(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long LAC.TO)
A Game Changer For Lithium?
I know that the words "game changer" are tossed around lightly in the market, but in this case I think they might (?) be applicable. I've followed Lithium Americas for years and opened a position in the stock within the last several months in the 30-40c range after I thought a bit about the fact that I'd just returned from Home Depot where I'd bought an electric chainsaw and an electric weed-whacker, both powered by lithium-ion batteries. That trip, combined with the fact that I had traveled to and from the store in a Tesla, made me realize that battery technology really has come a long way and that the lithium demand growth story probably isn't going away any time soon; especially if electric cars and home energy storage really start to catch on and economies of scale start to kick in. I'm not here to make the case for lithium though, nor am I going to debate whether or not some new battery technology will send lithium packing in the future. All that I'm saying here is that no one can really deny the increasing role of lithium-ion batteries in today's world.
Currently, low-cost lithium production is derived from the evaporation of naturally-occurring high salinity brines in arid regions. Hard rock sources exist as well, but are inherently higher cost than their brine counterparts. Focusing in on the brine production, lithium is captured through the progressive evaporation of brines as they are moved through a number of different evaporation ponds over a period of about 18 months (I've taken that number from LAC presentation materials). From a fundamental standpoint, that technology is probably a few thousand years old… humans have been evaporating salt water for sea salt for millennia. Enter POSCO. POSCO has developed an evaporative technology that reduces lithium recovery times from brines to just 8 hours. Just to re-cap, that is 18 months versus 8 hours. The technology was successfully field tested at LAC's deposit in Argentina between mid-Decemer 2014 and late January 2015. I'll be honest in that I don't know that much about POSCO's process or economics. Clearly it must require energy input to extract the lithium that quickly, but anything that can produce lithium 1600x faster than current methods is probably worth looking into, right?
In any event, LAC put out a press release last week stating that it intends to form a joint venture whereby LAC would contribute its brine resource in Argentina (one of the largest undeveloped lithium brine resources in the world) and POSCO would contribute its lithium extraction technology. For those who don't know POSCO, POSCO is the largest steel company in Korea with annual revenues of roughly $65 billion. I should stress that no JV has been formed, but the companies have disclosed that they intend to work towards establishing one.
At this point, I'm simply flagging LAC as something to watch and I am keeping my position size modest, though I did add some on the back of the news that the two companies are moving towards establishing a JV on the project. I've included the press release below for those who have interest in what is sure to be a hot topic of discussion in the sector if a formal JV does come to fruition. Having no idea about what the economics of such a proposition might look like, I would characterize this as a purely speculative position. The story is generally under-covered and under followed which is always something I like to see. I would think that if word continues to spread about the POSCO technology that LAC may continue to garner additional market attention, but a sustained move will require a better sense of what the cost advantages of the POSCO technology might be, if any...
LITHIUM AMERICAS AND POSCO BEGIN COMMERCIALIZATION DISCUSSIONS FOR THE DEVELOPMENT OF THE CAUCHARI-OLAROZ LITHIUM PROJECT
Posted on May 4, 2015 by LAC in News Releases
TORONTO, Canada, May 4, 2015 – Lithium Americas Corp. (TSX: LAC) (“LAC” or the “Company”) is pleased to announce that it is now in discussions with POSCO regarding the proposed commercialization of the Company’s Cauchari-Olaroz lithium project in Jujuy Province, Argentina. The two parties expect to execute a Heads of Agreement (“HOA”) shortly that will define the basic conditions governing a new Joint Venture Company (“JVC”). While the full terms of the parties’ joint venture arrangements are still to be negotiated, POSCO is expected to contribute to the JVC the right to use its proprietary lithium extraction technologies for the production of lithium carbonate and lithium hydroxide, while LAC would contribute the right to use brine from its Cauchari-Olaroz salar properties.
POSCO’s and LAC’s decision to pursue a commercialization agreement is based on the successful results and collaborative efforts surrounding the operation of POSCO’s innovative high efficiency lithium extraction demonstration plant (the “Demo Plant”). The Demo Plant, with an operating capacity of 200 tonnes per year of lithium carbonate equivalent (“LCE”), was inaugurated at the LAC Cauchari project site on December 19, 2014 and achieved full and continuous operating rates throughout a test period that ended in late January, 2015. During this period, over 20 tonnes of lithium phosphate was produced and subsequently exported to POSCO’s facility in Pohang, Korea where it was further processed into battery grade lithium carbonate and lithium hydroxide. POSCO advised Lithium Americas that initial test results indicated that the Demo Plant achieved or exceeded all performance targets and that the lithium products processed in Pohang were of very high quality.
