What’s Next for Lithium Mining in Chile?

Chile, the world’s largest producer of lithium at 43 percent global marketshare, is about to crack open its vast Salar de Atacama lithium deposits to further private investment. Earlier this month, the government announced that it is planning to raise some $350 million over the next 20 years by tendering a special lithium-production contract to the highest bidder. The deadline for submissions is September 12 and a decision is expected to be announced by the fourth quarter.aggregate equipment for sale Lithium Investing News spoke with Daniela Desormeaux, general manager of Chile-based market intelligence firm signumBOX, about the bidding process and how the tender is likely to affect the lithium market. Lithium Investing News: Pablo Wagner, Chile’s deputy mining secretary, recently went to New York to try to drum up investor interest in bidding for contracts to produce lithium in Chile. Media reports say the winner of the bid will be allowed to extract up to 100,000 tonnes of lithium over 20 years. Can you give us an idea of first, which companies are currently producing lithium in Chile, and second, which companies could be in the running to win the bid? Daniela Desormeaux: Currently there are two companies that produce lithium from the brine contained in the Salar de Atacama. SQM (NYSE:SQM), a Chilean company, and Rockwood Holdings, (NYSE:ROC), which is a large US chemical company. They produce lithium carbonate, lithium hydroxide, and lithium chloride here in Chile and north of Chile and export to the rest of world. These two companies have 43 percent of marketshare, which makes Chile the largest lithium producer. The second question, the winner will be the company that offers the highest amount of money. They say the minimum price to participate is $5 million. According to the government, a lot of companies might be interested, but it is hard to know. Some say it could be a large lithium producer like SQM, Rockwood, or FMC Lithium (NYSE:FMC), or a junior company, but I don’t know. It’s just a matter of money. LIN: The government has said that it is estimated that Chile will earn $350 million in royalties from these new projects. But opponents want to take the government to court over the decision to further privatize the industry. Do you think they will succeed? DD: People in Chile say the government is giving the lithium for free to foreign companies, but this is not true. The production of lithium started almost 30 years ago from a foreign company [Rockwood]. Lithium production in Chile is private. The opposition wants the government to be directly involved in the business through Codelco or another company, but I don’t see this as a threat. hardness of minerals LIN: Lithium has been considered a strategic resource in Chile since 1982 due to its potential use in nuclear weapons. What has changed for the government to open lithium mining up to foreign companies? DD: They have realized there isn’t any reason to give it a strategic status. But in order to change these conditions they need to change the law. They need two-thirds approval in Congress to change the law. This is very difficult to achieve, so they decided to find another way to change the industry. The Salar is owned by the government, but they can tender special contracts to private companies. The law remains that lithium is strategic and owned by the government. They’re following the same model as with oil or gas. They give private companies the right to explore it subject to a royalty – in this case, 7 percent. LIN: Is it also to protect Chile’s marketshare in the lithium market? DD: Chile could lose marketshare maybe to Australia or Argentina, so the government realized they can’t have this situation, it’s not sustainable with time, so they have to open the industry. LIN: Sustainable in the sense that the supply can’t keep up with demand? DD: Yes, because SQM and Rockwood also have contracts with the government. SQM has a quota to produce lithium until 2030, but the government realizes they need to change the situation. In the last five years more than 100 lithium projects have been developed, most of them in Argentina, also in Canada, Australia, and China. The trend is to open the industry. All of the countries are doing this. LIN: Could Chile develop a state-controlled lithium miner for mining lithium in the same way Codelco mines copper? DD: Codelco has one or two lithium concessions. But there is political pressure right now for the government to be involved directly in the production of lithium. I think that maybe Codelco could be allowed slightly to participate, just to manage this political issue, but Codelco’s core business is copper. And lithium is so small it doesn’t make a lot of sense for a huge company to start a business which is so small, so maybe if Codelco decides to participate they will do so with a partner. LIN: What are the chances of the contract going to a junior versus a big miner like Codelco? DD: It will depend how much money they can bring to the table, and there’s a lot of uncertainty because with junior mining the core business of these companies is lithium, but in the case of other companies, for example SQM, their core business is potash. Lithium is a by-product as well as a credit for the cost of mining potash, it’s like a subsidy. The business of these huge chemical companies is different. They can afford a high bid. LIN: Does the winner have to build a processing plant? select grind mill DD: Yes, they have to build a chemical plant within five years. If they don’t start producing, the government will remove the quota and they will have to resubmit the tender. LIN: The contract is for 100,000 tonnes of lithium over 20 years. Is that enough to move the market? DD: If you put the number in terms of lithium carbonate equivalent, you have 55,000 tonnes of lithium carbonate equivalent, and total demand [this year] is 150,000 tonnes, so it’s four or five years worth of demand. It’s a good quota. In my opinion, new companies have overreacted so they are expanding production capacity before new demand will come, mainly from the automotive industry – batteries for electric cars. So that’s why we’ve seen too many projects in the development stage right now. LIN: Will the market be over supplied? DD: In the short run or mid run we should see some oversupply, but it’s important to stress that the prices are rising. Two of the three largest companies, FMC and Rockwood, have announced price increases, but this is an inflation phenomenon. These companies are making new investments, so they argue they have to justify the investment so that’s why they are increasing prices. Prices are going up, but new capacity is being added and the demand is growing as well. I think supply and production capacity is growing faster than demand. Maybe in four or five years, as these cars become cheaper, electrification will become important. These cars are still so expensive so that’s why we haven’t seen a massive penetration. But maybe in the long run we’ll see a tightness in the lithium market. We’re predicting a growth in demand of 10 percent per year. This growth will be driven by the battery industry, not only batteries for cars, but for electronic devices – mobile phones, laptops, iPads. That’s very, very interesting. This would represent a trend in the world that’s similar to the trend in early ’80s, when Sony introduced the first lithium-ion battery. But production capacity is also increasing so the market will be in balance. LIN: Thank you for speaking with us.

