Evaporation ponds are a waste of time, money, space, and water, and lithium producers would be wise to lose them

Posted by on July 30, 2018 6:23 pm
Categories: NEN Exclusives

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Often, when lithium is written about by reporters at Bloomberg, Forbes, The Australian, and the like, it is referred to as a “high tech” battery metal, and while it is true that lithium is, indeed, a battery metal, as it is, quite literally, the most important metal in the lithium-ion batteries that power our laptops, smart phones, and, increasingly, our vehicles, there is nothing remotely “high tech” about the way most of it is pulled from the ground.

Before I can explain what I mean by this, you must first understand that while lithium occurs naturally in many mediums, such as the claystone of Nevada, the jadarite of Serbia, and even the waters of our oceans, there are really only two commercially viable sources of lithium at the moment, and they are 1) the salars (or salt lakes) of South American countries such as Chile and Argentina and 2) hard rock deposits found worldwide, in locations such as Western Australia, Quebec, North Carolina, and some parts of Brazil and Africa, just to name a few. Having said that, the methods by which lithium is extracted from brine and hard rock are very different, yet both are decidedly “old-school.”

In the case of hard rock, the lithium is, and always has been, extracted the “old-fashioned” way—by digging out the rock that contains it (typically spodumene-, but sometimes lepidolite- or petalite-bearing pegmatites), crushing said rock into smaller pieces which are then run through some time-tested machinery to produce a high-lithium-content concentrate, and finally, refining it further, using more specialized machinery, into higher-end lithium chemicals such as lithium hydroxide, lithium carbonate, etc., or whatever an end-user prefers.

In the case of salars, the lithium has historically been extracted in another extremely “old-fashioned” way, which entails pumping fresh water into the salars and then pumping it back out as a lithium-rich brine, into plastic-lined, football-field-sized ponds, where the brine then sits for 18-24 months, thus enabling the hot, South American sun to evaporate the water, leaving behind only the lithium and other assorted metals, which can then be run through some machinery to produce lithium carbonate.

In the case of the salars, the “old-fashioned” extraction method had worked just fine for many decades, due to the fact that, for many years, demand for the silvery-white metal was once almost non-existent, on account of it being used almost exclusively in the production of specialty glasses, glass ceramics, and psychiatric medications. Even after the invention of the lithium-ion battery, which makes use of lithium in a liquid electrolyte that exists between a pair of electrodes, and despite this type of battery’s subsequent adoption as the energy source for nearly all cell phones, laptop computers, and wireless power tools, demand for the metal still didn’t go through the roof, because the batteries for these devices were (and still are) quite small.

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But then, one day, everything changed, when a man named Elon Musk came along and decided to make it his life’s mission to create mass-market, all-electric vehicles that he hoped would eventually displace vehicles powered by internal combustion engines, thereby paving the way to a world where our transportation is no longer dependent upon fossil fuels like oil and gasoline (or petrol, as my European friends like to say). In making this decision, he also decided that these revolutionary vehicles would run entirely on giant lithium-ion battery packs, which would inevitably contain far more lithium than average electronics makers would ever dream of needing.

Not content to simply change the way we drive, Mr. Musk also wanted to change the way we power our lives, and to this end he envisioned his giant battery packs serving as the basis for energy storage systems in our homes and businesses as well. These systems, he said, would not only make renewable energy sources, such as solar, wind, and hydro-electric, which were previously considered commercially inviable, instantly viable, but would also make traditional power sources, such as coal, natural gas, and nuclear power plants, more efficient.

By daring to dream the way he did, Mr. Musk created a situation wherein we, as a species, would need a lot more lithium, and, as a result, the world’s most prolific producers of the previously obscure metal, including America’s Rockwood Holdings (now a wholly-owned subsidiary of Albemarle) and FMC Corporation, as well as Chile’s Sociedad Química y Minera (better known as SQM), now had a decision to make: They could continue to do things the “old-fashioned” way—using archaic evaporation ponds to extract lithium at the speed of molasses—or they could seek out faster, more technologically-advanced ways of creating their end-products, as a means of best serving an entirely new set of customers, which could include not only battery producers, but potentially automakers as well.

