Before launching into a comparison of hard rock lithium mining vs. harvesting lithium brines, it’s important to point out that hard rock mining can be preferable to alternative methods, but usually only where hard rock mining is already entrenched in places like the Greenbushes mine located in south Western Australia… Also, I use the word, “lithium” loosely to describe lithium carbonate, lithium hydroxide and other forms of lithium. Please see applicable disclosures at the bottom of this article.
Conventional wisdom suggests that hard rock lithium mining occupies a much larger environmental footprint, takes a longer time from exploration to production and is more expensive than brine harvesting methodologies. This alone makes old fashioned hard rock mining less and less popular around the globe. Materials like lithium are undergoing a paradigm shift, (a well regarded infographic sponsored by Dajin Resources Corp. (DJI:CA) (DJIFF) , created by Visual Capitalist describes this topic in depth). The case in favor of hard rock mining in most extractive industries is crumbling.
A number of annual reports from consulting groups point to, “resource nationalism and a, “social license to operate” as substantial risk factors facing large-scale projects. As I hope to demonstrate, harvesting lithium brines is not only less expensive (possibly far less) it’s more environmentally friendly, less energy intensive, reaches small commercial scale production faster, is preferred by locals, has more predictable op-ex and is easier to remediate at completion.
Hard Rock Mining
Starting at the early exploration stage, a geologist must begin spending time, energy and capital right away. Expensive and potentially many deep drill holes must be punched into the ground. After months of analyzing the drill data, if promising results are inferred, the best case scenario is more drilling. The goal is either a, “discovery,” which could make the deposit appear economically viable. More likely, additional exploration dollars, drilling and dreaming is required. If the next drill campaign is successful (far from a sure thing) it might be followed by infill drilling to generate a resource estimate (not yet a, Preliminary Economic Assessment, “PEA”).
All of this takes years to accomplish and yet the odds of an economic deposit remain surprisingly low. Once a potentially economic deposit is found, crucial metallurgical work is undertaken which can kill the, “project” on the spot. Despite tremendous capital and managerial resources, a mine is not yet economically demonstrated…. until the all important Preliminary Feasibility Study, “PFS.” Even that report sometimes fails to definitively move the potential project out of the exploration stage. Astute readers see where I’m headed with this. “Every failed mine is the result of a, ‘successful’ Bank Feasibility Study!” (attributable to multiple parties).
With continuous headlines regarding fatalities in hard rock mining, it’s clear that abandoning this archaic pursuit is not merely a dollars and cents proposition. Hard rock lithium mining entails a number of the above mentioned challenges. With the harvesting of brines, human and economic costs are mitigated. The time and cost to produce commodities and specialty chemicals is undoubtedly more onerous today than just a decade ago. Consider the myriad of challenges not even mentioned. Compliance, legal, environment baseline studies, a slew of environmental reports, permitting, wage inflation, availability of skilled labor, approval of local communities, power, water, roads, reclamation plan, permitting of tailings ponds, permits, approvals, deals with political figures and infrastructure to expand. The list goes on and on.
Lithium Brine Harvesting
As described by the USGS, (paraphrased) lithium brine deposits are accumulations of saline groundwater that are enriched in dissolved lithium. Although abundant in a nature, only select regions in the world contain brines in closed basins in arid regions, where lithium salts can be extracted at a profit. Brine, typically carrying 200–1,400 milligrams per liter of lithium, is pumped to the surface and concentrated by evaporation in a succession of ponds, each in the chain having a greater lithium concentration. After 9-12 months, depending on climate, a concentrate of 1 to 2 percent lithium is further processed in a chemical plant to yield various end products, such as lithium carbonate and lithium hydroxide.
Back to my own analysis, drilling for a lithium brine deposit involves fewer steps, roadblocks, delays, time, surprises and capital compared to hard rock. Far fewer and typically shallower holes are required. With modern imaging and mapping technologies and without nearly as much effort or expense, a possible deposit is identified. A key attribute is that delineating size, grade and composition of favorable and unfavorable elements (akin to metallurgy) can be accomplished by pumping up brine samples. Many of the detrimental things about hard rock mining alluded to are avoided.
|Click image for full infographic|
Small Cap Lithium Plays
Consider the following quote about lithium brine opportunities, once up and running, the op-ex and production profile of brine projects are more easy to forecast and less prone to cost inflation from ore depletion and other known unknowns. According to a Credit Suisse report,
“Lithium brine deposits typically outperform hard rock and clay lithium sources on cost, sustainability and permitting. This gap is becoming more pronounced when we take into account technological advancements in brine processing….even though lithium is relatively abundant, it’s the 33rd most common element — it’s very diffuse throughout nature, meaning that collecting and concentrating it is a very difficult task.”
Yes, it still takes years to go from exploration to initial production, but the cost, managerial resources and time of proving up an economically viable project is considerably less. Time is money in both methods of extraction. Dajin Resources Corp, (DJI.V) (DJIFF) is an example of an early-stage company with substantial, 100% owned lithium brine prospects in both Nevada and Argentina. In Nevada, Dajin’s owns two properties, one of which is 7km from the only producing brine project in North America. In Argentina, Dajin has a large, strategic property that could be explored, especially if lithium prices continue to increase.
Funding large-scale projects of any sort, iron ore, copper, gold, etc has been a tremendous problem for the past few years. It seems that, “PEAs” done in 2010-2012 are routinely recast to show stronger economics and lower upfront costs. With large checks for huge projects nearly impossible to secure, it’s no wonder companies are trying to deliver exactly what strategic and financial investors demand, lower risk projects. What makes a project less risky? Smaller scale, green, (less fossil fuel use / emissions), a predictable and sustainable plan of action to share with local communities and government agencies, a clear path from exploration to reclamation and therefore a better chance of obtaining project financing. That is exactly what Dajin Resources aims to do.
Dajin has demonstrated, solid financial backing allowing for the possibility of a Joint Venture partnering with peers, and farming out minority interests in their 100% owned properties. Dajin has both time and options, a rare combination in this brutal natural resource downturn. Dajin trades at one of the lowest market caps of the very few viable (my opinion only) lithium plays. Those looking for pure-play lithium exposure should include Dajin on their watch lists and due diligence review. A good place to start is at Dajin’s excellent Corporate Website (Dajin.ca) and their blue-skyed S&P Market Access Profile.
Traditional hard rock mining, is time-consuming, energy and cost intensive. Recall that I described a number of factors supporting a less risky project? (harvesting brines in Dajin’s case) A less risky project is more attractive to potential partners and investors. Riskier projects warrant a lot more due diligence, time and money to properly evaluate. A brine project, quicker into production at an initially smaller scale, with the above mentioned attributes, would have more appeal to a wider audience of interested parties.
Disclosures: At the time this article was written, Dajin Resources was a sponsor of EpsteinResearch.com. Mr. Epstein owns shares of Dajin Resources. Investors should consult with their own advisors before making investment decisions. Mr. Epstein is not an investment advisor. The article on this company should be viewed in this context. This company is highly speculative and not suitable for all investors.
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