The Strategic Minerals Advantage
Many believe demand for lithium and uranium is set to rise significantly. Argentina has plenty of both.
The Argentinean puna is set to become a key supplier of lithium to the world. (Photo: Salar del Rincón, operated by Ady Resources)
One particular aspect of Argentina’s emergence as a mining destination is its richness in two strategic minerals whose future fundamentals look promising. For starters, nuclear power generation is more attractive than a few years ago. According to U3O8 Corp., a junior exploring for uranium in South America, nuclear power generation will grow 75% from 2007 to 2035 worldwide. Sources at UrAmerica, another junior company, estimate there will be a uranium supply deficit from 2015.
The Argentinean state, through the CNEA (National Commission of Atomic Energy), used to produce uranium to feed its nuclear power generation capacity, but somewhere along the line importing it became cheaper than producing it domestically. Now the situation has changed. “Current prices mean that new production projects in Argentina are potentially viable,” said Ignacio Celorrio, president, Argentinean Chamber of Uranium Companies (CADEU).
The fact that Argentina has plenty of uranium has not gone unnoticed among the world’s major producers. Earlier this year Cameco signed a letter of intent with Calypso Uranium by which it could acquire 51% of Calypso’s Argentinean subsidiary Energía Mineral in four years. “With this agreement we are not just a junior player, but a company with more solid feet and a world-class partner,” said Guillermo Pensado, vice president of exploration, Calypso Uranium.
“There are not enough uranium-specialized geologists in Argentina. You can find uranium on the surface, which you are no longer able to in areas such as the U.S,” said Pensado.
Nascent uranium exploration companies have a lot of work ahead, Pensado explained. “In the 1960s and 1970s, CNEA carried out very good exploration programs, until they discovered Sierra Pintada in Mendoza and Cerro Solo. Then they virtually stopped any further exploration. Between 1955 and 2005, for every meter drilled in Argentina in uranium exploration the U.S. drilled 500 m.”
Currently the main focus of Energía Mineral is in the province of Neuquén (center-west) at the Central Block and Campesino Norte areas (covering 250,000 hectares between the two). The company also has properties in other provinces including Mendoza and Chubut, as well as interests in the U.S.
Also in Chubut, close to the CNEA’s Cerro Solo deposit, privately-owned company UrAmerica is carrying out a 40,000 m drilling campaign. The company has set itself a target of discovering 15 to 20 million lb U3O8 per year with a minimum 3,000 parts per million (ppm), for a total resource of at least 150 million lb in 10 years, according to the company’s Chief Executive and Financial Officer, Omar Adra. UrAmerica currently controls 310,000 hectares between its own properties and joint ventures and plans to become a producer from 2013-14.
Adra is convinced demand for uranium will rocket. “China already imports between 5 and 6 million lb of uranium per year. By 2020, they will need 75 to 80 million lb, which is huge if you consider that today’s production worldwide is just over 100 million lb,” Adra said.
For Adra, the word “nuclear” still has negative connotations, but this should change as nuclear power becomes more important. “When Bill Gates said there would be a PC in every home, people thought he was crazy,” Adra said. “Today, if we say uranium will be a key player in the world’s energy matrix people may think that we are crazy. The truth is the world is growing and this goes hand in hand with growing energy demand.”
As well as Calypso Uranium and UrAmerica, there are several other players. Blue Sky Uranium, a company created in 2005 as part of the Grosso Group, was the first ever company to search for uranium in Río Negro, where their Anit project is now located. Then there is U3O8 Corp., a company with properties in Argentina, Colombia and Guyana.
In Argentina, U3O8 Corp.’s Laguna Salada project is advancing quite rapidly. “We are focusing on low-grade uranium that is near the surface in soft ‘free digging’ gravel,” said Hugo Bastías, vice president for Argentina, U3O8 Corp. “These targets are cheap to explore and a resource estimate can be done fairly quickly. In addition, they offer potential for low-cost mining and processing. Laguna Salada is similar to other superficial-type uranium deposits that are in production in Australia and Namibia. Our goal is to complete a NI 43-101 resource estimate on Laguna Salada by the end of 2010.”
The company’s CEO, Richard Spencer, said the boost in uranium demand will not only come from more traditional nuclear reactors. “Mini reactors are going to be an interesting development,” Spencer said. “In countries like Argentina and the U.S. where the distances between cities are vast, mini-reactors have an enormous application because you do not need long and costly transmission lines.” Spencer also said the widespread use of electric cars and the resulting increase of electricity demand will be another key factor. Electric cars are the main growth driver of another strategic mineral experiencing a boom in Argentina: lithium.
The Brine Fever
While the global crisis had a serious impact in global lithium production (estimated at 100,000 mt of lithium carbonate equivalent last year), the prospects for the future seem very bright for this commodity. Global production is currently controlled by a few players, but demand projections are opening the door to new companies. The Atacama Desert in Chile; Uyuni in Bolivia; and the puna in Argentina (highlands in the Salta, Catamarca and Jujuy provinces) are estimated to host about 80% of the world’s lithium reserves.
Argentina is the second largest producer of lithium after Chile, with just one company extracting it: Minera del Altiplano at the Salar del Hombre Muerto. The site belongs to FMC Lithium and it is the only upstream operation of the group. In production since 1997, its output of lithium chloride and lithium carbonate is the result of a unique technology (protected by patent) developed by the company’s Argentine personnel.
Production in 2010 will reach 17,500 mt of lithium carbonate equivalent (close to 2008’s 18,000 mt), a sign the industry is recovering after last year’s crisis. The company is currently investing to push output to 23,000-24,000 mt by 2012 and start producing potash as well. According to Daniel Chávez, general manager, Minera del Altiplano, however, the expanded production capacity will be insufficient by 2015 and the company will have to think of new horizons.
