Lithium Exploration and Development
Chile needs to establish a streamlined framework to advance projects in a booming market
Lithium prices have skyrocketed, rising over 400% from 2021 to 2022, according to figures from Benchmark Mineral Intelligence. In April 2022, Elon Musk tweeted that the price of lithium had “gone to insane levels,” to the extent that Tesla might have to get into the mining and refining directly at scale, unless costs improve.
Half of the 10 juniors on the TSX Venture 50 list (a ranking of the top 50 performing TSXV-listed companies) for 2022 were lithium-focused, illustrating the wave that has been ridden by the sector during this dramatic run up.
However, although the share price performance of Chilean lithium explorers has been robust, cumbersome bureaucracy and uncertainty surrounding constitutional changes have limited growth. Moreover, outside of the two big producers active in the country, development has been slow.
In contrast, Chile’s neighbor in the lithium triangle, Argentina, has been proactive in promoting the development of its lithium assets, particularly in the Salta province in the northwest of the country. “The Argentinian environment for lithium mining development is more favorable and less regulated than in Chile due to the provinces controlling their resources and wanting to develop revenue streams for the benefit of their citizens,” said Steve Cochrane, president and CEO of Lithium Chile (TSXV: LITH), the Canadian junior with a large portfolio of projects in Chile and Argentina.
“The emergence of a national lithium company is far from a new idea, as discussions about its establishment long precede the current administration. Establishing a national lithium company does not entail the monopolization of the entire value chain. Rather, public-private alliances will underpin the company, which can be a promising opportunity for lithium operations in Chile.”
Cristóbal García-Huidobro, CEO & Managing Director, Lithium Power International
In January 2022, Lithium Chile announced an initial resource of 1.4 million t of lithium carbonate equivalent from the initial pump test well on its Arizaro project in Salta, Argentina, which attracted a C$34 million investment by Chengxin Lithium Group – the second largest lithium carbonate processor in China. Cochrane acknowledged the excitement in developing Arizaro, but also emphasized the company’s continued commitment to the country it is named after: “Salta in Argentina is a fantastic jurisdiction, but prices are higher due to a shortage of rigs and skilled mining professionals, and from a value/investment standpoint Chile provides great opportunities that have not yet seen explosive demand.”
Cochrane noted that the more radical proposals put forward by the Constitutional Committee, such as the nationalization of mining, were soundly defeated by vote on Saturday May 14th, 2022, and voiced his support of the government’s intention to create a national lithium company with the goal of partnering up with private sector companies to jointly advance lithium projects. “This would be a far better, more transparent pathway to co-develop Chile’s lithium assets rather than the current regulatory environment.”
In March of 2022, Monumental Minerals Corp. (TSXV: MNRL) signed an option agreement with Lithium Chile to earn a 75% interest in its Laguna Blanca lithium brine/cesium sediment project, consisting of 23 exploration concessions totaling 5,200 ha. “Over the next three years (by March 2025), Monumental will spend C$1.5 million on exploration, and make cash payments of C$1.5 million. This deal makes Lithium Chile Monumental’s largest shareholder, at 9.9%,” detailed Jamil Sader, Monumental’s CEO.
Sader mentioned that surface geochemical sampling and TEM geophysics were conducted by Lithium Chile over parts of the salar at Laguna Blanca, and these two datasets have identified highly prospective locations for drill testing of lithium brine and cesium in the sediment. He added: “Drilling will commence at Laguna Blanca in Q3 of 2022.”
Marcelo Awad, executive director of Wealth Minerals (TSXV: WML), the battery metals junior that holds the Atacama Salar and Ollague lithium assets in Chile, observed that President Boric and Mining Minister Hernando have both been clear with the message that Chile has to develop its lithium business. “We know that the window to develop lithium assets is now and perhaps for the next 10 to 15 years, because the substitutions are already at lab level. They are aware that in the future there may be products that replace a large part of lithium consumption,” he reflected, suggesting that this has highlighted the importance of adding value to lithium production in Chile by developing downstream elements, most likely in the form of battery components rather than full-scale battery assembly.
Acknowledging the sharp run up in lithium prices from 2021 to 2022, Awad sees the longer-term price stabilizing at around US$15,000 to US$20,000 /t range. “This is comfortable for the likes of SQM and Albemarle that are mining the Atacama Salar, but will be a challenge for many hard rock or clay deposits elsewhere,” he said, illustrating the inherent advantage that brine explorers in the lithium triangle hold over their hard rock counterparts in countries such as Australia. The challenge, however, is to create a framework that will support streamlined development.
One of Chile’s most advanced lithium developers is Lithium Power International (ASX: LPI), which controls around 35% of the exploitable area at the Maricunga Salar, consisting of more than 2,500 hectares of mining concessions at its heart, including the company’s flagship Maricunga asset. After completing its first exploration program at the Maricunga project in 2017, a DFS was released in early 2019, followed by an EIA and LPI’s first lithium carbonate battery grade sample from its pilot evaporation ponds.
The company’s initial objective was to produce 20,000 t/y of lithium carbonate for 20 years, using 100% of its mining concessions, with the original capex estimated at US$600 million. In February 2020, LPI obtained the environmental approval from the Chilean authorities, and by March 2020 it had received bids for the EPC contract. However, the pandemic created uncertainties and delays, particularly on capex estimates. “The accuracy of capex estimates is critical to securing robust project finance with at least 50% leverage in our case,” elaborated Cristobal García-Huidobro, LPI’s CEO and managing director.
García-Huidobro explained that by the end of 2020, considering the impact that the pandemic had on development, LPI decided to move forward with a staged strategy by fast-tracking a first-stage development. “The Stage One project (based on half of our mining concessions) will produce an average of 15,200 t/y of high-quality lithium carbonate over a 20-year mine life. It will also provide significant future expansion potential from subsequent stages.”
In 2021, LPI signed a MoU with Mitsui to become the off-taker in the future at prevailing lithium market prices, in addition to becoming one of the main equity partners in the Maricunga project. García-Huidobro commented: “This could represent one of the first equity investments of Mitsui in the lithium industry. Discussions have also included the Japanese Export Credit Agencies (ECAs), which could participate via a syndicated finance structure.”
Image courtesy of Albemarle