EDITOR: | August 1st, 2017 | 23 Comments

Lithium – The Lost Year?

| August 01, 2017 | 23 Comments
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It is easy to say that Cobalt stole lithium’s limelight and that the illumination is yet to return to the grey metal from the blue one. However a better analogy would be to say that the Lithium sub-space dropped the baton in the relay race and has been too lazy to pick it up again.

I shall take this opportunity to review where we are now in the so-called Lithium “Supercycle”.

Which Version to Believe?

I think it might be helpful to think of Lithium in terms of product cycles in the Tech industry. Let’s look back to 2010-11. That period was clearly the Lithium 1.0 version. It had a clearly defined beginning and end. The end was when Rare Earths came along and stole Lithium’s clothing leaving the nascent subspace with nary a figleaf to cover itself.

Out of this first version we have the legacy of producers and near producers such as Galaxy, Orocobre, Neometals, Talison (since acquired) with Nemaska (moving closer to production) and RB Energy’s Canada Lithium mine likely to reactivate. Other blasts from the past include Lithium Americas (which had merged with Western Lithium) and is moving forward with an Argentine salar, International Lithium (which is also a player in Argentina) and the Rincon project of Sentient funds in Argentina (which was owned by Admiralty Resources back in the first go around) is moving glacially towards production.

The period beginning in mid-2015 and stretching to the 3rd quarter of 2016 was what we tentatively call Lithium 2.0. This spawned an upsurge of repurposing of unwanted listed vehicles into Lithium plays that was reminiscent (maybe ominously) of the Rare Earth boom. Some (mainly on the ASX) achieved stellar market capitalizations but most ended up doing micro-financings which have resulted in micro-exploration programs.

The old model is raise funds, drill, resource, PEA, PFS etc. But if you are only raising a few hundred thousand dollars in the first instance then you are not able to do an adequate campaign and thus never advance to the latter phases. This is where most of the Lithium 2.0 group find themselves currently with nothing more than some rock samples to show for nearly two years of Lithium “boom”.

A Study in Futility?

The starting gun for the Lithium 2.0 was partly the recovery in Lithium prices but also the announcement that Tesla had signed an offtake agreement with Bacanora Minerals on its Sonora project in Mexico. We had not even heard of this project at the time that it was pushed into the spotlight. Curiously the project had a PEA though, which put it ahead of the rest of the Lithium 2.0 crowd. However we were unimpressed with the “deal” with Tesla which read something like ”we might buy some of your product if we feel like it and you might sell us some if you feel like it” and price to be paid for the output was vague indeed. It had all the hallmarks of Samuel Goldwyn’s classic observation that a “verbal contract isn’t worth the paper it’s written on”.

The stock soared but the company did not do a financing instead basking in Tesla’s reflected glory. Despite not having an alternate source of Lithium supply, Tesla walked away after a while and the stock has been drifting about listlessly ever since. Who even talks of this story anymore, except as an object (abject?) lesson in how not to do it?

Next Up?

Thus far 2017 has been a bit of a wasteland. Even a sound stock like Neometals with loads of money on hand and a rather sweet deal with the Chinese wallows quite significantly off its highs. If that is what happens to a class act then the punishment meted out to those lower down the food chain has been even more brutal with most of the Lithium 2.0 genus being 60%-80% off their highs. With prices off so much and many of the piggy-banks in the space running low (and with very little work done) there is not much prospect of resource statements on most of the deposits, let alone the advanced project assessment (PEA/PFS) that might turn some of the wannabes into gunnabes. Already some in the space are casting their eyes around for the next big thing, whether it’s a “diversification” into cobalt or a move into other battery metals (as Alix Resources is doing with Vanadium).

This begs the question as to whether there will be a Lithium V2.1 in 2018 or whether a period of prolonged quiescence will have many players drift away and we shall have to await a Lithium V3.0 in 2020 or thereabouts to satisfy frustrated demand for the metal as the EV applications expand.

Conclusion

If 2017 is a lost year then is Lithium 2.0 also a lost generation? Should we draw a line under the flood of new players that arrived in the last years and start again?  Lithium prospects improve by the day with various European governments (e.g. France and the U.K.) calling time on the internal combustion engine and envisioning a compulsory EV future. This speeds the transition to EV’s by at least a decade despite both governments choosing dates in the distant future for this finishing line for the gasoline driven era. This virtually puts paid to fears that Lithium itself will retreat on price. There is just too much upcoming demand and too many parties wanting to secure access to it.

However the ever better demand outlook for Lithium is like a tide that lifts no boats as Lithium 2.0 players have not delivered anything in the way of concrete plans to production. This makes us suspect that the new producers of the 2020s are names we have not even heard of yet.


