Interesting read I came across with discussion of lepidolite. I...

Interesting read I came across with discussion of lepidolite. I didn't fact check the article and I'm not sure if the figures are legit so DYOR
link of the original article: 中国云母锂提锂成本分析 - OFweek锂电网
Translation done by chatgpt

Regarding the speculation about the bottom of lithium prices, my framework is as follows: due to the relatively similar costs of global salt brine lithium, approximately 40,000 CNY per ton, which is much lower than the costs of other lithium sources. Therefore, the determining factors for lithium prices are the costs of lithium spodumene and lithium lepidolite, which together account for almost 60%. According to the 2022 data from the United States Geological Survey, in the global lithium supply, aside from lithium spodumene and salt brine lithium, there is also 10% lithium from lepidolite. I estimate that the proportion of lithium supply from lepidolite will likely increase. The reason is that the supply of lithium from lepidolite is primarily in China, and China's lepidolite lithium mining plans have been quite aggressive in the past two years. The example of CATL acquiring mines in Yichun is a typical case, with plans reaching as high as 100,000 tons, which should not be underestimated.
Today, let's discuss China's lithium lepidolite mines, and the cost of lithium extraction based on the grade of lithium lepidolite, discussing the costs for high, medium, and low-grade lithium lepidoliteI. Yichun's Main Lithium lepidolite Mines and Grades. Yichun is acclaimed as the "Asian Lithium Capital," possessing the world's largest lithium lepidolite deposits with multiple metals. Yichun city and its subordinate areas have proven usable lithium oxide reserves exceeding 2.58 million tons, equivalent to approximately 6.36 million tons of lithium carbonate, accounting for about 40% of the national lithium lepidolite reserves. However, in terms of actual lithium lepidolite production, most of China's lithium lepidolite mines are located in Jiangxi, with a smaller quantity in Hunan.The main lithium extraction enterprises in Jiangxi were originally the Four Major Families plus Jiangxi Tungsten Industry. These five enterprises accounted for about 80% of the quantity. The so-called Four Major Families are Yongxing Materials, Jiangte Motor, Feiyu New Energy, and Nanshi Lithium. In recent years, Contemporary Amperex Technology (CATL) and Guoxuan High-Tech have also entered the scene, acquiring a significant amount of low-grade ore. I have summarized the main mines and grades of these enterprises as follows:

The so-called Four Major Families in lithium extraction in Jiangxi have distinctive features. Let me briefly elaborate on each of these four companies.
永兴材料 Yongxing Materials:
Yongxing Materials sources lithium lepidolite from Huashiqiao Village in Huaqiao Township and Baishuidong Kaolin Mine, with a lithium grade of around 0.4%. Although the grade is relatively low, Yongxing's advanced technology allows for lower production costs compared to 江特电机 Jiangte Motor, which has a higher grade (0.5%). For example, producing 10,000 tons of lithium carbonate requires 1.2 million tons of raw ore for Yongxing (publicly available data), while Jiangte requires over 1.5 million tons. Jiangte's lithium lepidolite has a slightly better grade, indicating that Yongxing achieves higher extraction efficiency.Currently, Yongxing has a production capacity of 30,000 tons of lithium carbonate, all from their own mines. Additionally, their newly planned 3 million tons per year lithium ore high-efficiency expansion project has received environmental approval. This is in preparation for a potential increase of 20,000 tons in production capacity, and it is highly probable that by 2025, the company's own mines will be able to meet a lithium carbonate production capacity of 50,000 tons.

Yongxing represents the most advanced technology, with the following characteristics:
Utilization of Composite Salt Low-Temperature Roasting Technology:
1.Yongxing employs advanced solid fluorine technology in low-temperature roasting, resulting in a high solid fluorine rate and significantly reducing equipment corrosion.
2.Application of Pre-forming Followed by Tunnel Kiln Roasting Process:The use of a pre-forming followed by tunnel kiln roasting process allows for more precise and stable temperature control, facilitating lithium conversion reactions and greatly improving lithium leaching rates.
3.Optimized Combustion Process and Energy-Saving Evaporation Concentration Deviceuring the roasting process, Yongxing adjusts and optimizes the combustion process, combined with an energy-saving Mechanical Vapor Recompression (MVR) evaporation concentration device. This achieves the self-production and circulation of mixed salts through mother liquor evaporation, leading to a substantial reduction in auxiliary material costs.