Canada to Export Uranium to China

Canadian companies are now able to export Canadian uranium to China under a recently signed “supplementary protocol” to a 1994 pact on nuclear cooperation. The protocol, signed by Canadian Foreign Affairs Minister John Baird and Liu Tienan, the head of China’s National Energy Administration, should benefit uranium production companies in Canada and also investment in junior exploration companies with projects in Canada. “This is great news for our province and our uranium producers. Our companies are well positioned to supply product to an expanding market and to a country that has the world’s fastest growing nuclear energy program,” enthused Tim McMillan, Energy and Resources minister for the province of Saskatchewan, Canada’s uranium heartland, where the world’s top uranium producer Cameco (TSX:CCO) operates two mines and number of exploration projects are in the works. aggregate crushing and screening plant China is currently the world’s biggest energy consuming nation and operates 14 reactors with an additional 26 under construction and 171 planned or proposed. The total of planned or proposed reactors account for 41 percent of nuclear power plants in the world and 34 percent of planned or proposed nuclear power plants. In a research publication issued earlier this month by JPMorgan Chase & Co., resource analyst Mark Busuttil expects growth in Chinese uranium imports should stimulate an increase in uranium prices beginning this year. “China will likely continue to import more uranium than its existing reactors require with the expectation of a significant roll-out of capacity,” Busuttil wrote. The report indicated that spot market uranium prices may rise from the $55 range later this year to the $85 range within two years. Projected increased demand for Chinese uranium imports seems to offer support for a cautiously optimistic recent report released on mining merger and acquisition activity released by advisory firm Ernst & Young. The firm anticipates that companies with a bullish outlook on China are expected to be the dealmakers in the remainder of the year. Ernst & Young indicated that while overall M&A in the mining industry declined by 19 percent in the first half of this year, expectations of a demand rebound in uranium are also triggering acquisitions to secure future supply, with deal value and volume increasing on an annualized basis. crushed stone production lineUranium for civilian use or global security threat? While the Canada-China uranium deal is likely good news for the uranium space, some observers have raised concerns over what China could do with the raw uranium, which can be used both for civilian purposes in nuclear power generation and for military purposes in the construction of nuclear weapons. “It is a dangerous part of the world in terms of nuclear proliferation,” Paul Meyer, senior fellow at the Simons Foundation, a non-proliferation institute based at Simon Fraser University in Canada, was quoted saying in an iPolitics article published in February, when the Canada-China deal was first announced. The article notes that Canada and China have different rules regarding nuclear material under the 1968 Nuclear Non-Proliferation Treaty, a near-universal agreement to promote the peaceful use of nuclear technology and to reduce nuclear weapons: “Canada, as a member without nuclear weapons, must not contribute to the construction of weapons in another country. China, as a country with nuclear weapons, is obliged to enter negotiations to reduce its nuclear arms.” In that vein, last month China led a discussion among the five original nuclear-armed states to define arms control terms, a step that might ultimately bring greater clarity about its nuclear arsenal and strategy. “Of the five original nuclear-weapons states within the nuclear Non-Proliferation Treaty, China is the most secretive about its arsenal, its stockpile of fissile material and its nuclear doctrine,” CNBC reported. A committee consisting of representatives from China, United States, Russia, Britain and France as well as Germany are expected to begin talks this summer on a glossary of nuclear terms seen as a necessary step for wider talks on disarmament. Iran’s nuclear programgold panning equipment On Monday, European Union and Iranian officials met in Turkey to reach some level of agreement on Iran’s nuclear program, which is relevant to China in that the People’s Republic and Russia are Iran’s traditional allies. It’s worth noting that earlier this month a federal grand jury in the United States indicted two men, an Iranian and a Chinese citizen, “on charges of conspiring to send materials from the United States to Iran for the purpose of enriching uranium,” Reuters reported. While neither China nor Canada was represented at Monday’s discussions, the Canada-China uranium protocol does not seem to pose the threat of uranium exports passing on to Iran. Negotiators from the five original nuclear-armed states, including China and Germany, previously agreed they want Iran to stop enrichment of uranium to 20 percent, ship the fuel it has already enriched to that level out of the country, and cease operation of its mountainside Fordo uranium enrichment facility. Moreover, the proposed expansion of China’s nuclear program to meet its growing energy needs is a factor that points more to China’s use of Canada’s raw uranium for civilian purposes than for nuclear proliferation to Iran.

