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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