Global Lithium’s Joe Lowry on Ganfeng, SQM, Albermarle, Lithium Americas, MGX Minerals
Global Lithium LLC’s Joe Lowry returns for a discussion on how Sociedad Quimica y Minera de Chile (ADR)(NYSE:SQM), Albemarle Corp (NYSE:ALB) Lithium Americas Corp (TSE:LAC) and MGX Minerals (CNSX:XMG) stack up against the global lithium supply picture, and why its a great time to be a lithium investor.
Listen to the podcast with Joe Lowry
James West: Joe, welcome back to the show.
Joe Lowry: Well James, thank you for having me again.
James West: Joe, I think you would categorize yourself as a conservative voice when it comes to trying to model future demand profiles for lithium and its derivative products. What drives your conservative perspective?
Joe Lowry: Well, let me clarify my use of the word conservative. I have referred to myself as conservative, but in my opinion, that’s only juxtaposed against the big banks kind of very large numbers and, in some cases, I think without a lot of real rigour in the analysis behind it. so I would honestly consider my estimates, at least for the next five year term, to be realistic, and at this point in time I would still say that the algorithm that I use for estimating battery demand, which is what I call the rule of 50, and I’ve written about it in some of the stuff I’ve posted on LinkedIn, it still works. But at some point, there’s a hockey stick out there in e-transport, in ESS demand, energy storage systems, that probably going to make me revise my rule.
But my rule has always been, and it has been that way since I started selling lithium raw materials to the industry in the 90s, that whatever the battery guys tell me they’re going to use, I cut that number in half.
James West: Right. And that’s worked, obviously, very well for the past.
Joe Lowry: It has. And at some point in the future it won’t work. Everybody acknowledges that EVs and ESS – Electrical Storage Systems – are going to boom at some point, and we can talk about that later, but I still think within the next five years what I show as demand is fairly realistic. But I’m looking at those numbers again right now, and I may upwardly adjust my forecast a bit, but it won’t be that significant.
James West: Okay. So let’s talk about the last year. It hasn’t been quite a year since we last spoke, but what has changed in the last year in the lithium space that you might categorize as surprises?
Joe Lowry: I’d say two things surprised me: the first would be with respect to Argentina, and maybe I was just anticipating a rapid move prematurely, but when the government changed, I thought it to be investment in the world-class projects, which I would characterize as Sal de Vida and Cauchari, I thought capital would flow to them more quickly than it has.
Lithium Americas Corp’s Cauchari-Oloroz fully funded
That having been said, with the recent announcement that LAC is fully funded for their half of Cauchari, with the investment by Ganfeng and Bangchak, everything’s in place for them, because obviously SQM has the financial wherewithal to do what they need to do for their half of that project.
The other side, Sal de Vida, I think that now that Galaxy has Mount Catlin operating, it will have a lot of cash flow from that, plus they did a recent capital raise. So I think it’s surprising it took this long, but it does look like 2017 is going to be the year that real development on the world class projects in Argentina starts, which is good news.
The other thing that surprised me was really the deal that Albemarle signed with the Chilean government, and the fact that the royalty is just so high. Everybody knew Chile was going to take a bigger piece of the pie, but they seem to have taken a disproportionately large piece of the pie. If you look at how the royalty works, if the way the market’s going, if the market price of carbonate gets up into the $14, $15 a kilo level, then Albemarle is paying more than 20 percent. That’s a big royalty, and I was a little surprised that they allowed themselves to be beat up like that.
James West: Sure, yeah. That, it’s tough to turn a profit when you’re giving away 20 percent off the top, I would think.
Joe Lowry: Obviously they have, along with SQM, they have the lowest cost resource, but I mean, you put it in that perspective, if they’re selling at $14 or $15 a tonne, they’ve been the slowest to raise price, so maybe that’s a 2018 price for them rather than a ’17 price, but you know, their cash cost basically increases by in the 50 percent range or more, just with that change. It’s significant.
Petro Lithium and MGX Minerals Inc.
James West: Okay. What about the whole petro-lithium thing, where companies like MGX Minerals are trying to harvest lithium from old hydrocarbon disposal wells and/or late-life producing oil and gas wells that have a high ratio of water to hydrocarbons? They’re doing that trying to deploy an accelerated acceleration technology that is as yet unknown, but do you see the potential for this to become a significant source of lithium?
Joe Lowry: Well, this isn’t really new; if you go back to the smackover brines in Arkansas in the southeastern United States area, Albemarle was talking about that before Albemarle had a lithium business. So that’s been looked at. It may not be an exact duplicate of what’s going on in western Canada, but in an extended high price environment, I think there’s hope for investors that one of these processes works. I’m not going to say it’ll never happen; I think they’ve got a pilot plant, MGX is kind of at the last stage of proving out their pilot, and you know, I think it could happen. I don’t think it’s going to be 15 percent of the supply anytime soon, but it could happen, and honestly I just got an email this morning for a company, another one of those companies who claims to be two months behind MGX and have better technology.
So I mean, there’s a lot of interest, and we’ll see.
James West: Yeah. Well, certainly MGX’s rapid value appreciation has catalyzed a whole generation of would-be petro-lithium harvesters, and it’s good to see.
So we also have yet to see significant and sustained production of commercial volume of lithium from clay-based sources. What’s the hold up in that department, do you think?
Joe Lowry: Well, I think it’s fair to say you haven’t seen any commercial production from clay. You know, new technology takes time, and most overnight successes take 20 years. So I’m not – you know, in the past I’ve been very negative about clay, and that was really because, I think it was the province of really promoters who set great expectations with very little technical ability behind them. I think that’s changing. I think you have a couple of forces at work that also are going to help clay become commercial; if it’s going to happen, I think the higher lithium prices, which I believe will be sustained for long enough to see clay have its day.
I think also there’s better technical talent working on the problem now. I spent some time recently with David Deak, and you know, he left Tesla to become the CTO of LAC and is currently focused on their huge clay asset in Nevada. I also think the fact that LAC recently made a deal with Ganfeng, now you’ve got a good technical team with what LAC’s done to put that together, and you’ve got Ganfeng, who is now almost a 20 percent owner of LAC; they’re the world leader in lithium processing, I would say, because they have become a very large lithium company. And up until just recently with Mount Marion starting up, they didn’t have any significant assets of their own; they’ve survived by taking spodumene, taking lepidolite, taking brine from SQM, taking basically the offshoots of other processes like the butyl-lithium brines of their own, and FMC, and turning them into good product.
So I see their skill set as probably, if it’s brought to bear on clay, along with what the team that LAC’s put together is interested now, a much greater chance that clay happens.