In 2022, both Contemporary Amperex Technology (CATL) and Jiangxi Tungsten Industry expressed interest in cooperating with Yongxing in establishing a factory. However, later on, Yongxing and CATL went their separate ways. CATL was particularly attracted to Yongxing's technology.As for Jiangte Motor:Jiangte possesses numerous mines, with Qiankeng Mine being exceptionally large and Lion Ridge's mine having a good lithium grade.
However, despite the substantial increase in lithium prices during this cycle, Jiangte's profits have been limited. This is because Jiangte's free selection scale is approximately 1.2 million tons, and as mentioned earlier, it requires over 1.5 million tons of raw ore to produce 10,000 tons of lithium carbonate. Currently, Jiangte's own mines cannot support such quantities, and the production capacity of its lithium salt plant is 45,000 to 50,000 tons, not running at full capacity and requiring external ore purchases.Jiangte sources ore from 江西钨业 Jiangxi Tungsten Industry (414 Mine) and also purchases ore from Australia (1.5 million tons of lithium spodumene as a source in the designed capacity). Therefore, when examining Jiangte's financial reports, it's challenging to discern the cost of its own mines, as the cost is calculated comprehensively. The self-sufficiency rate of its own mines is relatively low, so the disclosed data from Jiangte cannot be considered the cost of its own mines. Jiangte is currently applying to the National Ministry of Natural Resources for the development of the Qiankeng Mine, with a planned capacity of 3 million tons per year. This capacity can meet the preparation of 20,000 tons of lithium carbonate. However, it is puzzling that Jiangte is applying to the National Ministry of Natural Resources, a process that could be very time-consuming.

I'll briefly explain the lithium mining development process. In China, the extraction of lithium spodumene ore requires an application to the National Ministry of Natural Resources. This involves submitting plans for extraction, overall design, and, crucially, environmental impact assessments. If the environmental impact assessment is approved, a mining license is issued. There are many procedural steps in between that I won't cover here.This process is quite lengthy. Taking the development of domestic lithium spodumene mines as an example, Li Jiagou Lithium Mine (developed jointly by Sichuan Energy Power and Yahua Group) and Rongjie's methyl card lithium mine in the Kangding area were planned for extraction around 2017, and by 2023, they still haven't started. It's been six years. If you have been tracking these mines, you would know that lithium mining is a very challenging process. Of course, the specific reasons vary for each case.
Because the lithium mining process is time-consuming, the development of lithium mica mines in recent years has generally taken a different approach. It involves applying for extraction based on clay resources rather than lithium resources. Applying for extraction based on clay resources only requires approval from the local government, significantly reducing approval time. For example, the mines acquired by CATL and 国轩高科 Guoxuan in Yichun were developed in collaboration with the local government. For the Xianxiawo mine which CATL holds 65%, and the local government holds 35%, with the backing of the Yichun government. This makes the operation much faster. This year, Xianxiawo has already started extraction, and this speed is quite impressive. Jiangte's development of the Qiankeng Mine, applying for extraction based on lithium resources, is hard to comprehend. However, this is something Jiangte often does. In the last cycle at the end of the lithium price cycle, while Yongxing was vigorously increasing the extraction of its own mines, Jiangte invested in the construction of lithium salt production lines. I pondered, "What's the purpose of building a lithium salt plant if you don't have mines? If lithium carbonate prices rise, you'll have to buy ore from Australia. Aren't you just working for Australia?" Later, Jiangte realized the value of mines and applied for development. While companies like CATL wanted to sign agreements with the government today and start extraction tomorrow, Jiangte chose to apply to the National Ministry of Natural Resources. How should we evaluate Jiangte? The only word that comes to mind is "unique." Jiangte and Yongxing were almost at the same starting point years ago, but due to different strategies, this recent cycle has clearly revealed their strengths and weaknesses.