Christopher Ecclestone

Editor:

Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>


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Comments

  • Paul Ashton

    This article seems to have overlooked the Bacanora Minerals PFS which was published in March 2016 and the offtake agreement with Hanwa announced in April this year?

    August 1, 2017 - 4:46 PM

    • John Rogula

      You so casually talk of the Tesla agreement with Bancanora but the reality was it was a potentially bad business deal at a pegged price which was a little too aggresive on the Tesla side I think. I can say as a businessman myself that you dont do deals at any cost so I supported this move. I do believe however because of the God-like Aura that Tesla has this was slightly damaging publicly but I think Bacanora has recovered this well.

      August 4, 2017 - 1:13 PM

  • Christopher Ecclestone

    PFS was published in April. Has over $400mn capex which is definitely the highest I have seen in recent times. The Hanwa deal (which is as vague as the Tesla deal but does bring in $10mn in equity investment) scarcely makes a dent in such a hefty capex. With a 3:1 stripping ratio (never forget the basalt cap on this deposit) this also seems to have a dramatically higher amount of overburden than any of the other deposits currently being touted. I am failing to see how this jumps ahead of other projects with much lower capex.

    August 1, 2017 - 6:09 PM

  • Noremorce

    2017 IS NOT A LOST YEAR FOR BACANORA
    Your attack on Bacanora and the Sonora Project, jointly owned with Cadence Minerals (formerly Rare Earth Minerals), the Sonora Partners, is inaccurate and totally uninformed for someone who purports to be a lithium ‘expert’.

    Let’s look at a “Study in Futility”. (Actually this could also be applied to your contribution to this section of the article.)
    I suspect that you have not read the Tesla contract. All Tesla contracts are minutely detailed, not vague. The contract was cancelled by the Sonora Partners because the price was fixed at the lithium price at that time, and has subsequently doubled. A good business decision!

    “Where is the PFS?” you ask. Now the article loses all credibility because because the PFS was completed in APRIL 2016. So I would say this is an object (abject?) lesson on how not to write a potentially damaging article without proper research. In fact the fully funded BFS is due in the next two months. Did you know that?

    The Hanwa offtake agreement was not mentioned in your article. The have agreed to take up to 35,000 tonnes of battery grade LCE By 2021. They have acquired a 10% interest in Bacanora for £10,175,000 (yes, British pounds, not US dollars) with an option for a further 10%. They will also provide leverage towards project debt financing out of Japan. The initial capex is $240million, with stage two being funded out of profits. Again good business sense.

    For the sake your integrity, your reputation, and the potential damage to Bacanora and the Sonora Project, please will you write a further article having done more research.

    August 2, 2017 - 7:43 AM

    • John Rogula

      This article is almost designed to rubbish Bacanora’s activities. But hey ho never let a good story get in the way of the truth.

      August 4, 2017 - 12:53 PM

  • Jack Lifton

    Readers please note that Bacanoras “wise” decision cancelled a bankable contract. Off-takes with “fixed” prices and other conditions are the only off-takes for which a “value” at any future time, a necessary metric for bankability, can be calculated. Unless the Tesla off take was for Bacanora’s total output cancelling it was like cancelling an insurance policy.

    August 2, 2017 - 8:07 AM

  • Christopher Ecclestone

    Neometals’ Mt Marion has a grade that is 4 times that of Sonora deposit. As the Hemmerdon debacle shows low grade can turn around to bite a project in the behind no matter whether there is an off taker or not..

    August 2, 2017 - 9:32 AM

    • Noremorce

      Sonora has 3,200ppm Li, are you saying Mt Marion has 12,800ppm Li?
      http://www.bacanoraminerals.com/projects/sonora-lithium/
      With an eye towards the rapidly accelerated demand growth in lithium-ion battery market, Hanwa has built up a solid platform with battery-related customers over the past years through supplying a broad spectrum of feedstock for rechargeable battery products, and this time decided to participate in this project in the view of securing essential lithium resources to meet customers’ growing demand. Under BCN, Sonora Lithium project holds outstanding lithium deposits with significantly low amount of impurities, cons.

      August 3, 2017 - 12:50 PM

  • Bill Horpyniuk

    Christopher, what tells you that RB Energy Canada Lithium is likely to reactivate?

    August 2, 2017 - 12:15 PM

  • Noremorce

    This what Hanwa has to say about the Sonora Project.

    With an eye towards the rapidly accelerated demand growth in lithium-ion battery market, Hanwa has built up a solid platform with battery-related customers over the past years through supplying a broad spectrum of feedstock for rechargeable battery products, and this time decided to participate in this project in the view of securing essential lithium resources to meet customers’ growing demand. Under BCN, Sonora Lithium project holds outstanding lithium deposits with significantly low amount of impurities, consisting of unique type of ore, so-called, clay, and with the full use of it, Hanwa seeks to establish itself as a new lithium supplier in this fast-growing market and fulfill a stable supply obligation towards our existing and new customers.

