, as well as the rescue operation by the aforementioned German firm of an adrift project despite expenditures of close to US$ 500 million on processes of more error than trial. Some questions also arise here regarding the strange resemblance of the ACI System proposal to the Direct Synthesis of Cathode Materials - Process KB3+ invented by the Korean Task Force in 2010 (see again Figure 1) which seems to have been capitalized by Posco (PKX), the energy requirements not foreseen in the classic process of obtaining Li2CO3 from brines, as well as the yield of the new technology as a whole. Incidentally, it all indicates that Posco will apply this technology for the first time to produce 25,000 tons of Lithium Carbonate Equivalent (LCE) at its recently acquired lithium property in Salar del Hombre Muerto, Argentina. According to a recent news in Spanish, at a meeting with Salta’s governor, Posco’s executives announced their plans to build two plants, one on the northern part of the above mentioned salar to produce lithium phosphate (Li3PO4), and another, to be located at the Industrial Park in Salta, to produce LiOH utilizing Li3PO4 as an input.

Thirdly, as I have shown in an article published on February 20, 2018 for my subscribers only and available for the public in general on April 24, 2018, the German choice to produce cathode material and lithium-ion batteries on an industrial scale does not seem so promising. To begin with, it’s important to point out that although in 2015 the German Li-ion battery firms accounted for 26% and 49% of European production and production capacity, respectively, European actual production and production capacity represented only 0.5 % and 2.4% of global production and productive capacity, respectively. Moreover, the investment prospects in a new battery plant in Germany by the consortium formed by Daimler (OTCPK:DMLRY) (Germany) and BAIC (OTC:BCCMY) (China) for an estimated amount of US $ 500 million are totally insignificant when compared with other executed and planned efforts by Tesla (TSLA) (United States) and Contemporary Amperex Technology Limited (CATL - 1447922D:CH) (China). True a number of companies and research institutes have recently formed the Fab4Lib consortium led by TerraE Holding GmbH and composed by “StreetScooter, BMZ, Umicore, Custom Cells, Litarion, Manz, Siemens, ThyssenKrupp, RWTH Aachen and ZSW among others” to begin the research and development of large scale battery cell production processes. The 18-month project was launched in January 2018 and is being funded by the German government. It will develop a series of demonstrators and plans to produce up to 34 GWh by 2028. But it is too early to conclude how things will unfold with this huge group of companies and research institutes and whether it will come online soon with a competitive product.

In addition, according to my competiveness analysis of electric vehicle sales by country of origin for the period 2011-2017: 1) China appears as the most competitive country in production and sale of electric vehicles, as well as the best potential partner for Bolivia to develop its energy lithium value chain due to the volume of Li2CO3 equivalent (LCE) used in the electric cars it produces, followed by the United States and Germany, in that order; 2) despite the fact that the three countries proved to be the most competitive and the best potential partners for Bolivia or any other lithium producing country, only China maintains its No. 1 position when the procedure is applied to the last three and two years; 3) these findings can be explained to a large extent by the percent variation of the EV sale market share and the LCE use share in those countries, where China reflected levels 3 times higher than Germany in the first variable and 7 times higher than Germany in the second variable; 4) in recent months, both China and Germany would have performed reverse engineering of vehicles produced by Tesla, which would demonstrate the competitive advantage of the US in terms of quality with respect to China and Germany; 5) in relation to the analysis of potential partners, based on the use of LCE, it was found that in the study period (2011-2017), the United States achieved the highest average capacity in its lithium-ion batteries (30.28 kWh) , followed by China (26.83 kWh) and Germany (14 kWh); and that China was the leader in the production of fully electric vehicles (71%), followed by the United States (56%) and Germany (50%), in that order; and 6) given all the above considerations, it would seem that President Morales was wrong again when arguing that Germany would be the most advanced and advantageous option for Bolivia.

In this context, the government should clarify why the lithium industrialization was awarded to a German company with no recognized international experience in the development of complex lithium mining projects as well as manufacture of cathode materials or batteries. In fact, leaving the mining area aside, although the "Battery Storage" business area is listed on its website, it only appears as a supplement to "Photovoltaic Systems" (PV). As described in its explanatory "folder", the company provides "turn-key" solutions for automation, robotics and precision assembly tasks to automate manufacturing, measurement and testing processes in the first business area, while it only distributes PV systems and develops different solutions and concepts for the individual customers’ demand and specific projects in the second one. Therefore, I have difficulty to understand the reasons why both the general manager of YLB and the Vice-minister of High Alternative Energies believe that "the technology, the type of batteries and the profitability of the project tipped the balance in favor of the German transnational", and how ACI Systems Gmbh will produce lithium cathode materials, as well as lithium battery cells for the German electromobility industry, particularly given the fact that currently Varta, its reportedly strategic battery partner, doesn’t produce this kind of products. This would be almost like asking today Solar City, in a hypothetic strategic alliance with Albemarle (ALB) in Nevada (NYSE:USA), and without Panasonic (OTCPK:PCRFY) (and Sumitomo - OTCPK:SSUMF) to produce 18-36 months from now not only lithium cathode materials but also lithium-ion battery cells for Tesla’s electric vehicles. YLB will also have to demonstrate the economic viability of the German proposal after the announcement by CATL, China’s largest battery maker, that it will build its first European EV battery factory in Germany to reach production of 14 GWh by 2022.

Finally, the government of Bolivia needs to explain as well why it is placing all its bets on a company that in 2012 “filed a business report for the last time in the Federal Gazette” in Germany in which it “had modest 62 thousand euros of equity.”

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.

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