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investing in lithium - things to understand, page-5

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Optimus13

380 Posts.

05/08/17

08:27

Post #: 26308152
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Originally posted by dgoynich ↑

Hi all
I thought I would share some learning's about the lithium process and hopefully bring some reality back into the lithium forums. Note I am a holder of KDR and this post is neither an up-ramp or down-ramp. I chose KDR over PLS and others as I see some logistical challenges for PLS. This is not a comparison or down ramp – just trying to educate other share holders.

I'm lucky enough to be involved at the early stage of two very large (as in 100 year plus mine life) very high grade spodumene and hard rock deposits and associated mines and processing plants. They are seemingly unknown lithium projects on the hotcopper forums as they aren't a share available on our small ASX or are discussed due to size. One is completely confidential – regardless i'm not sharing too much that isn't readily available if you are prepared to read.

Most mines are working on numbers like $20,000 a tonne and typically have plans for one, two or three trains of 20ktpa. Note $20,000 is the current spot price and what most on here fail to realize is that long term contracts are set at much lower price than the spot price. Spot prices are great for short term but most big reliable miners aim for deterministic long term contracts. Spot prices also get speculative investors excited due to the ramping opportunities...

Remember as supply increases – price will decrease. My discussions with high level managers indicate they know the price will trend down as EVERYONE tries to build a lithium mine. Do not fool yourself and bury your head in the sand. This is a simple supply and demand equation that the Chinese and others play very well to their LONG term tactical advantage. Those producers who fail to lock in long term contracts out of greed or naivety may not lock in any contract.

Also remember – there is LOTS of supply coming online or attempting to come online. China has several processing plants coming online and upgrades to others. Not as fancy or expensive as the Australian ones but they work and without the environmental constraint issues Australia is facing which I’m going to outline below. Some of the graphs or number people show don't include the projects I know of.

Now the chemical process -> the hard rock lithium hydroxide and carbonate processes are quite toxic in terms of the chemicals they use and create. Don't compare to Brine – this is easier and less problematic chemically. As an example – the waste from a single tonne of 6% battery grade spodumene concentrate creates 10 tonnes of class 3 waste. That means – when you dispose of it – you need to prevent it from getting into ground water. Double liners maybe? Its not an easy solution. People quote 200 ktpa plants don't seem to realise that equates to 2 million tpa of tailings that must be disposed of in a class 4 landfill and kept reasonably wet and not dusty. That's not easy. 20 ktpa is difficult enough.

Lithium is not toxic to humans in small doses – in fact people take it for some psychological conditions as I'm told it relaxes an individual. Unfortunately even at singular parts per million – its a citrus destroyer and some other fruit and vegetables, hence disposal of tailings which will contain lithium in the parts per million cannot get into the water supply.

At 20 ppm → this requires a class 3 landfill
From my understanding, most processing plants are using process which reduce the waste down to about 200ppm.

The other by-product of the lithium process is a sodium sulphate salt that can used in the soap industry – unfortunately banned in all western countries but still legal in Asian countries … for now … The reason Asia loves it is it a really good foaming agent. Unfortunately again for every tonne of spodumene concentrate – the lithium hydroxide process liberates about 4 tonnes of these salts. My research and conversations with experts who wrote the process, is that most mining companies are still figuring how to get rid of this by-product. There isn't an easy solution – there are solutions but they aren't pretty. One is dumping in the ocean significantly diluted. Seriously – Lithium is supposed to be helping an environmental issue not creating one.

The other thing that surprised me was the amount of H2SO4, Caustic (among other fun chemicals) and heat (via coal or gas) was needed to create lithium hydroxide. Even spodumene if breathed is similar to brick dust and will give you silicosis if breathed in quantities. To liberate the lithium – you need to roast in a very large kiln or oven at over 1000 Deg C (I wont reveal the actual number but its high). Its a lot of energy – not insurmountable and still profitable of course. All parts of the process though are chemically interesting and some energy intensive. So a successful mine would need to be near a large source of heat producing energy such as coal or gas...

One of the other by-products of this process is CO2. This is the gas lithium is supposed to be displacing by using lithium instead of oil and gas? Most people seem to forget its a by product of the 6% lithium hydroxide that will be created. This CO2 is in addition to the burning of fossil fuels.

