PLS has 1 of the 4 best spod based hard rock resources
I believe the cause of problems which which the current 1st generation lithium producers are facing is technical and managerial rather than commercial and financial.
I am not a PLS holder and no intention to buy in the short term as I am fully invested in another lithium stock, but survival of PLS matters to me as I am invested in lithium sector. I believe PLS can fix all its problems and survive, and can be 2nd or 3rd largest lithium producer in the world, unless the management makes further mistakes.
PLS has a Tier-1 spodumene based hard rock resource despite its ore has high impurities (mainly iron and mica) which makes the process cost higher, it is still very important resource for the lithium market of the world. There is no way that it would go bankrupted or remain idle (care & maintenance) for long time. It’s a rare Tier-1 resource. It’s one of the best spod based four hard rock resources in the world (excluding very high risk and landlocked African resources).
I believe the next generation of producers who are the developers of large scale projects now; firstly MIN-Albemarle, then KDR (WES)-SQM and the LTR-(?) should/will take their lessons from the problems of 1st generation producers. I am also hoping and wishing AJM and A40 can survive from their current hard situations.
The EV Revolution is real and happening now.
Some strange news have started to flow on the media stating EV sales are slowing down. I don't believe it is slowing down. EV sales is still increasing 60%-70% for 2019 according to Year-on-Year data.
And the EV revolution is not only limited to EV cars, it’s about the battery operated trucks, buses, ships and airplanes, and hybrid version of those vehicles.
It's also the green revolution which the world needs urgently. We need huge capacity of off-grid stationery and utility storage which will be tightly connected to the wind and solar farms. (Tesla has started promoting its megapacks atm)There is no alternative to lithium in the horizon as there is no other technology can get close to be a rival to lithium in terms of executed and committed commercial investment volume.
The world will need huge amount of lithium after 2023-2025 when the demand exceeds supply.
Those lithium and battery producers know that there will a big deficit in supply after those years and trying to invest now because they haven’t got much time.The battery Gigafactory capacity is today around 200GW.
The current and committed battery Gigafactory capacity for 2028 is around 2TW (2000GW).10 times higher than today!
The EV car sales in 2018 was around 2m. That was the 2.1% of whole car sales. This year's result is expected be at 3-3.5 million with a monthly record maybe at around 500,000 and market share of over 3%.
The yearly demand will be around 60m EV in 2040 with a market share of around 40%.And the EV sales will catch the ICE sales just before 2050 according to the forecast.
The world battery fleet will hit to 1 billion at that time as you can see on the forecast graphic below.
If we think that an average EV battery would be around 35kW, that would contain around 30kg of lithium (LCE).
30kg LCE x 1,000,000,000 EVs = 30 billion kg of LCE = 30mt of LCE.
The total of lithium (LCE) in the vehicle batteries might be 30mt in 2045.
The total of LCE content in largest hard rock resources in the world (all in Australia) is 35mt of LCE. That means the world might not have any more competitive spod based hard rock resources after 2050. (I know the huge recycling will also be happening at that time). We don't know what will the lithium will be replaced as an energy metal or element.
Greenbushes has 8.4mt of LCE reserves,MIN -Albemarle (Wodgina) has 7.5mt,
PLS (Pilgangoora) has 7mt,
KDR/SQM (Earl Grey) has 7mt
LTR (Kathleen Valley) has 2.5mt,
MIN-Ganfeng (Mt Marion) has 2.4mt
(I am only talking about the competitive LCE resources as the whole battery production will be from lithium hydroxide in next 5 years and it’s much cheaper to produce lithium hydroxide from spod based hard rock resource than producing it from lithium brine. See below).
What makes Australian spod based hard rock resources so important?
The Australian deposits are very important for the world lithium producers and mining majors, even for the vehicle manufacturers. It’s because;
- Australia has the best securely and economically mineable hard rock resources in the world.
- New generation high power batteries with little cobalt content need to be made by lithium hydroxide.
- Producing Lithium Hydroxide directly from spodumene based hard rock resource is much cheaper than Lithium Brine resource. (there are other disadvantages of Lithium brine production).
