Friday, November 18, 2016

Minerals Explorer Wades into Lithium Brines

Worries about inadequate supply of lithium to make electric vehicle batteries have sent industry partisans scrambling to find new sources.  The chemical element is such a good conductor of electricity that battery makers prefer lithium-ion material over conventional lead-acid and zinc-carbon compounds for electrodes in advanced electric storage.    One Canada-based company, MGX Minerals (XMG:  CSE or MGXMF:  OTC/QB) has put on their wading boots and ventured out into brine flats in search of lithium.  That might seem like an odd place to source this coveted chemical element, but lithium is a bit quirky.   

Lithium appears only in other compounds and never on its own.  There are several igneous rocks and some clays that hold lithium.  The largest lithium reserve is the Greenbushes project in Australia owned by China’s Tianqi Lithium Industries (022466: Shenzhen) and U.S.-based Albemarle (ALB:  NYSE).  This project and several others that are mining lithium from hard rock ‘spodumene’ in Australia puts that country at the top of the lithium supply industry. 
There is a fair amount of lithium in underground brine pools.    The Puna plateau high in the Andes straddles Argentina, Chile and Bolivia and holds as much as three quarters of the world’s lithium brine reserves.  Some have tried solar evaporation techniques to concentrate the lithium for extraction using electrolysis.  Salt rich brines are pumped from underground reservoirs and deposited into large ponds.  The brine liquid sits exposed to the sun and dry Andean air for up to two years to achieve a concentration of lithium near 6,000 parts per million.  While time consuming, it is a low-cost process and can yield battery-grade lithium.  
Chemicals producer FMC Corporation (FMC:  NYSE) is a major producer of lithium from the Argentina side of the plateau.  Albemarle’s Rockwood Lithium subsidiary and its local partner Sociedad Quimica & Minera de Chile (SQM:  Santiago or SQM:  NYSE) have continued lithium extraction operations in Chile despite political and legal difficulties for SQM.    Lithium Americas (WLC:  TSX or LACDF:  OTC/QX) and Orocobre Limited (ORE:  ASX) are two early stage companies that are pursuing new projects in what many call the Lithium Triangle of South America.
Fortunately, for MGX Minerals one of lithium’s other quirky characteristics makes it a great target for the company’s expertise in handling mineral ores.  Lithium is a light weight.  Indeed, lithium is less dense than any liquid element and is only one of three metals that can float on water.  It can float on the lightest hydrocarbon oils.  Instead of dumping brines into a big pond and coming back in a couple of years in hopes of finding a concentrate high in lithium, MGX is applying a proprietary technology to the process.  In September 2016, MGX acquired privately-held PurLucid and its patent-protected nanoflotation technology.  MGX hopes to use the technology to separate oil from lithium-laced brines.  Rather than using large evaporation pools that take vast amounts of land and are vulnerable to snow and rain, MGX plans a processing ‘plant,’ which will require a much smaller footprint and potentially modest capital investment relative to its time-to-production.
There is no shortage of oily brines in the world.  Drilling waste water from oil and gas operations are injected deep underground in what are called brine disposal wells.  Each year, the oil and gas industry in the U.S. alone produces as much as 800 billion gallons of wastewater, some of which is generated as part of hydraulic fracturing operations.  These waters are heavily laden with salts and naturally-occurring pollutants.  While there are a number of recycling and treatment solutions available to producers there are still numerous cases of spills and leakage that damage wildlife habitat and damages cropland.  Underground storage practices have also been implicated in the rise in earthquakes in U.S. oil and gas regions.  Worst of all waste water disposal is represents extra cost for the oil and gas producer.
MGX Minerals has assembled a portfolio of 376,000 hectares (929,116 acres) of lithium-bearing brine deposits near past-producing oil fields in Alberta Province, Canada.  The company’s first project called Sturgeon Lake is located in west-central Alberta where hydrocarbons have been produces for over sixty years.  Waste water has been deposited in the Devnonian Leduc aquifer in the area.  Early data suggests that the aquifer contains lithium-rich brine.  MGX management estimates the oil fields in Alberta produce as much as one million barrels of salt-brine per day.
In mid-November 2016, the company announced progress on construction of a pilot plant that incorporates both MGX’s lithium-extraction technology and PurLucid’s water purification system.  The pilot plant is expected to process up to 12 cubic meters of brine each day.  The company intends to use the pilot plant construction and operation experience to design and build a commercial scale plant capable of processing up to 1,200 cubic meters per day.
The key to commercial success for MGX Minerals could be partnerships with oil and gas operators.  Management claims to be in negotiations with several of the major players in the Alberta fields.  Producers should be keen to support any solution that reduces their costs and reduces the environmental burden of wastewater disposal.
The MGX Minerals story has appeal in terms of a high-demand as well as in terms of environmentally benign solution and end-product.  However, there is much to prove before MGX’s ‘petrolithium’ can reach the market.  This is probably why the company’s stock is trading well below one dollar.  The most recent financial filing indicated the company had CDN$508,312 in cash on it the balance sheet at the end of April 2016.  Working capital was negative.  The company was using about CDN$50,000 per month to support operations in the nine months ending April 2016.  Since the April 2016 report, MGX Minerals raise CDN$1.8 million through a rights offering to existing shareholders.  This certainly should have reduced worry over not be able to keep the lights on.  That said, we note the company also entered into an agreement to invest CDN$5 million into PurLucid over the next three years.  So far CDN$90,000 has been paid to PurLucid owners.  Then there is MGX Mineral's interests in magnesium and silicon mining that is on-going.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.



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