飞宇新能源（九岭锂业）Feiyu New Energy (Jiuling Lithium Industry)
Feiyu New Energy is the current wholly-owned holding subsidiary of Jiuling Lithium Industry, which is currently in the process of applying for an Initial Public Offering (IPO). Jiuling Lithium Industry is controlled by the Wei Xuchun family. The family's primary business was originally in bamboo products, and the operating platform is Jiangxi Feiyu Bamboo Material Co., Ltd., which is also listed on the National Equities Exchange and Quotations. Seeing the opportunity in new energy development, Wei Dongdong (son of Wei Xuchun) took over a poorly managed and almost bankrupt porcelain clay mining company in 2010, initiating the family's venture into new energy.The lithium extraction technology of Jiuling Lithium Industry originated from Central South University, known for its prestigious metallurgy program in China. Those within the industry of lithium extraction and lithium carbonate manufacturing in China are well aware of the significance of Central South University in this field. During my research on various companies, I encountered several founders who graduated from Central South University, and the technical partner of 南氏锂业 Nanshi Lithium Industry also hails from Central South University (to be discussed later). The current core technical personnel have backgrounds from Jiangxi Dongpeng New Materials and Tianqi Lithium Industry. Dongpeng New Materials is a subsidiary of Sinomine Resource Group.

南氏锂业 Nanshi Lithium Industry
Nanshi Lithium Industry holds a 49% equity stake in Jinzifeng Silicon Mine Factory, located in Fengxin County, Yichun, Jiangxi, with a resource reserve of 39,700 tons. Nanshi has a relatively large production capacity, with about 30,000 tons before 2022, and a plan to expand to over 60,000 tons. Nanshi lacks sufficient self-owned mines and meets its lithium salt production needs through external purchases, including Yichun tantalum-niobium ore (414 Mine).
The Chairman of Nanshi Lithium Industry is Nan Jinle, and the Vice Chairman is Dr. Wu Jianfei, who graduated from Central South University. Dr. Wu is an expert in lithium extraction from mica, and it can be said that he developed Nanshi's technology. Dr. Wu Jianfei also holds approximately 25% of Nanshi Lithium Industry's shares. Nanshi is currently splitting its lithium carbonate business and establishing a company called Zhicun Lithium Industry, dedicated to lithium carbonate business. The controlling shareholder of this company is Nan Dongdong (son of Nan Jinle). Before the split, CATL invested in Zhicun Lithium Industry (with a 24% equity stake), and they prepared for an IPO in 2022. The planned production capacity was over 100,000 tons, with an estimated valuation of 12 billion at that time.
However, Nanshi Lithium Industry's mines did not transfer to Zhicun Lithium Industry. This means that Zhicun Lithium Industry did not have lithium mines at that time, operating more like a lithium salt trader. Later, when CATL acquired mines in Yichun, CATLwithdrew from Zhicun Lithium Industry for unknown reasons.
Afterwards, Zhicun Lithium Industry shifted its focus to Xinjiang, specifically Hetian, to build a lithium salt plant. The plan for Zhicun Lithium Industry in Xinjiang is to complete the construction of a lithium carbonate production line with an annual capacity of 120,000 tons in two phases. The current capacity is about 60,000 tons, but it's unclear whether it has reached that level; there were reports suggesting that it had reached 30,000 tons.
Known lithium resources in China generally come from three places: lithium spodumene in Sichuan, lithium lepidolite in Jiangxi, and brine lithium in Tibet. However, Xinjiang is also rich in lithium resources, though it has remained low-key and mysterious to outsiders. According to the latest information, lithium mining resources in Xinjiang are mainly distributed in four areas: West Kunlun—Karakoram (the largest), Altai (the second largest), Altai Mountains, and East Tianshan, with a total resource amount of approximately 25 million tons of lithium carbonate. This is a significant amount, but these resources remain undeveloped. Zhicun Lithium Industry's 120,000-ton lithium carbonate project in Xinjiang is relatively close to the Altai lithium-polymetallic ore belt.
In February 2023, after Zhicun Lithium Industry's wholly-owned subsidiary, Ruoqiang Zhicun New Material Holding's Xinjiang Zhite New Material Co., Ltd., won the exploration rights for the lithium mine in Wastone Canyon, Ruoqiang, Xinjiang, for 6 billion CNY, they did not sign the exploration right transfer contract as agreed in the bidding announcement, leading to a "regretful bidding" incident involving a sky-high lithium mine price. Xinjiang and Tibet are ethnic minority regions, and the reasons behind this incident may be quite complex.
The quantity and quality of lithium mines in Xinjiang are substantial, but they have not entered the mainstream view. However, there is a sense that, in the next lithium price cycle, Xinjiang will become a key area for lithium mine development in China.
江西钨业 Jiangxi Tungsten Industry
The Yichun Niobium-Tantalum Mine (414 Mine) under Jiangxi Tungsten Industry is an established lepidolite lithium mine with the highest grade in the Yichun region. According to information from Yongxing personnel, it used to be a primary source for purchasing lithium concentrates. When the grade of this mine is high, it can reach above 1%. The lithium concentrates produced from this mine are classified into various grades, including 3% and above, 3%, 2.5%, and 2%. Traditionally, those with grades below 2% had lower value, but in the current surge in lithium prices, even those around 1% are in high demand.In Jiangxi, anyone involved in lithium extraction from lepidolite knows about the 414 Mine. It is known for its high-grade ore, and the lithium concentrates it produces have been sought after. The primary buyers of this mine used to be Jiangte and Nanshi.After discussing the basic situation of lithium lepidolite mines, let's delve into the cost aspect.

