Low Cost, High Margins: Lithium Brine Extraction

- November 19th, 2018

Lithium brine extraction offers low-cost commercial lithium production for the expanding global electric vehicle market.

Global lithium reserves are estimated at 16 million tonnes and occur in three main deposit types: pegmatite, brine and sedimentary, with the majority of production coming from pegmatite and lithium brine extraction.

Lithium brine extraction projects are typically lower cost than pegmatite — more commonly known as hard rock — both in terms of capital and operating expenses for a variety of reasons, including logistics, topography and climate. This is why some of the world’s most profitable lithium mining operations are from brine deposits such as the salars of Chile, considered the Saudi Arabia of lithium.

Australia and Chile dominate global lithium production

Pegmatite deposits are course-grained intrusive igneous rock formed from crystallized magma below the Earth’s crust. Lithium in this type of deposit is most commonly hosted in the mineral spodumene and accounts for one-quarter of global lithium production. Lithium-hosting pegmatite deposits are found in many jurisdictions around the world, most notably in Australia, the world’s largest lithium producer and home to the Greenbushes mine owned by Talison Lithium, jointly controlled by China’s Tianqi Lithium (SZSE:002466) and Albemarle (NYSE:ALB).

Brine deposits represent the majority of the world’s lithium reserves (66 percent) most commonly occurring in continental saline desert basins known as salars — salt flats associated with areas of geothermal activity and made up accumulations of saline groundwater with a high concentration of dissolved lithium leached from the surrounding rock.

The majority of global lithium production happens in the salars of the Lithium Triangle — a region of the Andes mountains that includes parts of Argentina, Chile and Bolivia. While Bolivia hosts one-quarter of the world’s known lithium resources, estimated at 9 million tonnes, there are political and logistical barriers hamstringing development of any lithium industry in the country. In Argentina, FMC (NYSE:FMC) produces lithium carbonate from the world-class Salar del Hombre Muerto.

Chile leads the Triangle and the world in lithium brine production with annual output totaling 18,700 million tonnes in 2017. Chile’s 3,000-square-kilometer Salar de Atacama hosts approximately 37 percent of the world’s lithium reserve base, and is the largest and highest-grade lithium-from-brine producer in the world. Two of the world’s leading lithium producers, Sociedad Química y Minera (NYSE:SQM) and Albemarle, have operations on the Atacama.

A highly attractive jurisdiction for sourcing battery-grade materials, Chile is the natural pick for Tesla’s (NASDAQ:TSLA) “straight-to-mine” approach to securing lithium supplies. Chile’s potential for high grade, low cost lithium production on top of policy changes that have opened up the sector to more foreign investment, has also attracted the attention of junior exploration companies like Lithium Chile (TSXV:LITH,OTCQB:LTMCF). The company is advancing a 152,900-hectare portfolio of lithium properties located within a 300-kilometer radius of Chile’s Atacama salar. Lithium Chile is actively exploring five key near-surface projects in the portfolio with the goal of delineating NI 43-101 compliant lithium resource estimates within 2018.

Lithium brine extraction is the lowest-cost process

Lithium production from hard-rock deposits once dominated the industry, however today the majority of lithium carbonate is now produced from the brines of Latin America’s Lithium Triangle. This shift, which began in the 1990s, was due in large part to the lower cost of production from continental brine deposits compared to production from hard rock deposits. Advancements in lithium brine extraction technologies and processing have further increased those cost savings and help get product to market faster.

A look at the average cost of production in Chile and in Australia makes clear the wide chasm that separates lithium brine and hard rock in terms of operating costs. In Chile the cost of lithium production from brine comes in at an average of $1,800 per tonne, far below that of Australia where lithium production costs average $5,000 per tonne.

In addition to lower costs in the production stage, lithium brine deposits have other benefits over hard rock deposits throughout the life cycle of a mining project. Capital costs for exploration, development and construction are much lower as well.

In terms of early-stage mineral exploration, the location of a deposit can have a big influence on expenses. A hard rock project in a remote mountain location with limited access to transportation and energy infrastructure is going to require a lot more money in the exploration budget than a salar in flat terrain in with well-established mining roads and a line to the electrical grid.

The night and day nature of the deposits themselves has a lot to do with differences in cost and time as well. Because brines are considered placer deposits and there is less environmental disturbance associated with lithium extraction compared to hard rock, environmental studies require less work which makes permitting a much simpler and cheaper process to complete.

The shallower depth and softer rock associated with brine deposits are also much easier and cost-effective to survey and drill, and much less work is required to delineate and expand an industry compliant resource estimate — an important milestone for any resource company as it is the foundation of key economic studies and future financings. The earlier a company can get to an established resource base the quicker they can raise the capital necessary to advance the project further. Continued resource expansion also strengthens the investment case in the project while generating further news flow to drive company stock prices.

All in, according to estimates by Visual Capitalist reported in an infographic, the exploration and development of a typical lithium brine project can cost upwards of $14 million and take four to five years to complete, compared to between $55 million and $85 million and seven to ten years for a hard rock project. Capital expenditures for bringing a lithium brine operation into production can fall between $150 million to $300 million compared to a CAPEX of $250 million to $2 billion for a hard rock lithium mine.

Looking forward

Global sales of electric vehicles are expected to surpass 3 million vehicles by the end of 2019, according to data and analytics firm GlobalData, up from 1.1 million in 2017, further increasing the demand for lithium-ion batteries. Electric vehicle and battery manufacturers know the key to increasing demand even further requires keeping costs low. In this way, increasing demand for lithium will drive further investment in mine expansions and new developments across the world’s leading hotspots from low-cost lithium brine extraction, including the salars of Chile.

This article was written according to INN editorial standards to educate investors.