Up in the desolate expanses of the high Nevada desert, a vision for the future of energy is taking shape. For Pure Energy Minerals, a prospective lithium miner with a large land holding, the lithium fields deep below the surface of the Silver State's Clayton Valley could be the key to a low-carbon, electric future. And now it believes it has a roadmap to get there.
On June 26, Pure Energy Minerals Ltd.(TSX: V.PE, OTCQB: PEMIF, Forum) tabled its preliminary economic assessment (PEA) for its planned mine and industrial plant in Nevada's lithium-rich Clayton Valley. The proposal lays out a vision for a cost-effective, environmentally friendly mine and plant that could be online by 2021, meeting the skyrocketing demand for lithium on the part of automakers and utilities alike. If realized, Pure Energy could come to play an important role in automakers such as Tesla's vision of a future where electric vehicles rule the road.
For Pure Energy, the plan entails a capital cost of US$297 million to build out an operation that could have an annual production of 10,300 tonnes of lithium hydroxide monohydrate (LHM) or 9,100 tonnes of lithium carbonate equivalent (LCE). Using sector-leading technologies that do not require evaporation ponds, the plant could mark a shift away from the environmentally taxing and time intensive processes that have proven an obstacle for other lithium producers.
"We expect to do more research on the process side, on to grow the resource itself, but in its first pass of economic assessment, what shines is that with a new technology using solvent extraction instead of ponds, we can achieve real-time production," says Patrick Highsmith, Pure Energy CEO and a rare veteran of the lithium space.
With a projected average operating cost of $3,217 per tonne of LHM, Pure Energy's proposal would entail some of the lowest production costs in the industry. "We can show with this study that we can do it and do it at a low cost," says Highsmith. Prices are projected to volley between $9,100 and $16,500 per tonne during the life of the plant, but with the higher prices projected in the near term, it could pay off the capital costs of the plant in four years.
Pure Energy’s land package in the Clayton Valley more than doubled in size after it acquired claims from partner Lithium X in the spring (Pure Energy) (click to enlarge)
Pure Energy's foremost asset, however, is its land package in North America's only producing lithium jurisdiction. Altogether, Pure Energy has cobbled together 26,300 acres in mineral claims in Nevada's Clayton Valley, surrounding the only operating lithium mine in the US (or in North America), Silver Peak. "When you're in this game a while, you know that you need to get all of the land," says Highsmith. Owned by Albemarle Corporation, the Silver Peak mine currently produces 6,000 metric tons of lithium carbonate equivalent (LCE) per year.
Pure Energy's stake contains an inferred mineral resource of 218,000 tonnes of LCE, according to the PEA. Drill tests in May demonstrated two more attributes that add to its desirability: a very favourable chemistry compared to other producing regions, and a formation that demonstrates high levels of lithium right down to the bottom of the basin. That first finding is particularly important; as the low levels of deleterious elements can help keep down processing costs on the lithium extracted.
An illustration of the proposed plant (Tenova Advanced Technologies)
But it’s at its site in Nevada where Pure Energy plans to forge new ground in lithium mining. Lithium brine has traditionally been mined and then processed by evaporation, a time-intensive process that can take several months. The process also requires vast quantities of water and large tracts of land to be devoted to sprawling green-tinted evaporation ponds, which can often have a detrimental effect on the environment and the water table.
Pure Energy, instead, plans to use an industrial process, devised by its engineering partner Tenova Advanced Technology – a subsidiary of mining services giant Techint Group–that will massively cut production times and water consumption on site. Tenova's technology removes elements like calcium, thereby purifying the brine, so that lithium can be quickly recovered.
The technology uses a series of processes already used at scale in the mining sector, such as electrolysis, a process used in copper extraction; solvent extraction as used to treat uranium; and desalination. "I would call it more an innovative application of existing technology," says Paul Zink, chief financial officer of Pure Energy, "the difference is that we're putting the pieces together for lithium."
Pure Energy piloted a mini-version of its proposed plant (it processed about 20 tonnes of brine) as part of its PEA. Now the company plans to build a full pilot plant, which will operate continuously on-site in Nevada, three and a half hours from Tesla's Gigafactory, which it could eventually supply. It will also allow regulators and potential clients to observe the technology first hand, and even take receipt of the test product.
(Pure Energy)
Tenova's technology holds promise to make the lithium extraction process more efficient, cost-effective and environmentally sustainable. As demonstrated in their test work, the technology has produced very high recoveries of lithium from the brine; 91% from every liter of brine, as compared to the 40 to 50% that is typically recovered from evaporation ponds. It could also result in a much more environmentally friendly presence in the valley.
