Recharging lithium supply

By James Sean Dickson
Published: Friday, 20 March 2015

With much of the lithium industry transfixed by demand projections based on new market growth, James Sean Dickson, Reporter, examines the ability of the existing lithium suppliers to meet these forecasts.

Today’s lithium industry, it would appear, is about predictions — or forecasts, as those seeking assurance in more concrete terminology may wish to call them. Much of the focus on lithium as a 'commodity’ to extract, sell or invest in, have centred on future demand in a speculative manner, perhaps at the neglect of assessing the present supply situation.

It is generally accepted that supply will fall behind demand at some point in the foreseeable future — potentially as early as 2020, according to a recent Credit Suisse equity research report. 

The Royal Society of Chemistry deems lithium to have a high "supply risk", posting a score of 6.7, relative to low supply risk materials like potassium (4.5) and sodium (4), sourced from potash and soda ash, but behind the rare earth element europium (9.5) in terms of production security.

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Big players

Controlled by the industry majors — Sociedad Quimica y Minera de Chile SA (SQM), FMC Corp. and Rockwood Holdings Inc. (now part of Albemarle Corp.), which owns 49% of another large supplier, Talison Lithium Pty Ltd — the lithium industry’s supply situation has been compared to that seen in potash in the past.

Control of the market by dominant companies and an oligopolistic environment is similar to that of the agrimineral, but with the critical difference that extra supply is more achievable in the potash industry, where economic deposits of potash are more widely distributed across the world and the mining and processing of the mineral is relatively straightforward. 

Also unlike lithium, the potash business is driven by the mantra that more fertilisers will be needed to feed a growing population.

Expanding capacity at a potash mine is also a fairly simple operation where the size of the resource permits.  Increasing lithium production from brines – the world’s principal source of lithium – is much more challenging, although a number of explorers are now looking to develop scalable deposits of spodumene, hectorite and other lithium-bearing clays and micas.

Aside from the geological complexities, there are also political factors affecting the lithium industry with most of the world’s supply geographically concentrated in Chile.

Lithium production started in many companies as a by-product of potash extraction — this is the case for Chile-based SQM, the world’s largest lithium producer, which began production at its Salar de Atacama brine operation in1996.

The bottom line is that there are many more impediments for expanding lithium production than for expanding potash output, which has been one of the main driving factors behind the recent boom in exploration and investor interest in the mineral.

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FMC’s Salar del Hombre Muerto lithium
brine pools in Argentina. 
Jesse Allen, NASA.

Innovation

One industry player recently told IM that the innovative thrust seen in other mineral industries has not been expressed as effectively in lithium.

"The current production methods have not developed a great deal since the seventies," the source said. 

"Granted, it has worked for many years, but the refining steps are becoming too complicated, too slow and too restrictive if producers are to react effectively to future requirements and quality demands by the consuming industries," they added.

Chile-focused Li3 Energy Inc. said in its most recent corporate presentation in June 2014 that SQM, Rockwood and FMC have not seen any technological advances in the last 20 years.

In a high-margin — SQM achieved around a 40% gross margin in its lithium segment in 2014 — high-capex industry, controlled by majors that can stamp out juniors with price shifts, innovation in the sector has been largely unnecessary.

Many lithium juniors are now pushing for the innovation which they believe has been lacking. 

Indeed, traditional lithium brine evaporation ponds require substantial production time periods of up to two years, according to Credit Suisse. 

They also have large capex requirements, a relatively low lithium yield of around 40-50% according to Li3 Energy, and, importantly, are dependent on prevailing weather conditions.

Vancouver-headquartered Pure Energy Minerals Ltd is looking towards solvent extraction and low-thermal evaporation methods, which it hopes will result in swift and high lithium recoveries from its Clayton Valley project in the US state of Nevada, with no weather dependence and a lower capex.

Li3 Energy is one of a number of producers looking to improve the economics and efficiency of lithium extraction from brines. It claims lithium recoveries of around 70-80% can be achieved with the use of Korea-based steel giant POSCO’s proprietary processing technology.

POSCO’s process substantially reduces the need for evaporation ponds, resulting in a lower capex requirement.

An eight hour wait, rather than a two year wait, is also certain to be attractive to lithium purchasers, who want supply timeliness just as much as supply security.

TSX-V-listed Stria Lithium Inc. and a number of others are focusing on spodumene-based lithium production, which was once the bulk supply source of the material.

Stria is developing the Pontax lithium project in Quebec, Canada and the Wilcox deposit in Arizona, US.

Innovation is also seen as key to developing hard rock lithium. Spodumene production is known to be more expensive than brine extraction, but it is made attractive by typically high grades (on average up to around 3% Li2O). Processing of lithium from hard rock ores is the focus of many juniors who are looking to improve metallurgical flowsheets, and thus maximise operational yield and purity.

Realistically, for spodumene to be a viable source for lithium, new efficient processing technologies must emerge, or prices must rise significantly from current levels.

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Unintended resource inflation?

In a January 2013 paper entitled "Brines Resources and Reserves: Analysis of and Practical Recommendations for CIM’s Publication 'Best Practices for Resource and Reserve Estimation for Lithium Brines’," published by the Tru Group, Ihor Kunasz noted the problem that some technical reports incorrectly estimate lithium brine resources, due to a lack of "explicit" guidelines relating to sediment sizes.