The lithium project team leader, Dr. Uong Chon, a Senior VP of POSCO, was recently quoted in the Korean business press as saying “the traditional process using the evaporation method required up to 18 months for lithium extraction and yielded low recovery rates, but our new extraction technology only requires 8 hours and has recovery rates of 90%.”
POSCO and LAC contemplate that the proposed commercial plant will be capable of producing up to 20,000 tonnes per annum of LCE in an initial Phase 1 with plant construction scheduled to commence in late 2015. Additional details will be released upon the execution of the HOA. LAC’s President and CEO, John Kanellitsas, commented: “Over the past year working closely with the POSCO team, we have witnessed first-hand the commitment and creativity of the POSCO scientists, engineers and technicians to perfect this industry transformative processing technology. Our proposed JVC will have aggressive and ambitious market share goals that will potentially make Jujuy, Argentina the world’s future capital of lithium production. We are very pleased and honoured to continue to collaborate with Dr. Chon and his team to commercialize the innovative POSCO process into a profitable business.”
Lithium currently has many end-uses, however, it is the battery industry that is expected to drive the future demand growth, and South Korea is home to a number of the world’s largest producers of lithium ion batteries. There have been recent industry announcements regarding new home and commercial scale battery platforms, and advanced developments in grid infrastructure technologies and next generation electric vehicle platforms, all of which are expected to result in a significant increase in lithium demand in the near future.
Commenting on LAC’s position within the lithium industry, the Company’s Executive Chairman, Tom Hodgson, stated: “Our successful experience with POSCO’s Demo Plant has inspired and reaffirmed our own mission to develop our world class resource using new technologies and production processes that are sustainable and highly efficient. We believe that following this path will result in a lithium “GigaProject” consistent with the scale and business objectives of the growing end markets for lithium ion batteries. We are excited to play a critical role in the supply chain of the energy storage revolution.”
For more information please contact:
Mike Cosic, Chief Financial Officer
or visit www.lithiumamericas.com
Cautionary Note and Forward-Looking Statements
This press release contains forward looking statements, which can be identified by the use of statements that include words such as “developing”, “expect”, “will”, “continue”, “implementing”, or other similar words or phrases. Forward-looking statements express, as at the date of this press release, the Company’s plans, estimates, forecasts, projections, expectations, or beliefs as to future events or results. Forward-looking statements are based on certain assumptions, including the key assumptions and parameters on which such estimates are based, involve risks and uncertainties and there can be no assurance that such statements will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements. Factors that could cause results or events to differ materially from current expectations expressed or implied by the forward-looking statements, include, but are not limited to, possible variations in mineral resource and reserve estimates, grade/concentration or recovery rates, lithium or potash prices, operating or capital costs; changes in project parameters as plans continue to be refined; political, community relations, regulatory, environmental and other risks of the mining industry and other risks more fully described in the Company’s Annual Information Form available on SEDAR. The Cauchari-Olaroz project has no operating history upon which to base estimates of future cash flow. The capital expenditures and time required to develop any new project is considerable and changes in capital and/or operating costs or construction schedules can affect project economics. It is possible that actual capital and/or operating costs may increase significantly and economic returns may differ materially from the Company’s estimates or that prices of lithium and/or potash may decrease significantly. The Company could fail to obtain project financing on acceptable terms and conditions or at all, in which case, the project may not proceed at all. If financing is obtained, it is not unusual in the mining industry for new mining operations to experience unexpected problems during the construction phase, resulting in delays and requiring more capital than anticipated. The Company could fail to enter into an agreement with POSCO to put the project into commercial production using POSCO’s proprietary lithium and potash extraction technology. In addition, if the Company enters into a commercialization agreement with POSCO, it should be noted that POSCO’s extraction technology tested at the Cauchari-Olaroz project is secret and proprietary to POSCO and not subject to any independent economic study. Historically, projects put into production without first completing a feasibility study, have a higher risk of economic or technical failure. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward looking statements, there may be other factors that cause results to be materially different from those planned, estimated, forecasted, projected or expected. The Company does not intend, and does not assume any obligations, to update forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by applicable securities laws. Readers should not place undue reliance on forward looking statements.