2. High-Grade lepidolite Extraction Cost

Before discussing the cost of lithium extraction from high-grade lepidolite, let's provide a brief overview of the lithium extraction process from lepidolite.

The lithium extraction from lithium lepidolite begins with mining. The raw ore undergoes beneficiation, starting with desilting and then the beneficiation process. In terms of recovery rates, desilting achieves around 80%, and the beneficiation process achieves approximately 85% recovery. The lithium concentrate obtained then enters the lithium carbonate preparation phase, with a recovery rate of 85%. The data mentioned here are approximations, as specific figures depend on the ore grade and the lithium extraction technology used by different companies.

Now, let's discuss the cost of extracting lithium from high-grade lithium lepidolite, using Yongxing Materials as a representative example. Yongxing is a publicly listed company, and the cost information disclosed is considered reliable. I have been following this company since the previous cycle, so I have some understanding, and I have also interacted with people from the company.

The cost analysis is based on the carbonate lithium production of Yongxing Materials, as they have disclosed this information in their financial reports. The cost breakdown for carbonate lithium production is as follows:
In the first half of 2023, the company achieved sales of 12,800 tons of carbonate lithium, with operating costs of 723.41 million yuan and operating income of 3.05 billion yuan, a year-on-year increase of 0.85%. The net profit attributable to the shareholders of the listed company was 1.70 billion yuan.
In the full year of 2022, the company achieved sales of 19,700 tons of carbonate lithium, with operating costs of 10.91 billion yuan and operating income of 8.738 billion yuan, a year-on-year increase of 613.92%. The net profit attributable to the shareholders of the listed company was 5.963 billion yuan.
Please note that these figures represent the carbonate lithium business of Yongxing Materials, excluding other businesses such as wire and rod production. The net profit from other businesses in 2022 was approximately 400 million yuan, as the total net profit for the company was 6.3 billion yuan.
By calculation, we can determine that Yongxing's approximate per-ton operating cost is about 55,000 yuan. This figure was also confirmed through direct inquiry with Yongxing. The operating cost is essentially equivalent to the cash cost and includes expenses such as ore, auxiliary materials for carbonate lithium manufacturing, electricity, labor, and other costs.I also calculated the per-ton sales price minus the per-ton net profit for Yixing, for example, in 2022, it was 100,000 yuan per ton. This figure represents the difference between the selling price and net profit, indicating the total cost, including taxes, operations, management incentives, and other expenses, which seems relatively high.
The actual situation I understand is that the total cost calculated in this way tends to be on the higher side. This is because the profit calculation for carbonate lithium involves the allocation of many additional operational costs (after all, the company's wire and rod business, although not very profitable, still has a considerable volume), and due to the high profitability of carbonate lithium, taxes are also quite high. According to the information I obtained from the company, the comprehensive cost for the carbonate lithium business is approximately 70,000 yuan per ton. This means an increase of about 15,000 yuan per ton over the cash cost. This data can be considered as the difference between cash cost and total cost and serves as a reference for calculating the comprehensive cost of lithium production for other lithium mica extraction enterprises. Of course, this is my personal perspective and is provided for reference only.
A friend involved in lithium extraction from lepidolite in Jiangxi told me that, excluding the cost of purchasing mines (for ordinary-grade ore) and considering only material and labor costs, the preparation cost for one ton of lithium carbonate is only around 40,000 to 50,000 yuan. I believe this is also possible. If you look at the cash cost of Yongxing, which is 55,000 yuan per ton, it includes the cost of purchasing mines, and depreciation of equipment, financial expenses, etc., are all taken into account. However, if you treat it as a business operation, there will be additional costs such as value-added tax of 13% on sales, income tax, various tax surcharges, and management costs.