- It’s now understood that producing lithium hydroxide is even cheaper than producing lithium carbonate from brine.
As we can see on the graphic below the new generation 6-2-2 and the latest generation 8-1-1 batteries require lithium hydroxide for production.
6-2-2: (6 part Nickel-2 part Manganese-2 part Cobalt)
8-1-1: (8 part Nickel-1 part Manganese-1 part Cobalt)
Not all lithium is equal...Integrated production (supply of spod always from same mine in same specs to the chemical plant) is the key
The problems of some lithium concentrate producers in Australia atm is not surprising, and it is not caused by the oversupply., but it’s true for industrial grade lithium concentrate.
- The low priced and oversupplied lithium concentrates (industrial grade) are coming from low quality resources. (Brine resource and low grade and/or problematic hard rock mines mines).
- Brine resources at Sth America other than Atacama producers (SQM and Albemarle) can’t produce right concentrate at a competitive price (Livent and Orocobre have costs over US$4,000 per tonne of Lithium carbonate).
- It's not easy and cheap to produce battery grade lithium chemicals for the converters in China when they are supplied the low quality (sub SC6) spod concentrates in different specs. We can't blame them.
- The constant change in spod concentrate feedstock specs (different iron, mica and other impurity levels) causes failures and down times in the converters because they buy feedstock each time from different suppliers, even different feedstock specs from the same supplier.
- For making battery grade chemicals (especially Li-hydroxide) at the right and competitive price the converters need SC6 spec concentrate with low iron and other impurities and needs the feedstock supplied in same specs.
- For producing SC6 spec concentrate at the right and competitive price the producers (mines) need to have a high grade spodumene resource with low impurities as the plant recovery rate and concentrate grade exponentially increases as the ore grade increases and impurity level decreases.
- The solution to those problems is understood by the major lithium concentrate producers. They are now integrating their lithium mines to their own chemical plants (Tianqi, Albemarle, SQM/KDR will separately supply to their own chemical plants). The converter plant will be optimised for that type of ore. They will always receive the same ore with same specs from their own mines. That will reduce the production cost of converter plant. (PLS does not have this option for now but might have it with Posco. It has 4 maybe 5 now including CATL offtake partners).
All explorers and miners will learn the importance of high grade – low impurity spodumene resource .
Therefore, a Tier-1 resource which has high tonnage, high grade and low impurities has a great value.
That's why KDR's Earl Grey resource sold at $765m for 95mt @1.5% Li2O grade while PLS is struggling with market cap of same value despite it has 230mt @1.27% grade.
Problems of current 1st generation spod based lithium producers are technical and managerial rather than commercial and financial.
There is no relation with the problems of current 1st generation poor Australian producers and the lithium market facts.The lithium price was too high in 2016 and 2017 when the supply was limited, and the demand was high. It was obvious that the supply was going to catch the demand at a point and the price would fall even thought the demand would be still increasing. That is called “Market Equilibrium”.
The oldest spod based lithium producer Greenbushes sells everything they produce They have no problem, make huge profits hence the investments for expansions because they have all the right things to do so.The current poor producers are paying the price of being inexperienced in lithium business. Lithium industry is a niche and highly technical, and a new thing for the miners and upstream developers.
Setting up a lithium plant is not that easy as it seems. You would need these;
- a high-grade ore (over 1.2% Li2O or higher is the better) with low impurities (especially iron and mica) in ore as the plant recovery rate and concentrate grade exponentially increases as the ore grade increases and impurity level decreases.
- very well skilled technical teams to design the plant, make the commissioning finely tuned, cope with the problems, and of course high quality processing machines specifically made for lithium processing.Let's' have a look what Roskill experts said last month;
"You have very small industry that’s trying to grow rapidly, and the technical expertise and the base knowledge to that is actually very limited, just because it was such a niche market."
“… just a few years ago there were a handful of lithium operators or major lithium producers globally and actually these were often focused on the best deposits and generally they didn’t have a requirement to ramp up to the capacities that many of these projects are touting within their studies simply because the market was relatively small and actually they just had to grow at a pace to meet a modest increase in lithium demand.