Copper Up on Dips, Hopes for ECB, Fed Action

maintenance of spring cone crusher Copper is nudging back up slightly on tepid bargain hunting backed by a weaker dollar. However, investors remain largely cautious of the global economic outlook, especially as Europe’s financial situation remains shaky. At the same time, a drop in US home sales is increasing speculation that the Federal Reserve may step in to bolster the economy, which in turn could spur global growth. Despite the stimulus measures introduced by finance ministers, concerns about Spain and Greece continue to plague the European Central Bank, and market eyes will be closely following the ECB and Fed meetings next week amid growing hopes for monetary policy intervention. In the meantime, a weaker greenback has encouraged some bargain-hunting buying from non-dollar investors. Continued weakness in the US housing market is also a worrisome factor for copper traders. New home sales in June plunged 8.4 percent from a year ago to an annual rate of 350,000 units, the lowest rate in five months, according to the US Department of Commerce. The latest data is worrisome for analysts expecting a steady recovery as a key part of the US economy. The Commerce Department reported last week that June housing starts increased by the fastest pace in over three years, rising 6.9 percent on year to an annual rate of 760,000 units. Concerns about the housing sector in particular, however, are once again increasing expectations that the Fed may provide a third round of quantitative easing through large-scale bond purchasing. coal mining in india Peru’s copper output for May rose over 8 percent from a year ago to 106,593 metric tons (MT), and for the first five months of the year output rose nearly 2.1 percent on year to 498,170 MT, the Energy and Mines Ministry said. In Japan, however, rolled copper output dropped by 6.1 percent in June from a year ago, to 67,953 MT, as global demand for semiconductors and household appliances fell. In late afternoon trade Thursday, COMEX copper for September delivery is trading up 0.6 percent at $3.39 a pound. Company news On the corporate front, Australia’s OZ Minerals (ASX:OZL) reported that its copper production in the second quarter fell 9 percent from the same period a year ago to 25,521 MT. Australia’s third-largest copper producer expects production for the full year to be at the lower end of its previously announced forecast of 100,000 MT to 110,000 MT. metal processing plant As for Chile’s Antofagasta (LSE:ANTO), it appointed former Codelco CEO Diego Hernandez as its new leader. He will be taking over from Jean-Paul Luksic on August 1 as Luksic continues as chairman. Meanwhile, Italy’s Tenova Mining & Minerals said its Tenova TAKRAF and Tenova Bateman Technologies units will be building a copper ore processing system for Antofagasta’s Minera Antucoya unit. The plant will be located in Chile’s Antofagasta region and will produce 80,000 tonnes of fine copper cathode a year over a 20-year life span. Teck Resources (NYSE:TCK,TSX:TCK.B) reported sluggish second quarter results, in part due to lower copper prices. The Canadian mining group produced a record 90,000 tonnes of the red metal, but sales fell 2 percent to CA$731 million from the same period a year ago due to a fall in the price of copper. Junior company news Lundin Mining (TSX:LUN) reported that its second-quarter net earnings fell to $44.1 million from $60.1 million during the same period a year ago. While copper sales volume rose to 16,749 tonnes from 15,023 tonnes, unit cash costs for copper fell 24 percent on year to $1.61 a pound from $2.13 a pound. Guerrero Exploration (TSXV:GEX) has placed a bid to acquire privately-held Pinette Copper’s issued and outstanding shares. Vancouver-based Pinette has two exploration properties in Botswana and has invested about $2.5 million in the sites to date. In a letter of intent, Guerrero said it will issue about 33,809,885 to the shareholders of Pinette. In addition, a nominee of Pinette will join the board of Guerrero, and the current private placement of up to $250,000 will be increased to up to $1,000,000 on the same terms. Current management will continue, although Guerrero will issue 4,080,000 common shares at a deemed price of $0.05 per share to settle any obligations it may have under existing consulting agreements. Khalkos Exploration (TSXV:KAS) found copper minerals at its Nanuq property in Quebec. The mineralized zones are mostly exposed over only a few meters on strike, or discontinuously over a few tens of meters. Located 40 km south of Salluit in Nunavik, the Nanuq property is in the lake sediments, which were discovered by the Ministry of Natural Resources and Fauna of Quebec in a large sampling survey of close to 3,000 lakes covering the entire Ungava region.