    August 2, 2017 - 1:25 PM

    • Christopher Ecclestone

      Mt Marion has Current JORC-compliant resource of 77.8Mt @ 1.37% Li2O.

      The grade of the Mineral Reserve across the two pits at Sonora (according to the Ausenco PFS) is 3015 ppm which is 0.30%, so it is one fifth of the grade of Mt Marion. Say no more…

      August 3, 2017 - 3:22 PM

  • Kirill Klip

    Great article, Christopher!

    Lithium Megafactories are mushrooming, lithium demand is picking up, but there is a total lack of investments to match the coming storm. M7A will be an answer like Ganfeng Lithium is doing securing all available supply. Now we have even SQM … moving into lithium hard rock mining with Kidman Resources! BTW they cut concentrated lithium brine supply to Ganfeng in June. we have a full blown competition for lithium raw materials supply among the Lithium Top 5.

    M&A storm is coming to pick up all the best lithium projects.

    We Need 36 Million Tonnes Of Lithium To Be Produced By 2040 For IEA Plan: 600 Million Electric Cars.

    http://kirillklip.blogspot.co.uk/2017/07/we-need-36-million-tonnes-of-lithium-to.html

    August 4, 2017 - 6:28 AM

    • Tracy Weslosky

      I noticed this morning that Kirill’s interviews are ranking in the top 5 most visited columns on the site for the last 30-days. Kudos

      August 11, 2017 - 11:05 AM

  • christopher ecclestone

    Kiril, I would agree… big demand and lousy pipeline excepting those survivors from Lithium V1.0.

    M&A is the way but as the juniors wilt from lack of finance (and results) it will be a buyers market out there and they will be picked off for a pittance.

    August 4, 2017 - 7:02 AM

  • ken McEntyre

    Mr Ecclestone, please tell me whether page 11 of this Hannam & partners report confirms an average grade of 1.30% Li20 for Sonora, or not. Furthermore the Bacanora pilot plant has been producing battery grade lithium samples since mid 2015 which have been thoroughly tested by end users prior to the Hanwa agreement. Please will you re-look at your assessment of the Sonora Project.

    http://hannamandpartners.com/uploads/2015/10/Cadence-Initiation-Report_HP_June-14_FF.pdf

    Upper clay
    32
    2,100
    0.90%
    68
    363
    280
    EI Sauz
    Mexilit (JV

    1)
    (70% Bacanora)
    Lower clay
    58
    3,000
    1.30%
    174
    928
    735
    Upper clay
    14
    2,100
    0.80%
    28
    151
    110
    Fleur
    Lower clay
    60
    4,300
    1.80%
    256
    1,363
    1,070
    Upper clay
    27
    2,200
    0.90%
    59
    316
    235
    EI Sauz
    Lower clay
    4
    4,000
    1.70%
    15
    80
    65
    Upper clay
    1
    2,200
    0.80%
    2
    10
    5
    Indicated total
    Combined
    259
    3,200
    1.40%
    839
    4,463
    3,555
    Inferred
    La Ventana
    Minera Sonora Borax
    (99.9% Bacanora)
    Lower clay
    45
    4,300
    1.80%
    194
    1,029
    820
    Upper clay
    45
    2,000
    0.80%
    90
    479
    360
    EI Sauz
    Mexilit (JV

    1)
    (70% Bacanora)
    Lower clay
    20
    2,500
    1.00%
    50
    266
    210
    Upper clay
    5
    1,900
    0.80%
    10
    51
    40
    Fleur
    Lower clay
    20
    4,300
    1.80%
    86
    458
    360
    Upper clay
    5
    2,800
    1.00%
    14
    74
    50
    EI Sauz
    Lower clay
    15
    4,000
    1.60%
    60
    319
    245
    Upper clay
    5
    2,400
    0.90%
    12
    64
    45
    Inferred total
    Combined
    160
    3,200
    1.30%
    515
    2,740
    2,130

    August 4, 2017 - 10:46 AM

  • christopher ecclestone

    Are we believing Hannam & Partners now or Ausenco’s PFS? I referred readers to the PFS and its Mineral Reserve. If somehow readers feel that an investment bank has calculated this differently (and better) then I’d like to hear why…Seems like an awful lot of Kool Aid is being drunk in Sonora..

