More Lithium Musings

Random things I think I think about lithium.

Underground Still Doesn't Work

Mt Catlin planned to transition from open pit to underground. They have now stopped stripping for open pit and announced complete closure by 2025. This is an existing operation with a workforce, plant, and other equipment already in place. Core's Finniss had started their box cut for their underground when they stopped mining.

My prediction is that Liontown's Kathleen Valley won't work either. Longhole stoping is just too expensive for the $/t of spodumene ore when you are competing with cheaper open pits mining similar grades of ore.

Zimbabwae Spodumene Isn't Going Away

The Chinese came in and in a year or two built several large mines. A number of these are traditional open pit spodumene mines with competitive ore grades. I think they'll be competitive with some Australian or Canadian spodumene projects. I also don't think they will be bottom half of the cost curve.

It's important to remember why Western countries aren't in Zimbabwe, it's an unstable country. Home of the one hundred trillian dollar note. In the last 18 months royalty rates increased from 2% to 7% and now 8%. What will royalty rates be in a year or two or five? There's a 0.875% selling fee (a royalty by another name). They are required to convert 25% of revenue to local currency at the official government rate, probably costing them 50% of that at conversion time. There's a 25% corporate tax rate. Add it all up and it's probably in the nighborhood of 21.25% of revenue and 25% of profit, though as the mines are owned by integrated refiners in China they probably optimize for low to no profit in Zimbabwe.

Zimbabbwe also doesn't have the best infrastrucure. Not great roads, expensive unreliable power, and a landlocked country. The Chinese went here because Australia, Canada, and the US started locking the Chinese out of deals.

Vertical Integration Should Not Be Underestimated

I've heard, and maybe said myself in the past, that lepidolite was too low grade to compete with spodumene. I've heard similar arguments about Indoesian laterite, and it's destroyed the nickel market.

At some point we are going to have to admit that the biggest advantage of lepidolite is the ability to veritically integrate low cost processing to lithium carbonate in China.

You are starting to see some of the bigger Australian spodumene mines trying to vertically integrate, but it's a bumpy ride. The plants are costing twice what they do in China. There isn't enough infrastructure at the mine site so they still have to transport the concentrate long distances in the country to the processing facility. The labor costs are higher. The ramp times seem to take longer. Then the carbonate or hydroxide produced still has to be put on a ship and transported to China for use in a battery.

Supply Has Come Out

These are effectively gone now:

Petalite shipped to China
Lepidolite shipped to China
Direct Shipped Ore shipped to China
Artisinal spodumene shipped to China
Lithium Rich tailings shipped to China
Non-integrated lepidolite

There was quite a lot of these raw lithium units going to China on ships that has basically stopped at low prices. Most of what's left still being put on ships is lithium carbonate from evaporation brine and spodumene concentrate.

Grid Storage > EVs

Solar panels continue down the cost learning curve. There were several tipping points along the way and now we've reached another. First, solar electricity went below the retail cost of electricity. That caused an uptick in installations, especialy on rooftops. Later it reached the point at which solar electricity went below the cost of wholesale electricity, which caused an uptick in solar farms. Then the number of solar farms increased until it caused the price of wholesale electricity when it is sunny to decline, which limited new solar farms. Then it continued to decline until it was below the fuel costs of natural gas & coal plants to encourage those to turn off when it was sunny. We have now reached a tipping point where it is cheaper to build a solar farm with enough battery storage to sell the electricity at non-sunny times of day.

We can talk about what this does to grid stability, but it's inarguable that in auction based wholesale markets with current market structures a solar farm with battery storage is economically competitive. When combined with government pressure to decarbonize it's a metaphorical tital wave. The size of this market should not be understated, it's huge.

EVs will continue to grow in penetration as the economics of them improve, though the meteoric growth rates are slowing they are still growing.

Sodium Looms Less Large

With the cost of lithium lower the lithium battery gets more cost effective and the drive for substitution decreases. There's a certain path dependence that lithium having been developed so long is far ahead on.

Sodium-Ion batteries still use fundamentally cheaper materials, and it's possible someday that might matter. But for now lithum's thone is being held. One to watch, but with an eye farther to the future and less to the next year or two.

There's Still a Delayed Supply Wave Coming

Most Argentina brine is either not online or not fully ramped. That's going to be a massive wave of supply that largely already had the capex spent and will come online even with the lower lithium prices.

There are an increasing number of Canadian spodumene projects waiting in the wings. Arcadium's Galaxy (formerly known as James Bay) is fully permitted, has attractive DMS recoveries, and already is road connected and has the power sub-station installed. It will likely be the first real commerically viable Canadian spodumene mine. (Sayona's NAL should going on care and maintenance again this cycle) Patriot's Corvette & Winsome's Adina should get built next cycle, with some other project positioning themselves for viability (Q2, Li-FT, Brunswick, Loyal, Azimut, and others all drilled a lot of spodumene).

Thacker Pass is under construction and Rhyolite Ridge is still advancing, we'll see where sedimentary lithium falls on the cost curve but it should cross the line to production.

There are so many commerical scale DLE demonstration plants I've lost track of all the companies.

Mexico Will Not Mine Lithium in My Lifetime

To recap what's going on in Mexico, it's a mess. Despite rumblings from Mexican politicians that they were going to nationalize lithium Ganfeng bought Baccanora and their Sonora lithium clay (sedimentary) project. Mexico then did nationalize it. They have also since had a de-facto ban on new mining licenses and seem to be in the process of passing laws that would ban open pit mining (new licenses or altogether is less clear than it should be).