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Lithium Americas positioned to become major lithium producer

Lithium Americas (TSX:LAC) is developing the Cauchari-Olaroz brine deposit in Argentina, which is ranked as the third largest lithium brine resource in the world, and is now an advanced lithium brine project with a NI 43-101 compliant, Measured and Indicated Resource containing 5.3 million tonnes of lithium carbonate and 17.3 million tonnes of potash.

Brine deposit operating costs are typically 40 – 50% less than hard rock extraction of lithium, as they employ wells to extract the brine, and evaporation to concentrate the mineral.

Approximately 83% of the world’s lithium brine reserves are contained within the Puna Plateau of Argentina, Chile and Bolivia and the area produces about 50% of the world’s lithium. The remaining 14% of brine reserves are in Tibet, China, and 2% in Nevada, USA.

Strategic investors include Magna International with 13.3% and Mitsubishi Corporation with 4%. Both investors are involved with vehicle manufacture and have secured the option to purchase  up to 37.5% of lithium output for battery production. The 37.5% off-take option is contingent on the 2 parties providing up to 37.5% of the project financing via interest free loans, and assisting Lithium Americas in securing  up to an additional 37.5% in project financing via third party lenders. 

Mitsubishi will also provide technical collaboration on studies to recover lithium from brine, and their ultimate goal is to form a joint venture with LAC to put the project into production pursuant to a memorandum of understanding (MOU) executed by the two parties.


Lithium demand is currently led by the ceramics and glass industries, with total demand growing by a compound annual growth rate of 6% from 2000 to 2009. Current consumption is at 100,000 tonnes per year and is expected to reach 155,000 tonnes by 2019. The demand from lithium powered batteries is surging, with a growth rate of 28% over same time period and will swamp demand from other uses in the longer term.

This projection for 2019 assumes that electric cars achieve a market penetration of 2%, but projecting this penetration rate to 38% of the market, increases demand for lithium to 300,000 tonnes per year.  The U.S. government has committed $2.4 billion in grants to accelerate manufacture and deployment of batteries, and the Japanese Ministry of Economics wants hybrids and electric vehicles to account for 50% of new car sales in that country by 2020. The Chinese also share a common interest in a rapid development of their electric car market.

Market forces will ultimately decide the fate of electric cars and their evolution, but they, along with a host of other entrants are creating a new market for lithium batteries. Additional demand is expected to come from transportation applications such as electric bicycles, scooters, especially in Asia, along with buses, garbage trucks, trains and heavy equipment.

Lithium Americas controls 146,821 hectares over 5 salt lakes in the most prolific lithium province in the world. The company’s principal property,  Cauchari-Olaroz, covers 64,572 hectares, and hosts the third largest lithium brine deposit in the world.

The in situ resource estimate that is currently available covers the northern part of the Cauchari Salt Lake and the southern end of the Olaroz Salt Lake, in an area that measures 27 km x 4 km, where the highest confidence of a continuous aquifer has been defined.

The company has completed seismic surveys and drilling to identify a deep aquifer that extends from depths of 50 meters down to 400 meters that is continuous across the salt lake. This area is very productive and carries high grade lithium brine.

Large diameter production drilling commenced in August of 2010, and the aquifer will be production tested through to the end of the second quarter of 2011. LAC previously confirmed that all drill holes were open at depth, and that exploration potential remained open on the prospect both to the north and south.

Management has extensive experience with local brine production and has retained ARA WorleyParsons to complete a preliminary economic assessment and feasibility study. Parsons was previously engaged in the development of technology, process engineering and construction of the world’s largest brine processing facility in Chile, and will play a similar role here. LAC completed lab studies that defined a process path for recovery of lithium and potash, and have established an advanced pilot plant for evaporative studies at the site.

Brine will be extracted through production wells and pumped to brine ponds where lithium and potassium will be concentrated by evaporation in separate ponds. The harvested concentrates will be processed into lithium carbonate and potash.

Lithium Americas has 100% ownership and rights to the lithium on its properties. A preliminary  economic assessment is anticipated within Q1 2011, and a feasibility study completed at end of 2011. These studies will be completed at a time of strong demand for both lithium and potash.

It is worth nothing that SQM (NYSE:SQM, Market Cap: US$13.5 billion), the world’s largest producer of lithium carbonate, is currently reporting gross margins of 49% for lithium carbonate and 38% for potash.

Other notable comparables for Lithium Americas include Rockwood Holdings (NYSE: ROC, Market Cap: US$2.8 billion) which operates the only brine deposit in production in North America, at Silver Peak, Nevada and hosts a resource of 530,000 tonnes, and Orocobre (ASX:ORE, TSX:ORL, Market Cap: CAD$248 million) who surrounds the Lithium Americas land position, along strike to the north and south, and along the perimeter running both east and west.

Orocobre has established a Maiden Resource of 1.5 million tonnes of lithium and 4.4 million tonnes of potash at Salar de Olaroz immediately to the north of the Lithium Americas resource. Orocobre are working in a venture with Toyota and are planning to produce 15,000 tonnes of lithium carbonate and 36,000 tonnes of potash per year, starting in 2012. The process route at Olaroz is the same as that deployed by Rockwood Holdings at Silver Peak in Nevada, since the late 1960’s.

Based on the market valuation of Orocobre, one has to ask the question: Is Lithium Americas undervalued? 

Assuming the company moves ahead to feasibility and production, one could argue the answer appears obvious.