3.Lepidolite Lithium Ore Mining Costs (Medium, Low Grade)

In the past, medium-grade (0.3-0.4%) and low-grade (0.25%) lepidolite had no extraction value. However, the current situation with lithium carbonate prices exceeding 500,000 yuan/ton has changed this, making medium and low-grade ores valuable. In 2022, due to the surge in lithium carbonate prices, even tailings with ordinary grades were eagerly purchased.
Planning and Costs of CATL
CATL planned a production capacity of 36 million tons of raw ore, equivalent to about 120,000 tons of lithium carbonate production capacity. The current built capacity is 100,000 tons of lithium carbonate, with the Yifeng smelting plant climbing and the other two gradually starting production.
According to the latest research data, CATL's Jinxiaowei ore area requires 300 tons of raw ore to produce one ton of lithium carbonate. Although Yongxing's ore has a lithium content of 0.4% and CATL's ore has 0.27%, judging by lithium extraction, Yongxing's 1.2 million tons are less than CATL's 3 million tons. This is because the loss during the selection of low-grade ore is greater.
The cost of extracting one ton of raw ore in CATL is 20-30 yuan. After selecting ore to obtain a refined ore with a grade of 1.7%, the cost of extracting one ton of raw ore is 115 yuan. The cost of one ton of lithium carbonate ore is 115 * 300 = 34,500 yuan. Regarding lithium carbonate preparation, CATL currently uses outsourcing, with outsourcing costs of 59,000 yuan/ton (including tax). Considering the interest cost of production funds at 1,000 yuan/ton, the cash cost of producing one ton of lithium carbonate in CATL is about 87,700 yuan, corresponding to a cash cost including tax of 99,000 yuan/ton. This is roughly CATL's cash cost of 100,000 yuan/ton.
Cash costs do not represent the overall cost. For a company to operate normally, various costs need to be considered, such as tailings processing. The construction of CATL's tailings pond requires a significant investment. In addition, the government of Yichun sells ore to CATL at a cheap price, but actually requires a "resource tax" of 30,000 yuan/ton. It is said that under profitable conditions, the "resource tax" bottom line is 10,000 yuan/ton. In addition, there are management costs. Therefore, overall, if CATL is profitable, an additional 10,000 yuan resource tax + 15,000 yuan in other comprehensive costs must be added to the cash cost, and the total cost is at least 125,000 yuan/ton, above which it is possible to obtain actual profits.
Guoxuan High-Tech's Production Capacity and Market Conditions
Guoxuan High-Tech's planned production capacity is 120,000 tons, but the current construction is only 50,000 tons. The estimated costs are likely to be similar to those of CATL. With lithium prices now reaching 100,000 yuan per ton, these low-grade ores are actually not profitable. As for whether CATL will achieve its planned 100,000 tons, it remains to be seen. CATL claims it will, but they are likely to carefully calculate the specifics. Why would companies vigorously produce themselves when they can purchase lithium carbonate for less than 100,000 yuan/ton? Even if the construction is completed, will they operate at full capacity? These are questions you can speculate on.
In the current market conditions, Guoxuan's estimate is at most 50,000 tons. The original slogan may now be modified to: "If lithium prices rise to 200,000 yuan, I will build 120,000 tons."As for medium-grade lepidolite, there's not much to say because the quantity is limited. The cost is approximately between high-grade and low-grade, ranging from 70,000 to 120,000 yuan/ton.