Clays and silts, which have high porosities, but feature low permeability values, may be included in resource estimates which are defined by three parameters:  aquifer geometry, specific yield and element concentration.

However, "these sediments will never yield brine," Kunasz said. This could result in an "erroneously inflated resource number," he added.

Kunasz said that in practice this could be prevented through core observation by a site geologist, but that some reports had calculated for all sediments in the specified salar.

Kriging techniques, used to extrapolate data into continuity using key sampling points, could only be applied to identified, known aquifers, he said.

Whatever the weather

One factor that features more peripherally in lithium supply concerns is the weather dependence of brine sources. Output difficulties owing to weather are not unusual — in 2011, FMC was impacted not only in logistical terms, but also in terms of brine dilution by heavy snowfall at and around its Salar del Hombre Muerto production base.

The question of whether stockpiles can be created to alleviate such temporary production setbacks in a projected demand-growth driven industry is an important one, as it leads directly to the question of whether major industrial consumers will be able to tolerate supply flux.

As one industry player told IM, supply is of course hitched to demand, but this has the proviso that major consumers are unlikely to be willing to enter high-risk, high-return industries without a more substantial degree of supply security.

This being said, rare earths producers have said the same for years concerning the dominance and insecurity of Chinese supply, but as rare earths industry delegates told IM at the Prospectors and Developers Association of Canada (PDAC) 2015 conference in Toronto, Canada in early March, enthusiasm for supply security soon subsides once the balance sheet implications of secure supply are realised.

Additionally, brine sources are affected by more than just precipitation – water is actively needed to flush the lithium salts from source rocks. There is only so much extraction that can take place before this flow rate is exceeded and extra production will be limited.

The depth at which brine can be plumbed from is also limited, as halite porosity decreases deeper into the salar resources. Salar de Atacama can produce brine from no deeper than around 30 metres, according to a 2008 research report entitled "The Trouble with Lithium 2: Under the Microscope" by Meridian International Research.

Further to this, climate change could act both ways to prevent extra production. Increased rainfall from climate change could result in delayed production as brines are diluted, while less rain may result in less brine being created to be extracted for solar evaporation.

Environmental concerns are starting to become important for brine pools too. Several industry insiders told IM that it is becoming increasingly unlikely that new brine pools will receive permits.

The polyvinyl chloride sheeting used to contain the brines is a source of concern to some.

"PVC barriers for the evaporation basins may leak chemical substances such as softeners into the environment. An evaluation of PVC drinking water pipes revealed that various compounds pose severe reproductive and functional health concerns to humans," a report entitled "The Lithium future—resources, recycling, and the environment" by Thomas Wagner, stated.

"Chemical leakage may be worse for material involved in lithium extraction and not related to human consumption. It has also been shown that aquatic diversity in the neotropics is strongly affected by water pollution, landscape modifications and introduced sediments," the report said.

"Negative effects on native biodiversity may have far-reaching consequences, also reflecting back onto local people," Wagner concluded.

The possibility of lithium production in Bolivia, which holds the world’s largest lithium reserves, at Salar de Uyuni, was also questioned by Wagner. 

"Lithium processing in this region may cause changes in freshwater availability and water pollution with severe consequences for human health and native biodiversity," he said.

Country specific difficulties

There are a number of questions hanging over the future of lithium production in Chile, the world’s largest producer. The country has not issued any additional lithium concessions since 1982, according to mining undersecretary Pablo Wagner.

A change in the law in 1979 over potential use in nuclear applications made it illegal to exploit lithium via regular mining concessions.

Wagner resigned in October 2012 after an attempt to re-open lithium tenders ended in a scandal over allegations that the relevant commission falsified documents to guarantee SQM won.

The tender result was cancelled less than a month after it was granted, meaning that only SQM at its existing Salar de Atacama site, and Rockwood, via its subsidiary Sociedad Chilena de Litio Ltda (SCL), which works on a different portion of the same resource, can produce lithium in Chile, operating on a pre-1979 concession. 

The Contratos Especiales de Operacion del Litio  (CEOL) concessions granted to SCL by the Chilean Nuclear Energy Comission (CChEN) only allow for total cumulative production of 200,000 tonnes via temporal contract extensions.

Meanwhile, SQM is permitted by the CChEN to produce no more than 180,100 cumulative tonnes, or until 2030, whichever is sooner.

The failure to restart the concession process raised questions over how amenable Chile may be towards producing additional volumes of lithium. Li3 however, which missed-out on the original 2012 bid that ended in failure, expects a change in the laws by around mid-2017

In Australia, Talison Lithium’s spodumene-gathered lithium concentrates extracted from the Greenbushes mine in Western Australia are shipped to China for processing. Talison is now majority owned by China’s Tianqui Lithium Group, which took over the company in September 2013.

Due to logistics costs, the expense of constructing additional concentrate processing facilities and substantial internal Chinese consumption, it seems unlikely that worldwide consumers of lithium would view additional production from Greenbushes as a viable additional secure source.

The bottom line for lithium is explained succinctly by The Financialist, a Credit Suisse publication: "While there’s no shortage of lithium in the world, prices will at some point start moving higher, until they are high enough to encourage investment in higher-cost production methods that can boost total output – similar to how higher oil prices spurred investment in expensive deepwater and oil sands production techniques."