Market Overview

Arkansas' Huge Lithium Reserves go Unexploited, Until Now


Arkansas' Huge Lithium Reserves go Unexploited, Until Now

PR Newswire

PALM BEACH, Florida, August 16, 2018 /PRNewswire/ --

FN Media Group Presents Market Commentary 

Every day in Arkansas, hundreds of thousands of barrels of brine containing lithium - a key ingredient in batteries for consumer electronics and electric vehicles - are discarded by chemical companies and re-injected back into the ground it came from. One company planning to exploit this rich, untapped resource is Standard Lithium Corp. (OTC:STLHF) (TSX-V:SLL). The company will go head-to-head with Sociedad Quimica y Minera de Chile (NYSE:SQM), Albemarle Corp (NYSE:ALB), and Nemaska Lithium (OTC:NMKEF) (TSX:NMX) in seeking to develop new lithium sources for the rapidly expanding electric vehicle (EV) market. Automaker Tesla Inc. (NASDAQ:TSLA) is a major lithium buyer for its key performance in batteries used in electric vehicles.

Carmakers are expected to widely adopt lithium-ion batteries used in EVs, requiring a lot more lithium as the key ingredient in lithium-ion batteries. The lithium supply industry will have to grow at least five times in size by 2030 to fit future automobiles with electrical batteries, according to consultant McKinsey & Co. Much of this growth will depend on how quick China and the European Union make EVs a requirement. That's a massive ask for today's lithium producers.

Scientists are unlikely to drop lithium from the list of ingredients going into lithium-ion batteries, even as technology evolves. Components such as cobalt are more likely to be replaced, with Tesla CEO Elon Musk tweeting in June the company will remove the mineral from the next generation of their batteries. German chemicals company BASF is working on a battery that replaces nickel with magnesium, a metal in more abundant supply. Most technologies, however, incorporate lithium to some degree, according to Ken Hoffman of McKinsey & Co.

Sociedad Quimica y Minera de Chile (NYSE:SQM) plans to increase output from its massive lithium operation in Chile's Atacama Desert, Lithium Americas' plans to tap brines sitting beneath a Argentine salt lake with similar geology to Chile. Starting a new lithium mine is challenging, requiring extensive exploration, environmental permits, social acceptance from local communities, and a deep understanding of processing chemistry.

Several companies are developing new projects in the salt lakes dotted close to the tri-border of Argentina, Bolivia, and Chile in South America. Quebec based Nemaska Lithium (OTCQX:NMKEF) (TSX:NMX) started mining for lithium in 2009, and is targeting the first commercial production of lithium hydroxide that is sought after by battery makers in 2020. Standard Lithium (OTCQX:STLHF) (TSX-V:SLL) is pursuing a fast approach to production by extracting lithium already sucked out of the ground by chemical producers in Arkansas, leveraging the existing infrastructure built by global chemical companies like LANXESS and Albemarle that produce bromine from the Arkansas brines.

The Arkansas Brines 

Arkansas is one of the world's largest producers of bromine, a chemical mainly used as a flame retardant. Considered as an unwanted residue up until the 1950s, the bromine industry became an industry in its own right as scientists discovered the chemical made everything from furnishings to clothes flameproof. The bromine industry has its own unutilized by-product that is rich in lithium, and this waste water or "tail brine" is re-injected back into the underground aquifers.

The opportunity to exploit this potentially low-cost source of lithium was not lost on the management of Standard Lithium (OTCQX: STLHF) (TSXV:SLL). The management team, led by Robert Mintak, previously developed and tested selective lithium processing technologies at a mining project in Nevada.

That resource and process development work led to a supply deal with Tesla Motors Corp. (NASDAQ:TSLA). Tesla is looking to lock in future sources of lithium as it plans to exponentially increase its production lines of EVs including the Tesla Model 3.

Mintak and his team looked for an opportunity to apply their lithium processing expertise to a new, untapped but potentially more significant resource. Their search led them to the Smackover Formation in Southern Arkansas.

The Arkansas bromine industry extracts more than 40 million cubic meters of brine a year from the so-called Smackover Formation, according to the Arkansas Oil and Gas Commission. The Smackover Formation is an underground reservoir of mineral rich brine that was created from the interaction of seaweed, plankton and seawater. These brines are historically reported to contain as much as 400 milligrams per liter of lithium. Chile's Sociedad Química y Minera de Chile (NYSE:SQM) and Albemarle Corp (NYSE:ALB) are currently the world's largest producers of lithium contained in brine. They operate the lowest cost lithium operations in the world, by extracting lithium using passive solar evaporation from potassium-rich brine from the Atacama Salt Flats in northern Chile.

Agreements With Major Players 

Standard Lithium secured deals with two of Arkansas' largest brine processors; Tetra Technologies and German specialty chemicals company Lanxess AG. The binding agreements will allow Standard Lithium to install a pilot plant inside the "fence" of an operating chemical plant, and tie into a brine pipeline to demonstrate the commercial potential of its proprietary rapid lithium extraction technology. Leveraging the infrastructure of a permitted brine producer shaves months off the project's development timeline and will save the company and its investors' capital. Additionally a 30,000 acre brine lease package optioned by Standard Lithium is located directly adjacent to Albemarle Corp (NYSE:ALB), the world's largest lithium producer who has been working on a similar type of lithium extraction pilot plant at its Arkansas facilities.

The U.S. Geological Survey (USGS) lists the Smackover Formation as the potential bearer of at least 1 million metric tons of lithium. The global lithium industry currently produces about 45,000 metric tons a year of lithium. That supply-side of the industry will have to reach 1.3 million tons by 2030 in McKinsey's base case scenario, and the automotive and electronics industries could potentially require 1.9 million a year in that timeframe according to analyst Ken Hoffmann. The amount depends partly on how quickly governments encourage carmakers to adopt EV technology in a bid to lower global greenhouse emissions.

Standard Lithium (OTCQX:STLHF) (TSXV:SLL) has the advantage of not having to spend capital to explore for resources, or require environmental and social permits to conduct its activity. The company analyzes samples from an existing industrial feedstock that is extracted from the ground every day.

The company is continually looking to boost its in-house scientific capability to successfully extract the lithium from the brine. Besides in-house expert Dr. Andy Robinson, the company recently appointed a Nobel Laureate, Professor Barry Sharpless, to the company's Scientific Advisory Council.

By working with existing chemical producers, Standard Lithium (OTCQX:STLHF) (TSXV:SLL) sidesteps the procedures of gaining community acceptance and complying with rigorous environmental regulations. These are usually major hurdles faced by companies in the lithium space, or in the broader mining industry.

The deals with Tetra and Lanxess put Standard Lithium (OTCQX:STLHF) (TSXV:SLL) in a position that is hard to replicate by other lithium start-ups and puts it in a race with Albemarle to unlock the secret of separating lithium from bromine brine. Both Tetra and Lanxess have significant infrastructure in place, including road and rail access, electricity and water supply, and permits for all aspects of the production chain.

The Smackover Formation is the largest deposit of lithium contained in bromine brine, according to the USGS data.

Standard Lithium (OTCQX:STLHF) (TSXV:SLL) plans to carry out intensive testing of the brines extracted through the Lanxess and Tetra operations this year as it demonstrates the commercial viability of its proprietary extraction technology that is needed to unleash this huge lithium source.

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