Lithium & Potash which is more important in a brine? SQM Lithium breakdown

It seems like there is a phase of acquisition again in the market.

It's no coincidence that many of the projects in Argentina have been snapped up - most of which are public companies.

International Lithium's core asset - the Mariana lithium brine, according to their presentation seems a negligible distance away from the largest lithium producer in the world.

The Atacama. (NYSE: SQM)

What makes this project so attractive is it's production capability of both lithium & potash.

YES Potash - that elusive fertilizer component which is increasingly sought-after because of the primal need of people - food.

Research all point to less and less arable (land that can grow crops) land, despite growing population size.

Basically - either we all eat less, or we have to find ways to grow more with less land.

Enter the modern fertilizer. The recent BHP Billiton attempted acquisition of Potash Corp is in line with the same expectation, that more mouths to feed = more food needed.

Though most people in the lithium sector think of SQM as a major lithium producer - bulk of their revenue actually comes from potash and plant nutritions.

Taken directly from SQM website for earnings year to date (YTD) http://www.sqm.com/pdf/Investors/PressReleases/en/SQM-PR_20101123-EN_0237.pdf

To make it easier for you - I've summarized it in a pie chart for you. Less than 10% of SQM's revenues come from lithium.

I'll say it again - less than 10%.

While the margins are far higher than their other lines of business - their main focus is on chemical products based around Potassium.

Santiago, Chile, November 23, 2010.- Sociedad Química y Minera de Chile S.A. (SQM) (NYSE: SQM; Santiago Stock Exchange: SQM-B, SQM-A) Revenues totaled US$1,324.7 million for the first nine months, representing an increase of 25.9% over the US$1,052.2 million reported in the same period of 2009.

Segment Analysis

Specialty Plant Nutrition (SPN)

Revenues from our SPN business line for the first nine months of 2010 totaled US$452.5 million, 13.0% higher than the US$400.3 million recorded for the same period in 2009.

Iodine and Derivatives

Revenues from sales of iodine and derivatives during the first nine months of 2010 totaled US$241.8 million, an increase of 72.4% with respect to the US$140.3 million reported for the first nine months of 2009.

Lithium and Derivatives

Revenues for lithium and derivatives totaled US$114.3 million during the first nine months of 2010, an increase of 35.4% with respect to the US$84.4 million recorded for the first nine months of 2009.

Industrial Chemicals

Industrial Chemicals revenues for the first nine months of 2010 reached US$109.5 million, 35.3% higher than the US$80.9 million recorded for the same period of the previous year.

Potassium Chloride & Potassium Sulfate (MOP & SOP)

Potassium Chloride and Potassium Sulfate revenues for the first nine months of 2010 totaled US$356.8 million, a 24.3% increase with respect to the first nine months of 2009, when revenues amounted to US$287.1 million

Other Commodity Fertilizers

Revenues from sales of other commodity fertilizers and other income reached US$49.8 million in the first nine months of the year, down from US$59.1 million for the same period of the previous year.

Salar brines are located in the nucleus of the Salar de Atacama. They contain the greatest lithium and potassium concentrations ever known, in addition to considerable sulphate and boron concentrations. From this natural resource lithium carbonate, potassium chloride, potassium sulphate, boric acid and magnesium chloride are produced.

The Salar de Atacama is a source of underground salar brines, formed through natural leaching from the Andes Mountains: throughout time, diverse minerals found under the salt surface crust have descended from the mountains, accumulating in increasing concentrations.

Together with high concentrations of salar brines, the Salar de Atacama has a series of advantages: it enables low processing costs due to its reduced magnesium content; it has higher evaporation rates than other salt plains in the world and it is able to operate all year long due to the privileged weather conditions that favour it.

Process

Salar brines are pumped from beneath the saline crust in two different areas of the salar. In one of them, extracted salar brines contain unprecedented concentration levels of potassium and lithium. In the other, salar brines obtained contain high concentrations of sulphate and boron.

After extraction, salar brines are located in SQM's solar evaporation ponds that cover 1,700 hectares approximately. Atacama Desert is the driest place on earth, with a solar evaporation index of 3,200 millimetres and average precipitations of only 15 millimetres per year. This results in an extremely efficient previous process of solar energy concentration.

From the resulting solutions and after a series of processes, SQM produces potassium chloride, lithium carbonate, potassium sulphate, boric acid and magnesium chloride.

What makes ILC so attractive then?

One of the highest potash values outside of Atacama. That's what.

Given that SQM does most of their revenue on potash-potassium related chemicals - would you rather have higher Lithium or Potassium? FYI - most of the other lithium brines don't have nearly as potash.

We are long TNR and through that, ILC. Based on what we observe with SQM, this seems like a sound logic especially with ILC's fantastic potash values.

Minera Andes hits high grade gold in takeover prime area in Argentina, TNR.v, MAI.to, AND.to, ABX

Goldcorp's recent takeover of Andean in Argentina marks a sign of things to come with gold hovering at close to historic all-time highs at $1371/oz.

