Lithium analyst are watching with interest as news of a bid by Anglo-Australian mining giant Riot Tinto for a piece of the world’s largest lithium miner, SQM, signals a shift that could put Rio right into the production side of lithium.
Lithium mining and production companies on the ground or looking to increase lithium reserves in South America include SQM (NYSE: SQM), Rio Tinto (NYSE: RIO), FMC (NYSE: FMC), and NRG Metals Inc. (TSXV: NGZ) (OTC: NRGMF).
Rio Tinto is said to be considering an investment in Chile’s Chemical and Mining Society (SQM), the world's largest lithium producer. This comes after Canadian PotashCorp. released news of the expected sale of its interest in SQM in order to fulfill the terms of an unrelated merger.
The news is good for the lithium business since Rio Tinto represents another long-term miner jockeying to find a position in lithium as demand for the mineral soars.
This would not be Rio’s only lithium interest; the company is also invested in its 100%-owned lithium and borates mineral project in Jadar, Serbia. However, Jadar is still in the early stages of development, whereas the interest in SQM puts Rio immediately in the lithium production end of the business.
Other lithium companies that could be buoyed by good news of strong mining interest in South America’s prolific lithium region include Sociedad Quimica y Minera de Chile (NYSE: SQM), the largest producer of lithium globally, as well as FMC (NYSE: FMC), the very large, diversified chemical company with significant lithium interest in the region.
Another junior miner is watching the outcome of the deal and its effects on the company’s lithium play. NRG Metals Inc. (TSX: NGZ) (OTCMKTS: NRGMF) is moving quickly to develop a potentially huge lithium brine project in Argentina.
RIO TINTO ENTERS THE FRAY
The news is not a surprise, but Rio Tinto’s timing for a jump to lithium production couldn’t be any better.
The company is said to be weighing its investment in Chile’s Chemical and Mining Society (SQM), based on several factors.
SQM, which has a market value at just over $15 billion, produced roughly 44 million tonnes of lithium carbonate last year and is developing new projects in Chile and Australia.
According to the Chilean news site El Mostrador, Rio is looking at the 32% interest in SQM that Canada’s PotashCorp. must sell in order to be allowed to merge with its smaller rival, Agrium.
PotashCorp is the world’s largest producer of the fertilizer by capacity. The Saskatoon-based company is working with Goldman Sachs and BofA Merrill Lynch to sell its stake in SQM. This sale would allow Potash to fulfill some of the conditions imposed by regulators in China and India required to approve the company’s friendly merger with Agrium.
Potash’s interest is estimated to be worth about $4.5 billion at current market levels.
The news site also suggested that Rio Tinto had already made a bid, which could potentially trump Chinese companies Sinochem, Tianqi and GSR Capital. Each have previously expressed interest in SQM.
Sources familiar with PotashCorp’s stake sale said in September that US chemical company Albemarle Corporation had also expressed its interest in acquiring a piece of SQM.
BEST LOCATION FOR LITHIUM
About two-thirds of proven reserves of lithium are concentrated in a small area of South America in the Lithium Triangle at the intersection of Argentina, Bolivia, and Chile.
Geographically speaking, about 70% of lithium production is based South America, focused mostly on this hotspot for the now widely in-demand metal.
SQM is there. FMC is there. NRG Metals is there. And now Rio Tinto wants to join the ranks.
Clearly South America is the place for lithium companies wanting to earn a place in the race to supply the coming demand.
NRG METALS ON THE BIG GUY’S HEELS
NRG Metals is a Canadian mining company with lithium interests located in Argentina. The company combines Canadian mining know how with experienced in-country management that originates in Argentina.
It has two core projects: The Salar Escondido lithium project, a well-developed project heading into drilling, and the Hombre Muerto North lithium project in the province of Salta, now under exploration.
The region is also host to the Hombre Muerto Salar where giant FMC is producing approximately 20,000 tonnes of lithium carbonate equivalent per year. Australia’s Galaxy Resources’ large development stage Sal de Vida project is also next door.
NRG Metals recently released news of its "Vertical Electrical Sounding (VES) geophysical survey that has identified a highly conductive horizon that is interpreted to represent a brine target with potential to host lithium."
The survey has outlined a “salt lake” that is about 4 by 6 kilometers in size, located at depths from 70 to 300 meters below the surface. This is what could be interpreted as a major brine deposit.
NRG Metals has approved drilling the property and is proceeding to further detail the potential lithium resources. Their expectation is to move to production.
ALL GOOD FOR LITHIUM
Canada’s PotashCorp must sell its interest in Chile's SQM within 18 months of merging with Agrium. That’s a given. Now Rio Tinto wants it, and why not? Lithium production is the hot sector and big miners need an entry point.
The producers and near-term producers of lithium are garnering attention right now – the Rio Tinto bid is just a sign of how heightened the market has gotten.
Among the big players in lithium, a few new entries to South America’s development are standouts. Whether Rio Tinto wins its stake in SQM or it falls to another bidder, the sector is heating up and acquisitions by solid, long-term players serve as a good sign of a strong and maturing market.
POTENTIAL COMPARABLES
Sociedad Quimica y Minera de Chile (NYSE: SQM)
Sociedad Quimica y Minera de Chile S.A., is a producer of potassium nitrate and iodine. The Company produces specialty plant nutrients, iodine derivatives, lithium and its derivatives, potassium chloride, potassium sulfate and certain industrial chemicals. Its segments include specialty plant nutrients, industrial chemicals, iodine and derivatives, lithium and derivatives, potassium, and other products and services Lithium and its derivatives are used in batteries, greases and frits for production of ceramics. Potassium chloride is a commodity fertilizer that is produced and sold by the Company across the world.
FMC (NYSE: FMC)
FMC Corp. is a Philadelphia-based chemical company which is swiftly ramping up its lithium production. FMC is a diversified chemical company that provides solutions, applications, and products for the agricultural, consumer, and industrial markets worldwide. The company operates through three segments: FMC Agricultural Solutions, FMC Health and Nutrition, and FMC Lithium. The FMC Lithium segment offers lithium for use in batteries, polymers, pharmaceuticals, greases and lubricants, glass and ceramics, and other industrial uses. FMC Corporation was founded in 1884 and is headquartered in Philadelphia, Pennsylvania.
Rio Tinto (NYSE: RIO)
Rio Tinto plc, a mining and metals company, finds, mines, processes, and markets mineral resources. The company mines and produces aluminum products, including bauxite, alumina, and aluminum; copper, gold, silver, and molybdenum, as well as nickel; diamonds, titanium dioxide feedstocks, borates, and salt, as well as high purity iron, steel billets, metal powders, zircon, and rutile; uranium; iron ore; and thermal coal, and coking or metallurgical coal. Its products also comprise others, such as sulphuric acid, rhenium, lead carbonate, and selenium. It has operations in Australia, North America, Asia, Europe, Africa, and South America. The company was founded in 1873 and is headquartered in London, the United Kingdom. Rio Tinto plc operates as a subsidiary of Rio Tinto Group.
For a more in-depth look into NGZ you can view the in-depth report at USA News Group: http://usanewsgroup.com/2017/11/06/how-south-americas-lithium-triangle-is-gearing-up-to-feed-our-battery-addiction-3-2-2-2/
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