The electric vehicle revolution has inspired countless small companies to enter the lithium space, seeking to capitalize on the surge in demand for the metal critical to building the rechargeable batteries that power EVs. This is akin to companies hopping on the marijuana bandwagon a few years ago with legalization starting to spread across North America and the bitcoin phenomenon today that has ice tea companies touting their blockchain initiatives. The reality is, though, that most companies chasing the headlines will fail.
That by no means insinuates that all young companies will meet their demise; quite the opposite. Industries like EVs, legal cannabis and blockchain represent paradigm-shifting, massive market opportunities. While many fall to the wayside, some companies, like Canopy Growth Corp. (TSX: WEED) in the cannabis space, will blossom into billion-dollar valuations and market leadership positions.
Investors are wise to take a deep dive to understand the respective market, upcoming demand, management and the position of a company to make informed decisions to participate in these emerging markets.
In the lithium space, developing a resource is arduous at best. Countless factors, like government regulations and geophysics, each play in role in developing a profitable operation or simply throwing money down a hole in the ground. Anything that can give a competitive edge and shorten the path to production adds considerable value and increases the likelihood of success.
Standard Lithium Ltd. (TSX-V: SLL) (FRA: S5L) (OTCQX: STLHF) knows this and has found value where most others have not looked, putting an emphasis on building its portfolio with brine projects that can be in production in short order. To that end, the company is not chasing grade per se. They’re focused on speed, cutting years of development time by finding the right partners in areas known to be rich in lithium with little geopolitical risk and all the infrastructure in place.
“When you look at the aggregate of the qualities we wanted in lithium assets, it’s not hard to understand that the opportunities were few and far between,” Standard Lithium CEO Robert Mintak told Baystreet.ca in a phone conversation. “It was only through outside-the-box thinking of our seasoned team and building great relationships with permitted operators like National Chloride Corporation and TETRA (NYSE:TTI) that we have assembled properties that met our stringent requirements, which puts us in an ideal position to be the first to modernize the lithium process cycle and be producing this year.”
The Vancouver-based company found what it was looking for in California and Arkansas, two states that don’t typically pop to mind when it comes to lithium. At first blush, California with its rigid stance on protecting the environment wouldn’t seem a likely candidate for mining at all. A closer look, however, shows that the Mojave Desert, one of the most arid places in the world, is ideal for lithium brine production. Furthermore, California’s Zero Emission Vehicle mandate and position as a world leader in renewable energy underscores its aggressive adoption of lithium battery technologies, putting Standard Lithium in a position that can be seen as “right place, right time.”
Moreover, Standard’s expansive Bristol Dry Lake Project has world-class infrastructure, with two active brine projects operating in the area for decades extracting industrial minerals. Standard Lithium has partnered with both operators, National Chloride Corporation of America and TETRA, garnering immediate access to raw brine.
The company controls over 35,000 acres at Bristol Dry Lake, with historic data indicating the playa is wide and deep, including lithium concentrations greater than 110 parts per million from surface to greater than 150 meters. As drilling continues to validate the resource, six new evaporation ponds have been installed. Drill results to date have equaled or exceeded historic data, with complete results expected during the first half of this year.
20 kilometers to the southeast is Standard’s Cadiz Dry Lake Project, where it has access to up to about 12,000 acres of operating and permitted land through an agreement with TETRA. Grab samples last year from three shallow production wells showed lithium concentrations ranging between 112-139 milligrams per liter.
Standard Lithium isn’t looking to use the conventional methodology to produce its lithium. Again, it’s all about speed and modernization. Conventional lithium production via evaporation ponds typically take 15-18 months,the selective extraction processes advocated by Standard Lithium aim to reduce or eliminate the traditional solar evaporation stage.Because the Bristol Dry Lake deposit is a near-surface brine located in the Mojave Desert, the project lends itself to a modified version of a conventional process for lithium extraction. Both National Chloride and TETRA use passive evaporation in their Bristol Dry Lake production methods to produce industrial minerals.Standard can take advantage of the extremely high evaporation rates in the Mojave to pre-concentrate the brine and has already tested concentrating the brine in the ponds for only seven weeks and lithium concentrations across the time frame rose from 146 mg/L to 686 mg/L.The concentrated brine can then be further refined using nanofiltration, chemical precipitation and selective lithium extraction technologies to produce high purity, battery grade materials.