The Argentinean province of San Juan and Salta means other miners in the area have gained the spotlights from investors and media alike.

Ironically, the San Jose project which junior miner Minera Andes hold is a solid grade gold and silver producer that Goldcorp founder Rob McEwan operates (and owns 33%).

If he founded Goldcorp and left, isn't it ironic that Goldcorp is returning to the same area that Minera Andes and TNR Gold have been at all these years?

In addition to that, since the last time we covered MAI - share price has erupted to over $2/share CAD, marking almost a 300% profit for those who averaged down to MAI during the slowtimes of even the summer 2010.

This came about primarily with rumors with MAI takeover and another discovery at San Jose mine that could easily increase production in the coming years. But also we believe it's attributed to copper recovering to its former highs in 2008.

MAIs train might have left the station but you can still play a great investment with TNR Gold - albelt disputedPublish Post they still hold claims to 25% back-in on the large Los Azules project.

We've been right here a few times on Mining101 and this is why we have readers daily who has come here to learn more about investing. Do your own due dilligence - we have, and we have done well during this quiet recovery!

Los Azules gets more attention TNR.v MAI.to CUM.v,

Copper has rebounded nicely from a demand shock thanks to the confirmation of a boom in China and India (BRIC nations). A well known Investment Banker said it best - you can't beat the desire of 3 billion people in China aiming to improve their lives and infrastructures in their country.

You need copper for the wiring, reinforcements, beams - anything to do with building and electronics.

In addition to surging foreign currency supplies - China has been on a buying spree of Canadian resources - seeing as how TSXV and Canada has only been welcoming China investment (CIC Fund + Teck Cominco anyone?), this is something we only expect more and more.

The Globe & Mail is a well known independent newsprint (outside of the Conrad Black empire of Vancouver Sun, Province, and National Post), so when a copper junior buyout list was summarized, many of the companies on the list surged on just how undervalued many of the groups are.

Specifically, the legal disputed project Los Azules, which had only been growing in resource since we first covered the project as one of the crown jewels in junior miner TNR's portfolio.

MAI and TNR promptly surged a bit the following days after the article - it is good to be ahead of the trend here at Mining101.

We'd also like to note since the security review of MAI - the NI-43101 resource has been upgraded to nearly 13.2 + billion lbs of copper, 1 million ounce of gold, and 10+ million oz silver. This should've certainly placed MAI in a much higher spot.

The recent Andean (AND.to) buyout in Argentina is right nearby - should only indicate these stocks TNR / MAI should have plenty of room to move up.

TNR Gold Corp's current market cap is a paltry $24 million.

At a conservative 15% equity interest in Los Azules, not even accounting for the critical infrastructure property that Escorpio IV brings to the table, using realistic 50% of Minera Ande's current market cap.

Minera Andes (MAI.to)
$1.20/share x 264 million shares o/s = $317 million
at 50% of market cap for Los Azules = $158 million

15% of Los Azules = $23.78 million
Say a small flat fee for rights to Escorpio IV ~ $2.5 million.
TOTALS only to $26.25 million
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This is already more than what the market cap of TNR is telling us its worth, and International Lithium ($15 million value) hasn't been spun off yet either!

This is a great buy IMO and Mining101 is still fully behind the team at TNR Gold Corp. We only hope that they can get ILC public faster as various other groups are beginning to work on their lithium deals in South America again and TNR cannot afford to fall behind further.

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Tuesday, September 14, 2010 7:22 PM

Junior producers likely to benefit from China’s appetite for copper

Simon Avery

What are we looking for?

China has a voracious appetite for copper. Demand for the red metal is traditionally a harbinger of economic strength and is used extensively in construction, transportation, electronics, plumbing and even in the currencies of nations themselves. China consumes 39 per cent of global production but has only about 6 per cent of the world’s reserves.

CIBC World Markets analyst Ian Parkinson has done an extensive review of junior copper producers that trade on the Toronto Stock Exchange, combing through more than 160 companies and more than 200 projects to determine which players are most likely to draw the acquisitive eye of large mining companies and sovereign wealth funds in China, India, Brazil and other developing economies. He says merger and acquisition activity is set to ramp up in the space and investors who choose the most attractive junior players will see substantial returns. “In very simplistic terms, we believe if you’re long what China’s short, you’re in a good position.”

The screen

Mr. Parkinson zeroed in on junior copper producers with “pounds in the ground” that he calculated would be on the radar screens of international investors.

He created a weighting formula to capture how the market values these firms. In the process he looked at historical transactions and total acquisitions costs, and he weighed resource criteria, including deposit size and grade as well as mining methods and proximity to infrastructure and markets. He assessed the grade of projects with the assumption that higher-grade products typically carry lower operating costs, and he calculated cash costs of production as well as capital expenditure required on a per-pound basis.

