Saturday 3rd December 2016

Resource Clips


A cautious approach

Jon Hykawy discusses lithium, cobalt and a battery-fuelled frenzy

by Greg Klein

Making its Western Hemisphere debut in Toronto from September 26 to 28, Mines and Money kicks off with a full day dedicated to battery metals. That would seem to cast a resoundingly positive vote in lithium’s boom-or-bubble debate. But while conference speaker Jon Hykawy sees an enduring case for the celebrated commodity, he counsels investors to tread carefully.

A physicist with an MBA in marketing who’s covered energy metals and industrial minerals for Byron Capital Markets, he’s been focusing much of his attention on rechargeable batteries, fuel cells and renewable energy since founding Stormcrow Capital.

He sees renewed optimism in resources generally, especially in battery materials. But he sounds wary about lithium’s most recent price increases.

Jon Hykawy discusses lithium, cobalt and a battery-fuelled frenzy

“They look to me like what I would have expected if we had major producers that weren’t yet under pressure to increase output, speculators buying and warehousing material for future sale, and some panic buying and resulting over-stocking by end-users,” Hykawy tells ResourceClips.com. “It’s the situation we had in uranium back in 2007 and 2008 and with rare earths in 2010 and 2011. That’s not to say there’s going to be a catastrophic collapse in prices because fundamental demand for lithium is growing at a pretty respectable pace. But it doesn’t mean that every junior is going to see production.”

Of course assessing juniors involves assessing their projects. That brings up the distinction between two types of deposits, brine and pegmatite.

Brines generally offer lower operating costs, he points out. But “there are only so many natural brines out there. Some natural brines are problematic, some are in bad jurisdictions. No one’s going to go into Bolivia under the current government. That eliminates one of the largest resources in the world.

“But recently we’ve had new technologies come to the fore that could enable alternative brines that hadn’t been considered viable at any reasonable economic level,” Hykawy adds. Extraction processes developed by companies like POSCO, Eramet and Tenova Bateman Technologies “can pull lithium directly out of brine,” eliminating the lengthy solar evaporation phase.

That would open up more types of brines, for example fossilized brines from oil fields, which might hold a very good grade of lithium but a huge quantity of calcium or magnesium. And it opens up different locales.—Jon Hykawy, president of Stormcrow Capital

“Some of these technologies don’t worry as much or at all about the contaminants that conventionally impact solar evaporation production,” he continues. “That would open up more types of brines, for example fossilized brines from oil fields, which might hold a very good grade of lithium but a huge quantity of calcium or magnesium. And it opens up different locales. Let’s say you’re pulling lithium out of brine from oil fields near the U.S. gulf coast. The high humidity and heavy rainfall works against solar evaporation. But if you have a direct extraction technology, you can put that lithium through the process. If it ignores contaminants, all the better.”

He credits speed as the biggest advantage of hard rock deposits. “Once you’ve got a hard rock lithium mine up and running, the time it takes to pull ore out of the ground and turn it into saleable product is measured in days. That makes hard rock mines look like far more reliable suppliers.” The advantage comes with a higher opex, however.

Then there’s the distinction between lithium hydroxide and lithium carbonate. The latter results from solar evaporation of brine and served as “ a decent feedstock for the initial type of lithium-ion battery that used lithium-cobalt oxide as a cathode material.”

Better suited to more modern battery chemistries, however, is lithium hydroxide, now considered “something of a wonderkid,” Hykawy says.

It’s associated with hard rock deposits, but not limited to them. Solar evaporation of brine can produce lithium chloride in solution or carbonate as a precipitate, he explains. “You can then send the carbonate or chloride to a processing company that will turn it into lithium hydroxide.”

That makes market share comparisons for carbonate and hydroxide problematic when it’s not clear how much hydroxide originated as carbonate.

“Some technologies can produce carbonate or hydroxide directly from brine, but they’re not in commercial use yet. Over time the industry will become more flexible.”

Hydroxide fetches the higher prices. “What you’re really paying for in lithium carbonate or hydroxide are the lithium units, the actual amount of lithium chemical…. Today you’re getting a very substantial premium for lithium units in hydroxide, much more than you’d expect. That suggests to me there’s a secular shortage of hydroxide and people are willing to pay up, especially in the spot market, because they themselves don’t have the ability to buy carbonate and convert it into hydroxide.”

Looking at graphite, he’s satisfied that increasing demand can be met by existing producers and up-and-coming projects. But cobalt presents a more intriguing story.

Normally mined as a byproduct of copper or nickel, most of it comes from the conflict-plagued Democratic Republic of Congo, where production has been reduced or suspended with the decline in base metals prices.

While battery demand raises cobalt prices, steel acts as a restraint. More than half of cobalt production has gone to the troubled industry. “That’s becoming less and less a factor in cobalt prices because a growing component of cobalt, well over 40% today, now goes into batteries.”

Cobalt prices have been climbing but, Hykawy says, “if you have access to them, the cobalt sulphates that are actually used in batteries have done far better in price than the cobalt metal.”

Getting back to lithium’s boom-versus-bubble debate, Hykawy takes the latter position. “Yeah, there’s momentum to be played, but just understand the floor you’re standing on might not be as strong as you thought…. There’s a long-term, strong growth trend in lithium demand and the prospects for lithium companies. But pick your entry points and the horse you’re going to ride carefully.”

Hykawy addresses the Mines and Money Battery Metals conference at St. Andrew’s Club in Toronto on September 26.


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