“Rather than hundreds of acres of evaporation ponds, our footprint will consist of a plant that is a couple hundred meters on a side and then our wells in the basin. That will make production of lithium much less water intensive. Rather than pull all that water from ground, we'll proactively extract lithium from brine, then clean it up and return it back into the basin, thereby conserving it," says Highsmith.
Demand has increased rapidly in the past decade (Metalary)
From cell phones and laptops to trucks, buses, electrical grid storage systems and even lawnmowers, lithium battery technology is making inroads at a staggering pace. And as demand for batteries rises, so goes demand for lithium. "It's all about feeding the battery business," says Highsmith. And in recent years, efficiencies in battery technology have driven down costs, allowing electric batteries to be a feasible for option for ever larger devices, including trucks. Overall, it's driven sales of batteries at a brisk space.
In 2009, the market for lithium batteries was worth $10 billion. By 2016, it had passed $25 billion per year. By 2025, it's expected to reach $40 billion thanks in part to a rapid rise in demand from China, according to Goldman Sachs. “We need one major new lithium mine each year over the next decade to meet that demand, and that usually doesn't happen in the mining industry," says Highsmith.
Primarily electric vehicles drive that demand for batteries. As the cost of batteries for electric cars has fallen, 70 per cent in the past seven years, according to Highsmith, the total costs of ownership of electrics vehicles have come much closer to those of internal combustion engines. By 2018, the costs associated with the two models will converge for the first time, according to UBS Securities.
One example on the automaker side is Volkswagen, which has recently made serious overtures to the electric car market. The German manufacturer, a relative newcomer to the electric vehicle space, has ambitious plans to expand beyond its current Golf line in order to meet future consumer demand. By 2025, one-fifth of its output will be electric, as it plans to launch 30 electric models.
Tesla, which entered into a Conditional Supply Agreement with Pure Energy in 2015, plans to have its more economical Model 3 on the road by 2020 while increasing the range of its vehicles to more than 1,000 km.
Volvo, owned by Chinese manufacturer Geely, plans to make its fleet entirely electric and hybrid starting in 2019.
And with each battery pack requiring an average of 40 to 60 kilograms of lithium, electric vehicles will drive demand for lithium. According to UBS Securities, those dynamics promise to supercharge the market for electric vehicles. In 2016, global production of lithium hydroxide was only 39,000 tonnes, but Benchmark Mineral Intelligence projects lithium hydroxide demand to exceed 150,000 tonnes by 2025.
For Pure Energy, that could mean prices averaging more than $12,000 per tonne, according to a report conducted for the company by external consultancy Benchmark. That report projects a lithium hydroxide price of $12,000 per tonne by 2021, when the proposed Clayton Valley Project would be ramping up. Further afield, the price is expected to strengthen through 2025 to $16,500 per tonne, before declining to as low as $9,000 per tonne by 2038 as new supply and demand mature.
Shepherding the project to production by 2021 is a team with experience both in lithium and in the transition from exploration to production. CEO Highsmith, a 28-year veteran of the mining industry with experience at Rio Tinto, BHP Billiton, and Newmont Mining was brought on as a director in 2015 and then hired as CEO in March 2016. He was brought on board in part due to his experience negotiating off-take agreements with parties such as LG, Hyundai, and KORES in his previous role as CEO of Lithium One. In a space as new as lithium, he is a rare player who can be called a veteran.
On the operations side, the company recently hired Walter Weinig as Vice President of Projects & Permitting, a geologist and seasoned project manager who recently led the prestigious Sanford Underground Research Facility in South Dakota.
Finally, in June, the company hired Paul Zink, a mining finance professional with 35 years’ experience in project finance, strategic planning and business development. Zink also spent more than 15 years with J.P. Morgan & Company covering the minerals and energy sector.
On the board side, the company recently brought on board Scott Shellhaas, a mining lawyer with deep experience in navigating the transition from junior miner to mid-tier producer, most notably as president of Thompson Creek Metals Company where he oversaw the $1.6 billion start-up of the Mt. Milligan copper gold mine in B.C.
Terra Cotta Project with prominent South American lithium producers (Pure Energy)
It's a team well positioned to take its Clayton Valley Project into production–and to do it in a cost-effective manner. Further afield, the company has a strategic position in the Lithium Triangle in Argentina. The company’s new Terra Cotta Project in in Salta Province, a jurisdiction that was rated the 3rd best mining jurisdiction in South America by the Fraser Institute. Yet the focus is to break ground at Clayton Valley in 2019, gearing towards production by 2021.
"The costs so far appear to suggest that low OpEx like this trumps this relatively expensive CapEx to build a plant with this new tech – and we think that we can drive the CapEx down," says Highsmith, "as they say in Australia, horses for courses, and it would appear that this extraction process is the right horse for Clayton Valley."
FULL DISCLOSURE: Pure Energy Minerals Ltd. is a paid client of Stockhouse Publishing.