On Lithium Resource anxiety and Mining Giants' Green ambitions from Rio Tinto's acquisition of RINCON Salt Lake [Agency Review]

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According to Rio Tinto, the company has reached a binding agreement to acquire Rincon Mining, a unit of private equity group Sentient Equity Partners, for $825 million. The core assets of the target company are the Rincon Salt Lake Lithium Resource Project and the salt lake lithium extraction technology developed based on this project.

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Salar del Rincon: is a large-scale greenbelt salt lake brine project with complete mining rights, more than 10 million tons of resources, but mediocre lithium concentration. Rincon Salt Lake is located in Salta Province, Argentina, 3765 meters above sea level, Rincon Mining controls a total of 830sq km of mining rights, covering 94 per cent of the salt flat area, and a small number of surrounding non-core mining rights belong to Argosy and other companies. According to the resources and reserves report updated in July 2021, Ri nconMining has the following mining rights: (1) total reserves of 1.9846 million tons of LCE (lithium carbonate equivalent), average lithium concentration 359mg/L. (2) proved + controlled resources 5.8024 million tons LCE, average lithium concentration 367mg/ L, including inferred resources 5.9655 million tons LCE, average lithium concentration 390mg/L. (3) according to some section samples, the ratio of magnesium to lithium is 9.4 to 10.8. We believe that the lithium concentration of Rincon is in the second and third line in the "Lithium Triangle" of South America, and the ratio of magnesium to lithium is higher than that of the main salt lakes in South America, but it is still ideal in the world. In addition, Rincon is also a large-scale salt lake project with complete mining rights in Argentina, so it has a certain scarcity.

Key elements: Rincon Salt Lake has ideal infrastructure conditions and abundant fresh water supply. (1) roads:

The national highway connects the project to the capital of Salta, as well as a railway line 30 kilometers away, leading to the Chilean port of Antofagasta and the Argentine capital, Buenos Aires, to facilitate supplies and product transportation. (2) fresh water: according to geological survey, the fresh water under the surface of alluvial fan can support more than 100000 tons of annual production capacity, and the company has obtained almost exclusive right to use fresh water. (3) Energy: the project is only 1 km from the high voltage Electroweb across the Andes, and the company has signed an intention to coordinate with a large photovoltaic power station around the Salt Lake. (4) Salta's mining policy is generally friendly, and the project is not far from the production of Olaroz and Cauchari-Olaroz in the northern Hohoi province and in the salt lake, so it is expected to form a clustering effect in the future.

The design uses raw brine adsorption to produce 50,000 tons of lithium carbonate per year, with a total investment of 770 million US dollars. The lithium extraction process around Rincon salt lake has been developed for nearly 20 years, resulting in a large number of sunk costs. In view of the mediocre lithium concentration and high magnesium content in the salt lake, adsorption has become the preferred scheme. Sentient and ANSTO, a scientific research institution of the Australian government, have developed a patent for direct adsorption of lithium from raw brine and built a pilot plant in the mining area. The process has passed the environmental assessment, but the updated summary research has doubled the design capacity to 50,000 tons of lithium carbonate per year, with a capital investment of about US $770 million and an estimated operating cost of US $2968 / tonne.

Behind the win-win deal: the green transformation ambition of the mining giants and the deep lithium resource anxiety of the global new energy automobile industry. We believe that the valuation of this acquisition is sufficient and the overall win-win situation has been achieved. Sentient's long-term investment has finally been withdrawn, while Rio Tinto, a century-old mining store, has acquired a large and more mainstream salt lake project on the basis of the large-scale Jadar boron-lithium mine in Serbia, fully demonstrating its strategic determination to transform to a key clean energy mine. However, in the future, Rio Tinto still needs to re-evaluate the amount of resources and verify the lithium extraction technology, so the effective supply of Rincon will be formed in 2025-2026 at the earliest. Further thinking, in the era of clean energy revolution, the global competition for "future white oil"-lithium resources is heating up, and it is urgent to ensure the security of supply. this, in turn, confirms the strategic value of the lithium resources already on hand in the world, as well as the local lithium resources in China. We continue to recommend that we pay attention to the investment opportunities of Salt Lake shares.

Risk tips: 1, if the global lithium mine supply releases more than expected, while the promotion of new energy vehicles is low expected, it will lead to another decline in the price center of lithium products; 2, if the battery technology innovation and industrialization, leading to a significant change in the technological path of new energy vehicles at home and abroad, reducing the lithium consumption of power and energy storage batteries.