Ultimately, these companies decided to stick with the status quo, at least for the time being, because, like most companies who’ve found success doing things the same way for decades, they probably thought to themselves, “If it ain’t broke, don’t fix it.” Furthermore, they probably fancied themselves as invincible, because as the clear-cut leaders in the lithium sector, with the most expansive operations, the largest production volumes, and the greatest profit margins, who could possibly afford to compete with them, let alone beat them?

With that thought in mind, these captains of the lithium industry sought to expand their influence, doing joint venture deals not only other lithium giants from China, such as Tianqi Lithium and Ganfeng Lithium, but with junior miners like Lithium Americas as well, to expand into both Australia and Argentina. At the same time, other junior lithium brine explorers began popping up all over South America, such as Orocobre, Advantage Lithium, Galaxy Resources, LSC Lithium, International Lithium, and Lithium X Corp, just to name a few, all with the apparent aim of setting up the same kind of old-school, evaporation-pond-themed operations that had made their predecessors oh so profitable, or at least of proving up the resources beneath their feet to the point where they could sell out to the highest bidder as quickly as possibly (which, as it turns out, is exactly what Lithium X ended up doing and what LSC has been attempting to do for quite some time now).

This decision by all of these companies—to make evaporation ponds the centerpiece of their lithium extraction strategies, as opposed to more advanced technologies—could, in hindsight, turn out to become of the costliest mistakes these companies will ever make, because it disregards one very important piece of information that none of them seems to have taken fully into account, which is that the new, would-be end-users of their product—that is, electric vehicle manufacturers or, by extension, the entities that would seek to supply batteries to them—are nothing like the pharmaceutical and glass producers the lithium industry has historically served. This is because high-profile automakers can neither afford to wait 18-24 months for their lithium nor for environmentally-unfriendly suppliers to negatively impact their reputations and, by extension, their bottom lines.

In case I am not making myself clear, lithium production via evaporation ponds waste not only time, and therefore money (as we all know that in business, time is money), but also massive amounts of potable water as well. If you don’t believe me, just ask the indigenous peoples of South America, who are almost as upset about lithium giants like Albemarle and SQM stealing their minerals from beneath their feet, with little or no benefit to them, as they are about these same companies stealing their water in much the same way—water, which, by the way, is already in short supply in area of the world referred to as The Lithium Triangle.

Knowing this, the way these lithium companies that rely on evaporation ponds do business is not a whole lot better than how the corrupt cobalt miners in the Democratic Republic of the Congo do business, by making unethical (and perhaps illegal) use of child labor to produce cheap supplies of the rare, blue battery metal, primarily for Chinese consumption. Accordingly, if you think the headache that Congolese cobalt suppliers have recently been giving companies like Tesla and Apple recently is bad, just wait until these same companies catch wind (assuming they haven’t already) of just how environmentally unfriendly their evaporation-pond-dependent, South American lithium suppliers are, and just how unethical it is for them to be taking away much-needed, fresh water from innocent men, women, and children who need it the most. Can you say boycott?

As if the waste of time, money, space, and water weren’t enough to drive any responsible lithium buyers out of The Lithium Triangle entirely, there is another glaring issue with evaporation ponds that no one invested in them really wants to talk about, which is the fact that they are entirely dependent upon nice, hot weather for the ponds to work properly, and that if the skies are overcast versus sunny, the amount of lithium produced can be severely and adversely impacted.

Orocobre, which in 2015  became the first new lithium brine producer to create saleable lithium carbonate in 20 years, found this out the hard way when in Spring of 2017 it became the victim of severe, snowy weather in the Puna region of Argentina and Chile, and again in the Spring of 2018, when it was adversely affected by reduced solar radiation from cloudy conditions and above normal rainfall, both events of which seriously disturbed its productivity, which, in turn, led to a loss of shareholder (and likely customer) confidence.

