Tuesday, February 01, 2011

Li is for Life: Lithium Brine Economics - Lithium and Potash tnr.v, czx.v, lmr.v, rm.v, alk.ax, sqm, fmc, roc, lit, li.v, wlc.v, clq.v, res.v, ree, avl.to, nsany, f, gm, rno.pa, dai, byddf, hev, aone, vlnc

Argentina & Mining 101:

Monday, January 31, 2011

Lithium & Potash which is more important in a brine? SQM Lithium breakdown

It seems like there is a phase of acquisition again in the market. 

It's no coincidence that many of the projects in Argentina have been snapped up - most of which are public companies.

International Lithium's core asset - the Mariana lithium brine, according to their presentation seems a negligible distance away from the largest lithium producer in the world.

The Atacama. (NYSE: SQM)
What makes this project so attractive is it's production capability of both lithium & potash.
YES Potash - that elusive fertilizer component which is increasingly sought-after because of the primal need of people - food.

Research all point to less and less arable (land that can grow crops) land, despite growing population size.
Basically - either we all eat less, or we have to find ways to grow more with less land.

Enter the modern fertilizer. The recent BHP Billiton attempted acquisition of Potash Corp is in line with the same expectation, that more mouths to feed = more food needed.

Though most people in the lithium sector think of SQM as a major lithium producer - bulk of their revenue actually comes from potash and plant nutritions.

Taken directly from SQM website for earnings year to date (YTD)

To make it easier for you - I've summarized it in a pie chart for you. Less than 10% of SQM's revenues come from lithium.

I'll say it again - less than 10%.

While the margins are far higher than their other lines of business - their main focus is on chemical products based around Potassium.

Santiago, Chile, November 23, 2010.-Sociedad QuĂ­mica y Minera de Chile S.A. (SQM) (NYSE: SQM; Santiago Stock Exchange: SQM-B, SQM-A) Revenues totaled US$1,324.7 million for the first nine months, representing an increase of 25.9% over the US$1,052.2 million reported in the same period of 2009.

Segment Analysis
Specialty Plant Nutrition (SPN)
Revenues from our SPN business line for the first nine months of 2010 totaled US$452.5 million, 13.0% higher than the US$400.3 million recorded for the same period in 2009.

Iodine and Derivatives
Revenues from sales of iodine and derivatives during the first nine months of 2010 totaled US$241.8 million, an increase of 72.4% with respect to the US$140.3 million reported for the first nine months of 2009.

Lithium and Derivatives
Revenues for lithium and derivatives totaled US$114.3 million during the first nine months of 2010, an increase of 35.4% with respect to the US$84.4 million recorded for the first nine months of 2009.

Industrial Chemicals
Industrial Chemicals revenues for the first nine months of 2010 reached US$109.5 million, 35.3% higher than the US$80.9 million recorded for the same period of the previous year.

Potassium Chloride & Potassium Sulfate (MOP & SOP)
Potassium Chloride and Potassium Sulfate revenues for the first nine months of 2010 totaled US$356.8 million, a 24.3% increase with respect to the first nine months of 2009, when revenues amounted to US$287.1 million

Other Commodity Fertilizers
Revenues from sales of other commodity fertilizers and other income reached US$49.8 million in the first nine months of the year, down from US$59.1 million for the same period of the previous year.

Salar brines are located in the nucleus of the Salar de Atacama. They contain the greatest lithium and potassium concentrations ever known, in addition to considerable sulphate and boron concentrations. From this natural resource lithium carbonate, potassium chloride, potassium sulphate, boric acid and magnesium chloride are produced.
The Salar de Atacama is a source of underground salar brines, formed through natural leaching from the Andes Mountains: throughout time, diverse minerals found under the salt surface crust have descended from the mountains, accumulating in increasing concentrations.
Together with high concentrations of salar brines, the Salar de Atacama has a series of advantages: it enables low processing costs due to its reduced magnesium content; it has higher evaporation rates than other salt plains in the world and it is able to operate all year long due to the privileged weather conditions that favour it.


Salar brines are pumped from beneath the saline crust in two different areas of the salar. In one of them, extracted salar brines contain unprecedented concentration levels of potassium and lithium. In the other, salar brines obtained contain high concentrations of sulphate and boron.
After extraction, salar brines are located in SQM's solar evaporation ponds that cover 1,700 hectares approximately. Atacama Desert is the driest place on earth, with a solar evaporation index of 3,200 millimetres and average precipitations of only 15 millimetres per year. This results in an extremely efficient previous process of solar energy concentration.
From the resulting solutions and after a series of processes, SQM produces potassium chloride, lithium carbonate, potassium sulphate, boric acid and magnesium chloride.
What makes ILC so attractive then?
One of the highest potash values outside of Atacama. That's what.
Given that SQM does most of their revenue on potash-potassium related chemicals - would you rather have higher Lithium or Potassium? FYI - most of the other lithium brines don't have nearly as potash.

We are long TNR and through that, ILC. Based on what we observe with SQM, this seems like a sound logic especially with ILC's fantastic potash values.

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