“Some estimates foresee that by 2025 the market will demand about 300,000 mt of lithium carbonate equivalent,” Chávez said. “However the known reserves already exceed any demand from the automotive industry, thus I do not believe the prices will change significantly. The interesting part is the volumes will steadily increase.”
A company on its way to becoming Argentina’s second producer of lithium is Rincon Lithium, owned by the Sentient Group and which operates in the country via its subsidiary, Ady Resources. The company built a pilot plant in 2007 and it is now completing the production facilities to start commercial shipments in early 2011.
Daniel Galli, managing director, Ady Resources, described the project’s advantages. “The Salar del Rincón is unique because there is a transmission line just 4 km from us and the gas pipeline and the railway are only 25 km away,” Galli said. “Access is easy and we are close to Antofagasta, so getting to the ports is not bad. Besides, we are considering producing our own reagent on-site. The puna is so rich that there is lime, salt and other components.”
Galli emphasizes in the Argentinean puna there are 400,000 hectares of salars (salt flats) with lithium potential, but it is important to gain a strong position in the market as the demand will not be unlimited. “We are going to be the first project to be put into production after FMC’s,” Galli said. “Therefore we will try to occupy the market as it grows. Current producers will also expand their capacity so I do not think there will be room for many more producers.”
In this scenario, the secret for success will be competitiveness, and due to its favorable conditions, Argentina is already becoming a top destination for investors. “Chinese consume lithium from Australia which is extracted from spodumene. In theory, these producers will not be competitive against brine-based lithium. This is why the main focus of the industry is now in South America,” said Chávez.
Asia’s Bet on Argentina
Perhaps the best indication of the expected growth in lithium demand is the level of lithium buyers looking to integrate vertically. Lithium Americas, a company active in the Salar de Cauchari in Jujuy, has Mitsubishi (4% stake) and Magna (the world’s largest auto-parts company, 14% stake) as shareholders. Toyota Tsusho is supporting Orocobre’s feasibility study at Salar de Olaroz and has the option to buy 25% of the project. A Korean consortium led by KORES has agreed to fund Lithium One’s Sal de Vida project through feasibility, and is expected to hold 30% of the asset once it is in production.
“In this business you don’t have a mine if you don’t have a customer,” said Patrick Highsmith, president and CEO of Lithium One, who highlights the importance of the partnership. “We have a relationship with a government that has named lithium as a strategic commodity and a country that produces 38% of the world’s rechargeable batteries and also has the fastest growing automotive company in the world (Hyundai).”
KORES will provide $15 million until Q4 2011, and the consortium will secure a debt facility for mine construction (the project should cost in the region of $140-$200 million). “While this will take considerable burden off our shareholders, more importantly these are the buyers for the lithium. They will acquire 30% of the production at market prices and they have a right of first offer for a further 20%,” said Highsmith.
The Sal de Vida project is actually located next to FMC’s producing facilities, in the other half of Salar del Hombre Muerto.“FMC is known to have great chemistry. One of the key bad players in lithium brine is magnesium and this brine has the lowest magnesium to lithium ratio in South America and one of the lowest in the world. Through drilling we have seen the chemistry is consistent in our part of the salar,” said Iain Scarr, vice president of development, Lithium One.
Lithium Americas, a lithium-focused spinoff of Latin American Minerals, already has an inferred resource of 4.9 million mt of lithium carbonate at the company’s Cauchari salar. The company, which has recently raised $45 million from its IPO in Toronto, is building an evaporation pilot plant and expects to have full feasibility completed by the end of 2011.
With regard to the agreement with Mitsubishi and Magna, these partners will finance mine construction with interest-free loans and interest-carrying loans. Then Magna has priority to buy up to 25% of the lithium production and Mitsubishi up to 12.5%, at 5% market discount.
Waldo Pérez, president and CEO, Lithium Americas, explained how different lithium production is when compared to metallic mining. “If you have a copper or gold mine, the process is the same regardless of your location. In lithium what we mine is brine, hyper-saline water, which we put in evaporation ponds,” Pérez said. “It is nature that gives us the necessary energy for the process: sun and wind, which we have in abundance in Cauchari. Even though lithium is the best way known to store energy, 90% of the batteries are made of nickel-cadmium or nickel metal-hydride. This gives us an idea of how much the demand for lithium could increase by.”
Australia-based Orocobre is working with Toyota Tsusho which is contributing $4.5 million to a feasibility study. Sources at the company expect to finish feasibility by Q1 2011 to have the Olaroz salar, which offers a competitive magnesium to lithium ratio of 2.8, in commercial production by Q3 2012. Lithium production at Olaroz will be accompanied by potash as a by-product.
“The market is highly competitive and there is lots of speculation regarding the moves of the main players and the arrival of new companies, said José de Castro, Orocobre’s general manager in Argentina. Growth will be driven by the adoption of hybrid and electric cars and the policies to promote its usage, as is happening in China. My personal view is that hybrid cars will be the dominating trend initially.”
Castro said a full-electric car requires about 20 kg of lithium, 10 times more than a hybrid car, hence the importance of a potential transition toward full-electric cars.
Highsmith believes this transition could take place soon. “Toyota is projecting production of 2.5-3 million lithium-powered hybrid cars by 2015, and between 2015 and 2020 they expect hybrids to phase out and the full electric to come on. A general point of view is that at least 10% of the cars sold in 2020 will be either hybrid or electric. This is 6 to 8 million vehicles.”
No wonder that lithium fever has struck Argentina, which also hosts a handful of other exploration companies including Rodinia Lithium, Li3 Energy and International Lithium Corp. If projections are correct, the country will certainly become an indispensable source of lithium.