The takeaway here is that Mother Nature doesn’t care how big, how new, or how profitable a lithium company is. She doesn’t care who a company’s investors or customers are, how fast off-takers need their lithium, or what production numbers a company will hit this year or the next, versus what it hit previously. Simply put, she does what she wants, when she wants—corporate profitability be damned—and if a brine-focused lithium miner doesn’t understand, appreciate, and anticipate this, as Orocobre has so clearly failed to do since its inception (as evidenced by its problems with a high rate of management turnover), then I, for one, have no interest in investing in them, especially whereas there as so many hard rock and tech-savvy lithium plays out there to look at instead, which either make no use of evaporation ponds whatsoever or are seeking to cut down on their use dramatically, if not to cut them out of the extraction process completely.

On the hard rock side of things, there exist many publicly-traded companies, many of which are in Australia and some of which are in Canada, which can provide exposure to lithium, with none of the risk that comes with unpredictable evaporation ponds. Ones with projects in Western Australia (undoubtedly the lithium capitol of Planet Earth) include Pilbara Minerals, Altura Mining, Kidman Resources, Tawana Resources, and Mineral Resources, and ones with projects in Quebec (which is quickly becoming another safe jurisdiction for lithium seekers to buy from) include Sayona Mining, Critical Elements Corp, Jourdan Resources, Vision Lithium, and Nemaska Lithium, which, along with Kidman, is one of the only companies in this list that is a near-term, vertically-integrated, would-be producer of not only spodumene concentrate, but of high-end lithium hydroxide for the electric vehicle industry.

On the lithium extraction technology side of things, we have a great combination of publicly-traded and private companies to look at, which are scattered all across the world. MGX Minerals is one that strikes me as a clear leader in this field, as it is not only the owner of patented technology for the extraction of lithium from standard brines, such as those found in South America, but also from atypical brines, such as oil field wastewater. Others include Tenova Advanced Technologies, which is currently partnered with Pure Energy Minerals on a Nevada-based project, ERAMET, E3 Metals, Enertopia, Lilac Solutions, Standard Lithium, and Anson Resources. In the case of Standard and Anson, they do plan to make use of evaporation ponds, but only for short periods of time, and for the purpose of increasing the concentration of lithium in their brine (what they call “pre-treating” it), prior to running it through their extraction technology.

Now, while I can’t speak for lithium-ion battery producers or electric vehicle manufacturers, as relates to exactly how long they’d be willing to wait to get their hands on the lithium they need, I can tell you this much, based on my experience: No company, its leadership being in the right mind, would ever wait 18-24 months to obtain a commodity when it could obtain the same thing in a fraction of a fraction of the time. Assuming that the price of the product is roughly the same (or even less), and assuming a company like, say, MGX, could get it for me in weeks or even days, whereas I’d have to wait a year-and-a-half to two years to get the same thing from, say, SQM, I know who I, for one, would call when I need my lithium fix, and I can tell you right now that it’s not the big corporations that move at a snails pace and are stuck in the past.

In conclusion, it’s not just survival of the fittest in Lithium Land, it’s also survival of the fastest and the most environmentally-friendly (as eluded to in a recent piece I wrote on trends in the mining industry, entitled “3 major trends that battery metals investors must pay attention to in 2018”), and there’s nothing fast or environmentally-friendly about evaporation ponds. Period.

Investors and lithium off-takers alike, you’ve been warned.

If you enjoyed this article, be sure to check our homepage at NewEnergyNarrative.com and my Twitter and Facebook pages for more help with your due diligence and stock/company research!

Disclosure: I am long PILBF, ALTAF, DMNXF, CRECF, NMKEF, and MGXMF and am currently in discussions with Standard Lithium to potentially work with them as an independent consultant.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from/through New Energy Narrative, which I am the founder and owner of). I have no business relationship with any company whose stock is mentioned in this article, other than the aforementioned Standard Lithium.

Please note: This article covers one or more stocks trading at less than US $1 per share and/or with less than a US $100 million market cap. Please be aware of the risks associated with these stocks.

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