Lithium

That at least some good portion of the next generation of cars are going to be powered by lithium batteries seems obvious at this point. The UK has just announced that ICE vehicles may not be sold new after 2030, hybrids after 2035. Many other places have similar ideas in mind. It may or may not be true that lithium batteries will remain the alternative technology of choice. I tend to think that we’ve not properly explored fuel cells as yet but that’s another matter.

There are also alternative battery technologies out there but lithium is really the only alternative to ICE ready for prime time as yet. So, lithium at minimum, whatever the long term over many decades, is going to have its time in the Sun. This means we all need to have much more lithium.

I’ve pointed out, when talking about SQM (NYSE:SQM), that there are potential problems in Chile, one of the current major producers. When discussing Lithium Americas I’ve also pointed out a basic problem with raw material markets. Sure, demand rises but supply, as a result of people diving in to meet that rising demand, can rise faster. This kills off prices and thus the profit opportunity. As I’ve also pointed out when discussing Lynas (OTCPK:LYSCF) (OTCPK:LYSDY) and rare earths this isn’t just specific to lithium.

Any newly fashionable raw material can suffer from this problem. The investment in meeting the new demand overshoots – sometimes to often enough – thus making even perfectly sensible initial ideas work out not so well.

We thus need to be selective about who we’ll try to use to ride this fashion for the new material.

What interests me here is that Standard Lithium are approaching the problem in the same way that I would. There are other processes out there which, potentially at least, have lithium as a byproduct of processes they already do. So, why not team up with them to extract? This saves what are almost always the largest costs, the permitting, permissions, infrastructure and so on. If someone’s already got a mining – just as an example – permit with roads in, electricity, water and everything, why not add the doohickey to the side of that process?

After all, a large number of metals are gained that way (just off the top of my head, gallium, germanium sometimes, tellurium always, cadmium and so on) so we know that basic concept works.

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Standard Lithium(Standard Lithium balance sheet from Standard Lithium)

As we can see we’re not talking about a large company here. Those numbers are not in 000’s like we’re used to seeing on company balance sheets, those are the full numbers there, all digits showing.

But then that’s rather the point that I’m making:Standard Lithium

(Standard Lithium share price from Seeking Alpha)

Their basic idea

Many minerals get processed, none of them get fully processed. We never do take the iron out of our copper ore to send it to the steel works. This is true of everything else too. We just never do fully process an ore, we take the most abundant element (s) out and then have a pile of mixed stuff left over.

Sometimes it’s worth processing those piles to gain some other metal. This is much more common than you might think. Those that we get this way can be called byproduct metals, also sometimes known as minor metals. We get the world’s supply of hafnium from our zirconium processing, gallium comes from aluminium processing (actually, alumina). Germanium can come from zinc ore or coal power plants. Tellurium is a waste of the copper production industry. And so on.

OK, so, we know that lithium is often found in brines. We also know that there are many brine operations around the world. So, why not go look for lithium in the wastes of the brine operations that don’t already extract it?

With really lithium heavy brines we know how to do this. In Chile for example – leave the brine out in the Sun for a couple of years and scoop up the remaining sludge, process the lithium out. Yes, OK, a bit more complex than that but it captures the essential point we want to make. You can’t do that in an area with appreciable rainfall – you never do get to the drying sludge, you just get the water levels topped up every time a cloud breaks.

So, we’ve got to work out a different way of extracting the lithium from the brine. If we do, if we can, then we’ve got a number of places where we could go and add our new equipment and extract. Because there are that number of places already processing brines for other materials but not for the lithium.

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Sounds like a plan and that’s exactly what Standard Lithium is doing.

They’re close too

Sure, this is still pilot plant levels of work. The standard development process is lab bench, pilot, production. You work out the chemistry, then test it on some fraction of a production run and assuming it all still works then you build the right sized plant. Which is exactly what they’re doing:

The Company’s first-of-its-kind in the world DLE Demonstration Plant is installed at LANXESS’ South Plant facility near El Dorado, Arkansas. The Demonstration Plant utilizes the Company’s proprietary “LiSTR” technology and is designed to continuously process an input tail brine flow of 50 gallons per minute (gpm; or 11.4 m3/hr) from the Lanxess South Plant, which is equivalent to an annual production of between 100-150 tonnes per annum of lithium carbonate.

You’re – the company isn’t = not going to make a profit at that scale. This is still part of the development process. Gaining perhaps $800,000 a year from that sort of volume (not an accurate number but right order of magnitude) doesn’t cover the expenses. But it does prove the concept in the manner that such concepts have to be proven.

The company has two such adventures underway, this one in Arkansas and another at Mojave in California. Assume this technology really works, in that it’s profitable. Then we’re on to a decent enough company here. The capital requirements to make this all work are vastly lower than would be required at an entirely virgin operation. Lower amounts of capital at risk are good, right?

However, there’s more upside

A standard part of the mining world is that new extraction techniques are not specific to the one site. It just being a feature of our world that it’s large with many repeating parts. If we work out how to gain lithium from brines without having to use solar evaporation then there are many places with such brines where we can use the same technology.

By analogy, think of gold extraction. Say you think up a new manner of extracting gold from rock. This has been done a number of times too. The first thing you do is go buy up all the slag piles of the previous generations of gold mines. Because you can now use your new method on all of those known deposits.

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This new method of lithium extraction here. It’s not certain that it can be used upon every lithium potential source. But there are other brine operations around the Salton Sea where such a technology could be used. One at very early stages near Usti nad Labem in the Czech Republic. One in Cornwall in England. This is before we think of the much larger possible operations in Latin America.

That is, new methods of extraction that actually work have multiple applications, not just the one source they were first developed for.

My view

I’m predisposed here because they are approaching the problem the way I would (I am not and never have been involved in prospecting for lithium). Let’s bolt onto a plant that already has Li in a waste stream.

This doesn’t mean they are going to be successful but it makes me think this is a decent bet. If we’re going to have a bet in the lithium space then this is the one I like the most so far.

The big issue for me being that there’s no obvious and logical reason why there isn’t going to be a successful method of doing this. Given their pilot plant results they’ve got something that works technically at least. It’s capital light, which offers good gearing and the technology, once proven, has further applications.

The investor view

Of course, junior miners are not to everyones’ taste and they’re definitely risky as a sector. I stick with my basic idea that over the next few years we’ve a significant chance of lithium supply running well ahead of demand – that’s just how mining often works.

However, I think Standard Lithium has an interest approach and a good chance. So, if we’re going to speculate on who is going to do well out of EVs this would be a good choice. A modest and speculative bull position looks justified to me.

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.



Via SeekingAlpha.com