The Truth About The Discovery Of Lithium Deposits In Peru

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Includes: LIT, PLUUF
by: Juan Carlos Zuleta

Summary

There has recently been a lot of hype around the discovery of lithium deposits in Peru.

Here I start identifying the arguments that are either not true or nonsensical about it to conclude with a preliminary view of the implications for the lithium project in Bolivia.

In closing I show the extraordinary evolution of the stock of the Canadian company holding the concession rights to exploiting these resources with a word of caution for investors.

This article was first published on July 20, 2018, as a Marketplace piece for my subscribers only.

Although the news (See, for example: here.) is generating many headlines in the international press, it's imperative to put forward some clear criteria regarding this important event.

First, it would not be the largest identified lithium resources on earth. In fact, according to the latest data from the US Geological Survey, the 2.5 million tons of identified lithium resources in Puno, Peru, would reach only 26%, 28% and 30% of those existing in Argentina, Bolivia and Chile, respectively. In addition, it could not "dethrone" any of these countries because in the first case Argentina already produces close to 30,000 tons of lithium carbonate equivalent and plans to reach some 80,000 tons in the next five years. In the second, Bolivia practically does not produce anything yet and aims to produce only 5,000 tons of CLE although no one knows when and, in the third, Chile projects to at least double its current production in the next five years so that it could reach a production of close to 200 thousand tons per year. It's evident that with between 50 and 75 thousand tons of lithium carbonate per year that it plans to bring online in the following years, the Canadian company will be able to aspire at the most to a fifth or sixth place in the global production of lithium.

Second, I very much doubt that the company Masucani Yellowcake, a subsidiary of Plateau Energy Metals (OTCQB:PLUUF) of Canada, will complete its feasibility study by the end of 2019 so as to begin production by the end of 2020. Given the drilling will continue until the end of this year and since these are mainly uranium deposits, it's foreseeable that the environmental authorities of Peru will impose additional restrictions in this field and the identification work of the production technology will likely require more time than in the case of spodumene deposits (lithium aluminum inosilicate, LiAl (SiO3)) like those found, for example, in Australia, currently the most important lithium producing country on the planet. The idea that the obtaining of environmental and other permits could be more agile due to the character of non-metallic mineral of lithium, according to Peruvian legislation, lacks the most elementary common sense because it's completely evident that the discovered deposits constitute metallic resources, which is why the regulatory framework will end up being improved sooner rather than later.

Third, it's not true that 90% of the lithium refineries are in China and it does not make any sense that the lithium from Argentina, Bolivia and Chile can be taken to Peru for processing and subsequent export. To begin with, it should be clarified that the information that 90% of refineries are in China refers only to spodumene minerals, which constitute less than half of the identified lithium resources in the world and, to finish, Chile and Argentina together already produce around 100 thousand tons of lithium carbonate equivalent in their respective countries, while Bolivia has just awarded the construction of its first lithium carbonate industrial plant to a Chinese firm. So I do not see why they could be interested in moving their lithium brines to Peru for its corresponding processing. Apparently, those in charge of the lithium project in Peru had no idea what they were talking about when they gave the press conference whose wrong information is now circulating around the globe. It also should be noted that this erroneous assessment of things contrasts sharply with the rather cautious behavior of Plateau Energy on its official website where I have not been able to find any of the data discussed in this analysis.

Fourth, there's terrible confusion in the lithium content data in the mineralized deposits of Peru with respect to those existing in the three countries that make up the so-called Lithium Triangle. In this regard, those responsible for the subsidiary of Plateau Energy in Peru do not seem to know that, on the one hand, although Bolivia's lithium resources in brines have an average of 500 ppm (or mg / L), the lithium deposits of Chile only in Salar de Atacama reach more than 1,400 ppm (or mg / L) and, on the other hand, the lithium content in mineralized deposits are not strictly comparable with those in brines, so the fact - very usual, by the way, that the deposits of hard rock tend to have higher lithium content than those found in brine does not imply much in relation to its quality or economic feasibility. What can be said in a preliminary way, however, is that the announced contents translated to percent of lithium oxides (Li2O) would lead us to conclude that we are not really facing the world's richest hard rock lithium deposits.

In this context, the Bolivian authorities do have many reasons to be concerned about this project due to the fact that mineralized lithium resources do not require as much time for their development and start-up as has been the case of those existing in the Salar de Uyuni, whose project has already exceeded a decade without tangible results. It can be presumed then that if Peru does indeed meet its goal of producing between 50 and 75 thousand tons of lithium carbonate equivalent until the end of 2020 (or even 3-5 years later), it will have far exceeded Bolivia's projected production of about 30 thousand tons of the compound by 2025. Needless to say, Bolivian delay could mean a new lost opportunity of progress and development for a country that deserves a better future.

In closing, in Figure 1 I show the extraordinary evolution of the Canadian company stock since the end of May of this year when the first announcement about the completion of test work on lithium-rich samples collected from the Falchani discovery was made and how it practically went to the sky following the recent press conference in Peru. As promising as it might be, the stock must be looked at with caution in light of the preceding arguments which essentially show a rather unnecessary sensationalistic approach taken by the aforementioned Peruvian subsidiary to an important lithium discovery – the first of its kind – in an investor-friendly South American mining country.

Figure 1

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