"The mineral sector where the hard rock mines, predominantly in Australia, is considered a bit more, sort of straightforward processing but many of the producers there as we are currently witnessing are having problems ramping up their plants to capacity and getting the design recoveries and much of this down to just this lack of understanding".
“… these projects look very attractive very often on an operating and capital cost basis but actually the thing to really understand with the lithium is the technical risk associated with them".
"Roskill analyst Oliver Heathman and associate Charles Cooper introduce Greenfield Battery Raw Material Projects for the 2020s report. The first of its kind, the study examines over 50 of what they describe as the top greenfield projects that could produce the key raw materials for the Electric Vehicle battery market".What PLS must do first is to get the plant working properly to eliminate the technical risks.
What PLS must do first is to make the plant working properly and produce SC6 spec concentrate saleable to converters which produce chemical battery grade lithium hydroxide and carbonate. The management should find the right experts to the rectifications and improvements.
PLS’s plant has couple of problems in my opinion. The plant recovery rate is too low, can’t remove the iron and mica properly, and the underground water which they use in wet processes introduces unwanted elements to the concentrate as it not purified properly.
The ore has high level of iron and mica, that’s a known fact for Pilbara region. Having high iron is the ore is not surprising for Pilbara as it’s is an iron country. Having high levels of mica is also not surprising because PLS started the project for exploring the lepodilite (lithium mica mineral) potential of Pilgangoora 5 years ago. but then significant spod was found.
Removing iron from spod lattice is costly but not impossible. Same for mica. Also, the underground water which they use in wet processes in the plant has high magnesium (hard to remove again), calcium and other expected elements. The purification is not done properly, and those unwanted elements are being introduced to the concentrate during the wet process as the same water is being used again and again. I hope they will fix that issue as well.
They say the wet high intensity magnetic system (WHIMS) upgrades, replacement of valves (and piping) and classification process improvements will be done and additional low-intensity magnetic separation (LIMS) will be installed. I am hoping they will also increase the number of floatation cells.The process will be at much higher recovery rate with higher lithium ratio in concentrate. These are not impossible tasks; they only require money and right experts to do job.
Competition for spod concentrate will always be there, but demand for lithium increasing, the key for profit is to be low cost producer but not necessarily the lowest cost.
PLS’s production cost will still not be competitive against to Greenbushes production cost as Greenbushes has very high grade of Li2O and low impurities which are keys of low cost production.
However it’s quite certain that Greenbushes can’t supply the whole demand for lithium chemicals. The current LCE demand is nearing 300tpa. Most of it is coming from lithium brine resources however it’s rapidly changing to lithium hydroxide as I stated above.
Greenbushes JV partners Tianqi and Albemarle are now building their own separate chemical plants in WA. They will send their own spod concentrate to their own chemical plants and will sell mainly lithium hydroxide. Couple of major battery manufacturers have already made their long term Li-hydroxide contracts with Tianqi (Posco and SK Innovations) and half of plant capacity is nearly sold out.
The world’s committed battery capacity in 2028 is now calculated as 2TW (2000GW). That makes around 1800t of LCE. 6 times larger than today! And most of it will be in li-hydroxide form of lithium.
Who is going to supply that?
As we know li-hydroxide is cheap to produce from spod based hard rock resource, which hard rock resources will be available for that demand?
This is even an old (2018) forecast. The new forecast is much higher (but I couldn’t find it)Greenbushes has short mine life now because of large expansions. And it will mainly feed its own chemical converter plants in WA.
Also, Greenbushes has a short mine life of their high grade resource (170mt @2.0% Li2O). That is not much if we think that the main power of EV sales will hit after 2030 when most countries to be expected put more restriction on ICE vehicles.
Then how long Greenbushes can supply the 2300tpa LCE? Maybe 10 or 15 years. Say in 2030 they will have very low resources.
While I was writing this post I saw the on the news that Greenbushes paused the expansion of CG# plant which would have 940kt concentrate capacity on top of current 1,340kt (including the current completed expansion of CG2).
Therefore, there is still a lots of room for Tier-1 projects in the lithium production market.
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