Rio's lithium muddle and
why ioneer could benefit
RIO Tinto’s intermittent messaging around adding lithium to
its portfolio to plug in to the whole electric vehicle/renewable
energy storage revolution thing has become increasingly
confused, writes Barry FitzGerald.
Will Rio provide some clarity around its plans for Jadar in Serbia at tomorrow's Capital Markets Day?
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Barry-fitzgerald
Barry
FitzGerald
First up, it is known Rio had a look at acquiring a stake in Chile's lithium
king SQM and considered bidding for Kidman, since acquired by
Wesfarmers, but did not act.
Fair enough, acquisitions in the lithium space are not compulsory,
particularly for Rio as it has long had its "own" lithium option - the Jadar
lithium/boron project in Serbia.
It has spent US$200 million on Jadar and has told the Serbians that it
intends to make a final investment decision in 2021 on whether the 2004
discovery will eventually become a producer from 2023 or thereabouts.
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It is not the intention here to disappoint or mislead the Serbians but it has
to be passed on that there has been lots of industry chatter of late that Rio
is in fact looking to sell Jadar because it can't clear all the hurdles Rio had
hoped it would.
Rio had no comment on the scuttlebutt earlier in this week. That's also fair
enough.
But it is kind of interesting that the chatter on Jadar coincides with Rio's
recent statement around a "eureka" moment at its borates mine at
Boron on the edge of the Mojave desert in southern California.
The gushing statement did not make it on to the ASX announcements
platform which is just as well as it was as loose as they come.
Anyway, Rio claimed that it had found a way to extract lithium from the
waste rock accumulated over the decades at the mine and that "if the trials
continue to prove successful, this has the potential to become America's
largest domestic producer of battery-grade lithium".
So if Rio is in fact looking to sell Jadar, its regular references to lithium as
part of its virtue signalling of its green credentials could live on with the
Boron lithium opportunity. The ESG gate watchers out there will be
pleased.
California, Made in America, electric vehicles, battery storage …it doesn't
get any better.
At this point though it has to be said that the eureka moment at Boron
involves roasting the material to 950C so the net:net benefit to the
environment is very questionable.
And given Rio is talking about 5000t of annual lithium carbonate output
should the Boron waste project become commercial, it has got to be
wondered why it would bother.
Rio managing director J-S Jacques did talk up the concept of the big miners
having to consider smaller and more innovative projects in his speech to
LME Week in London on Monday.
But at a commercial rate of 5000tpa of lithium carbonate, Rio might as well
go and find itself a 20,000oz a year gold mine.
By now it can be seen that Rio's ambition around lithium really is a
confusing state of affairs.
But if it really wants in on lithium, and if in fact it has gone sour on Jadar,
there is a pathway to have a meaningful presence in the industry from a
preferred address in the US.
The pathway is to take out ASX-listed ioneer, the A$345 million Sydneybased
group looking to develop the world's only other lithium/boron
project, Rhyolite Ridge in Nevada.
The idea is not original to this space. It comes from Ord Minnett analyst
Dylan Kelly who initiated coverage of ioneer on October 21 with a 45c price
target when the stock was 17c. The stock has since moved higher to 23.5c,
a gain of 38%.
Now Kelly did not mention the industry chatter about Rio wanting out of
Jadar. But he did suggest Rhyolite Ridge could be a Jadar killer, and that Rio
was its "potential owner in the long term as we see it could be attractive
for several strategic reasons".
Those were doubts about the returns available on Jadar, maintaining the
oligopoly Rio shares with Turkey in the global boron market, and the ability
for Rhyolite Ridge to offset the inability to expand the ageing Boron mine
to protect market share (30%).
Ords expects the $600 million Rhyolite Ridge project - subject to financing -
to start commercial production in 2023 producing 21,000tpa of lithium
carbonate and 218,000topa of boric acid over a 30-year-plus mine life.
Because there is 10t of boric acid ($700/t) for each 1t of lithium ($8000/t),
Ords reckons the project's economics are "highly compelling'' in that the
boric acid revenue could make the project the lowest cost lithium producer
there is.
Even at 21,000tpa, the project looks to be on the small side of things for a
company of Rio's scale. But Ords makes the point that for a little more than
$70 million, output at Rhyolite Ridge could be increased by one-third.
Ords said the next catalysts for ioneer include the DFS release in the first
quarter next year, securing offtake agreements, and the possible sale of a
minority stake to a strategic partner.
All that of course assumes that ioneer doesn't get taken out first.
As an aside, there was an interesting cable from China's state-owned new
agency last Friday that Turkey was preparing to strengthen its national
defense industry by allowing a Chinese company to build a boron carbide
plant in the country.
"We will be able to use boron carbide in the production of military
equipment, such as steel shells, protective vests, helicopters and tanks
which require high hardness and strength," the Turkish side was quoted as
saying.
That would have sent off alarm bells in Washington where as much as $5
billion is being marshalled to ensure the US has access to, or produces
itself, the critical metals its economy needs, many of which China currently
controls.
Made in America lithium is on the list and because the Boron mine is
getting long in the tooth, maybe a new boron mine should be too,
particularly with the meshing of Turkish boron with China's expertise in
armour plating.
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