By Chris Berry and Alex Grant
Livent’s announcement last week that they would invest in E3 Metals Corp. of Alberta, Canada to help develop the company’s direct lithium extraction (DLE) technology was a major signal to the industry that new technologies can play an important role in meeting future lithium demand for batteries. Traditionally, financial capital in the mining exploration sector has chased unproductive assets as commodity prices have risen, only to be squandered when those same prices mean revert. Is there perhaps a new model or funding mechanism available to add to lithium supply?
We share the belief that new technologies are key to future lithium supply and here we’ll share some of the ideas from our recent conversations on the topic. For context, Alex co-founded Lilac Solutions, a DLE technology company, and now advises on technology strategy/flowsheet development for several lithium project developers. Chris is a prominent minerals market analyst who provides corporate strategy and advisory services to investors and companies along the lithium ion supply chain. We both spend our days focused on how macroeconomic and technological forces affect the lithium industry from different angles, and we hope this article provides some actionable insight for project developers, investors, and other industry players.
There are three main classes of lithium resources: hard rock, sedimentary resources, and brines. Though new technologies may be useful when deployed strategically in some hard rock and sedimentary deposit extraction flowsheets, their main application will be for unlocking new brine resources which are currently uneconomic or high-risk using evaporation pond flowsheets. The best lithium brines in the world (Atacama, Cauchari) are already being developed, and are amenable to evaporation pond processing due to having high lithium and low impurity concentrations. However, there are many other well-situated brines bearing gigantic lithium resources which will only be extracted economically using new DLE technologies like ion exchange, adsorption, and solvent extraction. E3’s brine, with almost seven million tonnes of lithium carbonate equivalent (LCE) at around 100 ppm Li (a low grade) is an example.
DLE technologies remove lithium directly from brine solutions, eluting it into new higher concentration/purity streams that can be easily processed into battery quality lithium chemical products. This means that brine with the lithium removed can be re-injected into the ground, preventing the disintegration of aquifers as seen in Chile’s Salar de Atacama, eliminating years of processing time and dependency on the weather, reducing reagent consumption, and significantly slashing CAPEX for the project. A schematic of this kind of process is shown here and Alex talks in more detail about DLE in his previous articles.
Major lithium producers and academics have been researching DLE technology for decades and there is a host of ceramics, sorbents, and solvents that are well known to extract lithium selectively from brines including lithium metal oxides, hydrated aluminas, polymer-based systems, and various solvents. Industry veterans with decades of experience will tell you that FMC or Albemarle knew how to extract lithium from a brine like E3’s decades ago. That lithium wasn’t needed back then due to lower demand, but the consumption for lithium in batteries has changed the market significantly since then.
There are three major developments in the lithium market which help explain the need for new technology to bring on new supply. First, lithium demand is growing at 15% CAGR for use in batteries for electrified transport, and evaporation ponds can’t be built fast enough to keep up.
Second, the lithium required for the batteries of electric vehicles demands higher purity relative to lithium produced for ceramics and glass. Those lithium products are now considered “technical grade” (~95-99% pure), while the batteries of electric vehicles require “battery quality” lithium products (99.5%+ pure, though to be clear, the term “battery quality” has a different definition depending on your audience). It’s impossible to produce that high purity lithium from unconventional resources like E3’s using conventional technologies like evaporation ponds.
Third, an ecosystem of junior mining companies is looking to take market share from the major producers to meet this demand for high quality lithium chemicals, but the highest-grade resources that may not necessarily require new technology are already being developed by major players. Thus, the use of new technologies to produce high quality lithium chemicals from new resources is one of the most important emerging themes in lithium of the last 5 years. These new technologies can be developed in-house by developers (like E3 appears to be doing), or can be purchased from vendors like Lilac Solutions, who are currently working with developers like Lake Resources and NRG Metals (backed by Chengdu Chemphys) in Argentina to build pilot projects.
The transaction between E3 and Livent is significant in that a major lithium producer is now writing a check to own a call option on a DLE technology. In contrast to other major lithium producers like SQM and Albemarle who have claimed the ability to dramatically ramp lithium production without additional ponds, Livent is making a bet that they might may be able to grow their future market share using a dramatically different technology. Livent’s plans announced to date will supply 60,000 tonnes of LCE to a market predicted to be anywhere from 800,000 to 900,000 tonnes in size by 2025, which is a far cry from their historically large lithium market share. The company needs to grow quickly to maintain market share and has chosen an unconventional route to do so. Optionality is alive and well in the lithium market.
The asymmetry of the E3-Livent transaction is exactly what an investor would want to see a large company position itself for in a volatile market: high upside with limited downside exposure. On the flip side, E3 wisely has embraced the partnership model in lithium where the technical and financial complexities of this business demand that projects are matched with the right levels of experience, similar to Standard Lithium’s arrangement with Lanxess in Arkansas.
While the dust has yet to settle here, this deal could serve as an important data point for other chemical or mining companies who are studying the lithium market and are looking at an approach that gives them exposure to a rapidly growing commodity while limiting downside through the possibility of both lower CAPEX and OPEX. Presumably, more information will become public over time on the expected OPEX, CAPEX, water/reagent consumption, and other risks as transparency is crucial, but we believe that this is a positive step for the industry as a whole.
These DLE technologies also speak to the broader economic trend of “Dematerialization” or using less material for the same or higher output. This is a trend we expect to experience much more of in the coming years. Industry and governments are increasingly focused on issues surrounding pollution and climate change as their customers or voters become more attuned to the issues. Those companies involved in extractive industries are right in the cross hairs and it is imperative that their management teams find the optimal balance of delivering shareholder returns while at the same time pursuing “green growth” strategies. To say this is an unenviable task is an understatement, but in our opinion, it only underscores the need for companies to leverage technologies to lower both costs and environmental footprints. In this case, technology is a great enabler - lowering costs and presumably aiding in achieving sustainability goals. There are many opportunities to do this, whether it be partnering with developers who seek to use new technologies and flowsheets, or by partnering with/acquiring technology companies directly. A great essay to read on the subject of Dematerialization and its implications “The Return of Nature: How Technology Liberates the Environment” by Jesse Ausubel.
The arguments around implementing new technologies across industries are not new, and new technologies can take decades to make their presence felt. Just look at the economic and geopolitical effects fracking has had on oil output in the United States. The technology was developed decades ago, but really made itself felt in just the past few years when the economics became favorable due to volatility in the oil markets.
Typically, new technologies make themselves felt the in same way Ernest Hemingway wrote in The Sun Also Rises about how people go bankrupt – gradually, then suddenly. The DLE technologies have been known of for decades, but the last 5 years have shown that they’re now commercially relevant and will have impact on the supply of high-quality lithium chemicals perhaps sooner than many believe. The E3-Livent transaction and other material, commercial activity in the space has shown that DLE technologies are in the early stages of their “all at once” moment. There are many beneficiaries here including communities that live near future lithium projects, lithium consumers, government organizations, and company shareholders as decades of R&D coalesces and evolves alongside a dynamic and strategically important lithium industry.
The views represented in this document are our own based on research across the lithium industry. We have not considered the objectives, investment profile, financial position or needs of any particular project or organization. Any projections or forward-looking statements in this document are not guarantees of future outcomes, pricing, performance or events, all of which involve known and unknown risks, uncertainties and other factors. Actual results for specific projects or organizations may differ materially from those expressed or implied in this document. Chris Berry is an advisor to Standard Lithium and Lilac Solutions and has no relationships with other companies named in this white paper.