4.Current Situation of lepidolite Mining

The characteristics of mineral development in China include greater flexibility. In the country, the extraction of lithium spodumene ore requires approval from the national Ministry of Natural Resources, and the extraction process is quite standardized, subject to stringent environmental impact assessments. Consequently, many domestic lithium spodumene mines had announced plans for extraction as early as the previous cycle in 2017, but actual mining activities have yet to commence.
However, China also exhibits its own flexibility. For instance, in the case of lepidolite, the extraction of mica lithium ore currently does not require approval from the national Ministry of Natural Resources. Companies can apply for development based on other minerals like clay. With the surge in lithium prices, even though lepidolite has lower grades, the refined lithium extracted from it is considered valuable. As a result, a rush of companies, both large and small, and individuals with connections are actively engaging in mining activities.
In regions like Yichun in Jiangxi, local officials from a certain village might negotiate and share interests with small external enterprises, using machinery to mine within the village. Similar operations are seen in Xinjiang, Hunan, and other regions with small lithium mines. The actual quantity of additional mining is not well-documented, and during the peak of lithium prices in 2022, there might have been instances of excessive mining, though such activities are now likely reduced.

Summary:
1.Cost Analysis:The cash cost for most common-grade lepidolite is around 55,000 RMB per ton (referencing Yongxing Materials), with an overall cost of approximately 70,000 RMB. For low-grade (0.25%) lepidolite, the cash cost is around 100,000 RMB per ton, with an overall cost of about 125,000 RMB.
2.Global Lithium Supplyomestic lepidolite contributes around 10% to global lithium supply, while Australian lithium spodumene accounts for over 45%. The cash cost for common-grade lepidolite in China (with higher costs for lower grades) at 55,000 RMB per ton is similar to Australian lithium mines, which have an average cash cost of approximately 60,000 RMB per ton. The overall cost of common-grade lepidolite in China is also comparable to Australian lithium mines, ranging from 70,000 to 80,000 RMB per ton.
3.Lithium Carbonate Pricing:Lithium carbonate prices at 50,000 to 60,000 RMB per ton essentially reach the cash cost line for both Chinese lepidolite and Australian spodumene. At prices of 70,000 to 80,000 RMB per ton, lithium carbonate reaches the overall cost line. Given that China and Australia collectively represent over 50% of global lithium supply, sustained lithium carbonate prices in this range are not expected in the long term.
4.Lepidolite Extraction Technology: While the article does not extensively cover lepidolite extraction technology, the author suggests exploring research papers on platforms like CNKI for those interested. Understanding the broad principles and directions of these technologies can be valuable when engaging with experts and conducting research.
5.Future Lithium Supplyrojections indicate a global lithium supply increase of around 400,000 tons per year by 2024-2025. China's role in this is uncertain, especially with disruptive players like CATL in the lepidolite sector. The variability in China's contributions is significant, particularly in the lepidolite domain, where players like CATL might introduce unexpected increases.
6.Current Market Sentiment:Acknowledging the prevalent sense of despair in the current market, the author emphasizes the cyclical nature of industries and the potential for a revival after a period of downturn. The focus on research is crucial during times of general pessimism, providing valuable insights when others may have lost interest.
In conclusion, the author suggests that though the industry is currently facing challenges, overcoming this "winter" is essential for the emergence of a promising "spring" in the future.