The A’s of Lithium: Australia, Argentina and Arkansas
In Arkansas, Standard had to look deep, way deep, for lithium. Discovered nearly a century ago, oil and gas wells in the Smackover Formation run to depths in excess of 12,000 feet, often passing right through mineral-rich brine in its path. Developed originally for its oil and gas, drillers eventually realized the rich bromine in the brine and began extracting that as well. Specialty Chemical giant Albemarle (NYSE: ALB) is a leading player in the space, with its bromine specialties segment the second-largest revenue contributor, accounting for more that 25% of total corporate revenue. Just like Standard Lithium, Albemarle is also intent on developing lithium from the Smackover as the next value-add while prices and demand are expected to remain high.
The Smackover Formation, which spans the south from Texas to Florida has global implications as a massive lithium resource. To lend some color to the opportunity, it is arguable that it is significant enough to do for lithium what resources like the Permian and Eagle Ford Basins did for U.S. oil and gas production.
Mintak explained that his team knew they wanted to be a first mover in the Smackover, but quickly learned that there was a major obstacle in the way, private ownership. “It’s not like staking mineral claims with the Bureau of Land Management on Federal land. The land is divided amongst many owners, which makes it extremely difficult to consolidate a sizable land package in a favorable area.”
The answer resided in the relationship with TETRA, who hold acreage of large brine leases in Arkansas. Standard just announced an option agreement for that 33,000 acre brine resource, representing one of the largest opportunities in the Smackover for brine production aside from those of Albemarle and Lanxess, the two companies that supply nearly one-third of the world’s bromine each year from Smackover brine. Lanxess planted its flag in the Smackover bromine business through its $2.7 billion acquisition of Chemtura in 2016.
Historical data from Standard Lithium’s Smackover lease area shows 370-424 mg/L lithium in brines.
In disclosing the deal, Mintak commented, “In our search for opportunities of significance, this is one that could really move the needle. We believe the Smackover may be one of the lithium industry’s most promising regions to develop, given the potential resource size and large-scale brine-handling infrastructure in the region.”
That’s putting it mildly.
There may not be a better opportunity in lithium. With exploration, wells, production, etc. running full-speed since the mid-1900’s, all fathomable infrastructure is in place. It’s a great jurisdiction, with governments highly accommodative to resource work. Skilled resource workers abound. The geology and hydrogeology are extremely well documented. The process of brine extraction and re-injection has been practiced for decades. Some 9.4 billion gallons of brine per year are produced in Arkansas alone, mostly from the Smackover.
That’s existing work and infrastructure that Standard Lithium can leverage to capitalize on in the near term. “We’re in the chemical heartland of the U.S. It’s a perfect location,” said Mintak.
Most of the world’s lithium production comes from hard rock mining in Australia and brine evaporation ponds in Chile and Argentina. The U.S. only has one lithium-producing operation, Albemarle’s Silver Peak mine in Clayton Valley, Nevada. The country’s utter reliance on imports for its lithium needs underpinned President Trump’s recent Executive Order emphasizing all efforts be made to ramp-up domestic production of critical metals, including lithium. Effectively, Trump directed regulators to clear a path and be supportive of companies to expedite production to throttle the nation’s need to import 50% of its lithium ahead of expected exponential increases in consumption in the manufacturing of Lithium-ion batteries for EVs.
When that demand surges, Standard Lithium plans to be there. The company is working on several fronts to bring the project forward, including build a flow sheet, reviewing historical data on file, preparing for brine analysis and more as part of a goal to have a resource estimate by the end of the second quarter. The next major milestone will be a continuously operating pilot plant processing their Arkansas brine, which Mintak, keeping with their mantra of “speed,” hopes will be accomplished by the end of the year.
If the company meets its goals, it will find itself writing the history of the Smackover, a formation that has the potential to put the U.S. on the global lithium map. Any way you shake it, it looks like SLL is a leading contender vying to be the first to join the ranks of Albemarle with operations producing lithium and the first to do so by modernizing the process and fast-tracking the cycle.
Legal Disclaimer/Disclosure: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this Report should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. We make no guarantee, representation or warranty and accept no responsibility or liability as to its accuracy or completeness. Baystreet.ca assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Baystreet.ca has been compensated ten thousand dollars from the company for Standard Lithium advertising. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.