    August 4, 2017 - 10:54 AM

  • Noremorce

    Mr Ecclestone, please tell me whether page 11 of this Hannam & partners report confirms an average grade of 1.30% Li20 for Sonora, or not. Furthermore the Bacanora pilot plant has been producing battery grade lithium samples since mid 2015 which have been thoroughly tested by end users prior to the Hanwa agreement. Please will you re-look at your assessment of the Sonora Project.

    http://hannamandpartners.com/uploads/2015/10/Cadence-Initiation-Report_HP_June-14_FF.pdf

    Sorry about the above it was an attempt to copy in page 11.

    Upper clay
    32
    2,100
    0.90%
    68
    363
    280
    EI Sauz
    Mexilit (JV

    1)
    (70% Bacanora)
    Lower clay
    58
    3,000
    1.30%
    174
    928
    735
    Upper clay
    14
    2,100
    0.80%
    28
    151
    110
    Fleur
    Lower clay
    60
    4,300
    1.80%
    256
    1,363
    1,070
    Upper clay
    27
    2,200
    0.90%
    59
    316
    235
    EI Sauz
    Lower clay
    4
    4,000
    1.70%
    15
    80
    65
    Upper clay
    1
    2,200
    0.80%
    2
    10
    5
    Indicated total
    Combined
    259
    3,200
    1.40%
    839
    4,463
    3,555
    Inferred
    La Ventana
    Minera Sonora Borax
    (99.9% Bacanora)
    Lower clay
    45
    4,300
    1.80%
    194
    1,029
    820
    Upper clay
    45
    2,000
    0.80%
    90
    479
    360
    EI Sauz
    Mexilit (JV

    1)
    (70% Bacanora)
    Lower clay
    20
    2,500
    1.00%
    50
    266
    210
    Upper clay
    5
    1,900
    0.80%
    10
    51
    40
    Fleur
    Lower clay
    20
    4,300
    1.80%
    86
    458
    360
    Upper clay
    5
    2,800
    1.00%
    14
    74
    50
    EI Sauz
    Lower clay
    15
    4,000
    1.60%
    60
    319
    245
    Upper clay
    5
    2,400
    0.90%
    12
    64
    45
    Inferred total
    Combined
    160
    3,200
    1.30%
    515
    2,740
    2,130

    August 4, 2017 - 11:15 AM

  • christopher ecclestone

    Much as I dislike the Tesla hype it was that deal that put BCN at over $2.. with the Hanwa deal its wallowing at $1.37.. Don’t look the Tesla gift horse in the mouth.

    August 4, 2017 - 1:27 PM

    • John Rogula

      It was no gift horse it turns out which would you rather have $1.37 in the back pocket or $2 maybe someday if you are lucky and catch them in a generous mood ! BCN will realise vale with a real deal on the table.

      August 4, 2017 - 2:19 PM

  • Noremorce

    Christopher Ecclestone
    Mt Marion has Current JORC-compliant resource of 77.8Mt @ 1.37% Li2O.

    The grade of the Mineral Reserve across the two pits at Sonora (according to the Ausenco PFS) is 3015 ppm which is 0.30%, so it is one fifth of the grade of Mt Marion. Say no more…

    August 3, 2017 – 3:22 PM
    ===

    Disregarding attempting to compare a hard-rock project with a clay project (you wouldn’t compare either to a Brine project), the conclusion from the figures above are just wrong:

    The grade across the two pits is 3015 ppm of *lithium*, which is equivalent to 0.65% Li2O. But the current 35kt LCE/yr project uses just the North Pit, which has an average grade of 3224ppm (1200ppm cut off). This is equivalent to 0.69% Li2O. i.e around half Mt Marion, not a fifth.

    But it’s a folly to compare the ppm of projects which use different extraction and processing techniques – what is important is the NPV of the project (and IRR & debt payback times) comprised of upfront, non-organically funded CapEx, and OpEx (and if significant, decommissioning costs). In this regard BCN looks very attractive. Mt Marion project used a sale price of $10,000 Lithium Carbonate in their Feasibility Study to arrive at their supposedly “attractive” NPV. BCN used $6.000. As far as I can see nowhere has BCN’s PFS NPV for an LCE sale price of $10,000 been calculated – the sensitivity analysis in the PFS went up to $7,800. It’s an impressive figure, nicely under the radar for now it seems.

    August 6, 2017 - 2:26 PM

  • Noremorce

    Mr Ecclestone, do you want to reply to the above, which contradicts your previous comments.

    August 11, 2017 - 5:36 AM

  • christopher ecclestone

    Noremorce.. no, I do not intend to reply.. let the better man win.. Mt Marion is alive and kicking.. Sonora from what I can see is not producing. Am I missing something?

    August 11, 2017 - 3:46 PM

  • noremorce

    Yes!

    August 15, 2017 - 4:48 AM

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