Lithium is produced mainly from brine and hard-rock deposits, both of which make distinct products of differing value. Average total cash costs in 2019 at hard-rock lithium mines are expected to be less than half of those at brine operations. However, the value of the concentrates produced at hard-rock mines is on average US$6,250/t LCE lower than that of the lithium chemical products produced at brine operations. The higher-value products from brines outweigh the higher cost and result in a forecast average 2019 margin of US$5,386/t LCE, almost twice that of their hard-rock counterparts. This value differential between products is encouraging Australian hard-rock producers to construct conversion facilities near their existing operations to capture more of the value chain and boost margins.

Brine versus hard-rock

Lithium is currently produced from two main different deposit types: brines and hard-rock. At operations exploiting brine deposits, saline brines with high lithium content are pumped from beneath the surface. Lithium is concentrated via evaporation before the brine is sent on to processing facilities for the production of lithium carbonate or chloride. Lithium carbonate can then be further treated to create lithium hydroxide. At hard-rock operations, ore is extracted, usually from pegmatite deposits, using conventional mining techniques before it is concentrated via crushing, dense media separation and sometimes flotation to produce a concentrate. The primary lithium-bearing mineral in this ore is usually spodumene, and therefore most of these mines produce spodumene concentrate as the final product. The spodumene concentrate is then usually sold and shipped to lithium hydroxide or carbonate conversion plants, mostly located in Asia, where it is converted to these respective lithium chemical products.

The cost of producing concentrate at hard-rock lithium mines is generally lower than that of producing lithium chemical products from brines. In 2019, the average total cash cost across 11 operating hard-rock producers is expected to be US$2,540/t LCE, which compares with US$5,580/t LCE across nine brine operations. The most significant cost component at hard-rock mines is labor, which will make up almost 30% of total cash costs in 2019, compared to just 9% at brine producers. This is a result of the relatively high wages paid in Australia, where seven of the 11 hard-rock assets are located. Labor accounts for a lower proportion of brine operations' costs because of the comparative lack of personnel required to extract the resource out the ground, which is done via extraction wells, compared to conventional mining techniques. For brine assets, the biggest cost component is reagents for the downstream processing, which we forecast will account for 36% of total cash costs in 2019. These reagents are primarily sodium carbonate and lime, which are used to remove contaminants and precipitate lithium carbonate out of solution. Royalty costs are also notably high at brine operations, estimated at 23% of total cash costs in 2019. The royalty rate paid by Sociedad Quimica y Minera de Chile SA's and Albemarle Corp.'s assets on the Salar de Atacama in Chile were increased substantially in 2018 by CORFO, a Chilean government organization. This has led to royalty rates more than doubling in two years, from US$740/t LCE in 2017 to US$1,835/t LCE in 2019. As these are the two biggest brine producers in the world, this increase has had a significant effect on the global average royalty cost.