Silver Price Recovers on Improved Market Sentiment

After resisting outside market pressures and squeezing out a nickel gain on last Friday, silver started this week under pressure and prices fell. By midweek, market sentiment had improved and silver prices managed a recovery. This week started with another flare up of concerns about the Eurozone crisis. The Greek prime minister said that the nation is experiencing a depression, and a German publication reported that the International Monetary Fund may stop providing aid to Greece. This announcement followed reports that the European Central Bank (ECB) will stop accepting Greek bonds as collateral for funding, at least temporarily. ore mining machine Exacerbating matters were reports that numerous regional governments in Spain will likely require aid. Considering Greece, the markets were plagued by the question: what if Spain also needs a bailout? Spain’s borrowing costs have been soaring and warnings that the rates are unsustainable are increasing. On Monday, rates on benchmark 10-year bonds surpassed the dreaded 7 percent rate and rose to 7.45 percent, the highest the nation has seen since the launch of the euro in 1999. Amidst this negative sentiment, silver opened the week lower and finished the first day of trading down $0.27 at $27.06. Still under pressure on Tuesday, silver danced on both sides of $27, but was unable to close above that level. Overnight Wednesday, an improvement in equity markets and a weakening of the dollar paved the way for renewed optimism. Recent weak data, including a Wednesday report showing that new US homes sales declined in June, promoted the belief that easing from the Federal Reserve is likely. The improved sentiment provided support for silver and the metal closed up $0.38 at $27.34. On Thursday these factors were topped by further support from ECB President Mario Draghi, who expressed commitment to doing what is necessary to preserve the euro.crusher parts and consumables Data from China underscores continuing weakness in industrial demand for silver. China’s imports of the metal for June were 23 percent below those in 2011. Year-to-date imports are down 32 percent. Significant stockpiles are still thought to exist and as noted in earlier silver comments, these are expected to act as a cap for rallies. Last week, ETF investors added 148.7 tonnes of silver to their holdings. At current levels, silver is expected to get some bargain-buying support. Standard Bank says a continued buildup could be a sign of growing confidence since last week’s addition follows hefty losses earlier in the month. COMEX futures, however, continue to be clearly bearish. The Commitment of Traders report for the week ending July 17 shows not only declining open interest, but also a further build up of short positions. The short positions are now 2.5 times the five-year average. A previous market comment discussed the risk that stops below key support levels could become targets. Again this week there were discussions about the possibility that “big money” may drive prices below those levels, gunning for those underlying stops. If that happens, silver prices are not expected to decline for long. On the contrary, the big boys’ motive is to mop up cheap positions and rake in profits on the upside, so a price reversal is expected to occur fairly quickly. There is a Federal Open Market Committee Meeting from July 31 to August 1. It will, of course, be an event that is very much on the radar. ball mill knowledgeThe close The COMEX September contract closed the US session at $27.44. The New York spot market closed with silver up $0.20 at $27.54. Silver stocks were mostly in the green on Thursday. Company news On July 20, Parviz Farsangi stepped down as president, CEO, and director of Scorpio Mining (TSX:SPM) to pursue other career opportunities. Peter Hawley, founder and former CEO, was appointed as interim president and CEO. Ewan Mason will replace Hawley as chairman.