To get the lithium out of solution also requires extreme cooling. Its not an easy problem. We are talking taking warmer than room temperature solutions to negative temperatures very quickly and often. This requires a large amount of refrigerant and energy. The best refrigerant is probably R22 but this is now on the black list. The best legal chemical is probably NH3 or Amonia but this is toxic to humans but not too bad for the ozone layer like R22. Again using sub-standard mixtures costs more money as its not efficient and hence requires more energy. The Chinese use R22 from my understanding and hence should be able to produce cheaper.

So maybe you are starting to get the picture of my discussion. I was thinking – how would Pilbara minerals out in the middle of the Pilbara dispose of their tailings and their soapy salts. Shipping of chemicals to site and other by-products off site would cost a bit of money. These are costly by-products. There is natural gas nearby so thats feasible. I'm not saying its impossible but just because you have a drone flying over a patch of land doesn't mean they have solved these expensive and chemically and logistically difficult problems. KDR might have it easier if they put a process plant closer to Perth as solves some logistical problems which increase unit costs.

As others know from the presentation– SQM is bringing their “expertise” to KDR. I'm curious what expertise they are really bringing to the spodumene process. SQM like most other South American lithium producers are Brine focussed and from what I have read do not have spodumene lithium hydroxide solutions to the problems I've raised above. From what i've heard – no one has solved the problems yet to make it easy and less toxic to produce. My understanding is the Russians invented the chemical process during the cold war as lithium could be used in atomic bombs. The Chinese took it but haven't figured out the problems either – judging by the recent videos I saw and discussions with individuals who conducted a site visit, its not going to happen in the short term.

The other day I read on the KDR forum – that KDR should or could have a valuation similar to Ganfeng or using ganfeng multiples – based on their output being similar. Did anyone check the P/E ratio of Ganfeng – its 96! How many producing mining companies have a p/e of 96. Dyor research on this one! Ganfeng also don't have our environmental standards or our regulations. Be careful of listening to these statements based purely on speculation. When people write these one line evaluations – don't invest your money without doing your own research.

Which brings me to my last point – people in the industry know this is a speculative industry right now. Regardless of the colourful presentations which are there to attract funds and investors and pay bills, its at a very speculative stage of the industry where people makes lots of money and a lot of people who don't understand the logistics or quantities involved probably don't realise just because you have a deposit doesn't mean you can turn it into battery grade 6% lithium concentrate. These will be the losers. The practical focus for most real producers who understand the industry would be its wise to get long term contracts perhaps, and that a lot of explorers are quoting the spot price and a large deposit but haven't worked out the chemistry or logistics of what I've described above.

So before people run off and say Lithium will save the environment – actually it won't. From what I've observed its probably marginally better than oil and gas but only marginally. Some of the by-products do make me think twice though!

Another simple example – a 4 kW solar array will produce about 23-24 kWhr per day in summer. A tesla car requires maybe 90-100 kWhr to fully charge. How many full days of electricity generation will it cost to fill your Tesla (4) – and then with rising costs of electricity, how much is your power bill going to rise (Australia only) – the rest of the world seems to have cheap power. Buying a Tesla or equivalent is just going to shift your CO2 to another source like a power station.

Should you invest in KDR - I don't know. Personally I have but I'm watching closely. I think the logistical problems might be easier to solve with a processing plant closer to high energy supplies like coal or gas – and the number of bulk chemicals required to liberate the lithium hydroxide is significant. I have less of an idea about PLS but DSO is perhaps a good idea as eliminates a lot of problems i've described and makes them someone elses (or some other countries) problems. Maybe PLS is a better option for simplicity. I don't actually know but its worth investigating.

Regarding spodumene - the inputs are hazardous and toxic.
The outputs are hazardous and toxic.
it still produces CO2 - during the production process and as part of the electricity generation.

Using horses and carts is a better and more environmentally friendly option, but hay (pun intended) people want a Tesla to protect them from all that toxic air we create. Could even get rid of the lawn mower maybe.

Lithium a great and interesting chemical due to its light weight and high energy density for its weight but really in my opinion should only be used in batteries for vehicle applications. Home storage solutions have much better options – liquid flow through batteries as an example. This is just my opinion of course.

Anyway, I hope this helps investors make a more informed investment decision. Be careful of the up-ramping crap that sets unrealistic price expectations and lots of room for significant price drops once real investors start analyzing and playing your emotions with valuations based on lack of research.

DYOR and GLTAH

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I can't see many "logistical problems" for PLS in your 6 page essay. I'm pretty sure management has thought about all the points you've raised too. Good read though, not as neutral as you'd intended though, but I guess this IS the KDR forum. Good luck to holders of both.

KDR Price at posting: 55.5¢ Sentiment: None Disclosure: Not Held
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