In terms of valuations, he used enterprise value divided by the amount of reserves. He also looked at market capitalization relative to the required initial capital in an effort to gauge how the market is valuing the likelihood of the companies actually building their projects.

What did we find?

At the top of the list of 25 stands Duluth Metals Ltd., which is in the advanced stages of mineral exploration and has completed preliminary economic assessments on a large underground site in northeaster Minnesota.

Number two ranked PolyMet Mining Corp. is developing a copper-nickel-precious metals project in northeastern Minnesota and owns a crushing and milling facility and other infrastructure nearby. The state government is close to completing an environmental review and the company will begin project construction upon receipt of permits, Mr. Parkinson says.

The third ranked firm is Western Copper Corp., a Vancouver-based entity spun out from Western Silver Corp. in 2006. It holds significant gold, copper and molybdenum resources and reserves in four Canadian properties, he says.

“We would say this group [of 25] represents some of the best junior Americas-focused copper names currently listed on the TSX and a basket approach with the group could be advantageous for investors,” Mr. Parkinson says.

CIBC Junior Copper Rankings
Company	Ticker	CIBC Junior Copper Score	Market Cap ($-mln.)	Overall Ranking	Strategic Partnership
Duluth Metals Ltd	DM-T	4.95	218	1	Antofagasta has 40% interest in Nokomis
PolyMet Mining Corp	POM-T	6.75	225	2	Glencore owns 6.3% and Cliffs Natural Resources owns 6.1%
Western Copper Corp	WRN-T	7.65	105	3
Terrane Metals Corp	TRX-X	7.85	639	4	Proposed acquisition by Thompson Creek Metals
Augusta Resource Corp	AZC-T	8.75	360	5	HudBay owns 11% (13.6% fully diluted)
Antares Minerals Inc	ANM-X	9.55	251	6
Far West Mining Ltd	FWM-T	9.85	273	7	Quadra FNX owns 7.9% (14.64% fully diluted)
Copper Fox Metals Inc	CUU-X	10.05	211	8
Minera Andes Inc	MAI-T	10.85	262	9
Nevada Copper Corp	NCU-T	10.95	165	10	Capstone owns 11.1% (14.4% fully diluted)
Coro Mining Corp	COP-T	11.55	57	11
Redhawk Resources Inc	RDK-X	11.65	49	12
Candente Resource Corp	CDG-T	12.65	35	13
Baja Mining Corp	BAJ-T	13.55	136	14	25% partner on Boleo with a consortium of South Korean companie

China may cut Lithium / Rare Earth exports TNR.v ILC.v CLQ.v WLC.v RM.v

world's top superpowers via aggressive trade pricing and business tactics, you have to wonder what's next. If anything, policies like this suggest a very likely next step - consolidating value-added services back home to continue fueling the growing middle class.

When you have grown to become one of the

The days of cheap Made in China goods are no more.

Today, iPhone 4 and premium products are often entirely finished in Asia.

Instead of merely outsourcing cheap labor, China is now looking at consolidating the entire process, leaving the rest of the world as pure consumers.

As value investors, this is a strong signal that commodities are where people should be focusing their attention.

After all, like the gold story we've all heard before: you can print money and issue treasury bills, but end of the day gold and hard assets will be the ones with true tangible value. You can't make this stuff out of thin air!

With this in mind, there are some lithium stories that we've been longterm followers here that deserve a second look. TNR Gold (TNR.TSX) and its spinoff company International Lithium has been moving up despite summer doldrums.

We expect as the spinoff shares are announced, more upside is to come. Who doesn't like free things? As any companies announcing dividend will see, people generally rush in right before. We recommended TNR at $0.045 at its low point in 2008 - we are saying it's a good buy once again at $0.20's.

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The Chinese overnment indicated over the weekend at the National People's Congress (NPC) in Beijing that it would curb the export of lithium and other rare earth compounds, opting instead to build a strategic reserve.

Hu'ercha, a deputy to the NPC from north China's Inner Mongolia Autonomous Region, said on the sidelines of the legislative body's annual session on Friday that China should set up a national reserve of rare earth resources and work out development strategies for rare earth-related new and high-tech industries "as soon as possible."

"The government should attach greater importance to the purchase and storage of the strategic resources," Hu'ercha stated.

Influencing the Chinese lawmakers comments is the fact that Hu'ercha is also mayor of Inner Mongolia's Baotou city, home to 75 percent of China's rare earth reserve. The Chinese politician urged the country to work out policies to support the development of rare earth-related industries and set up a development fund to strengthen basic research on rare earth.

Though China supplies about 90 percent of the world's rare earth, it has little say on international pricing due to inadequate industrial innovation and slow development of high-end products.

With China's booming growth in domestic auto sales, now ranked as the world's largest, Premier Wen may be listening to Hu'ercha and other Chinese party political backers as demand for lithium batteries and other products grow.

While lithium is not considered a rare earth and readily available, concentrations plentiful enough to mine economically are a different matter. Already companies like Korea's POSCO, the world's fourth-largest steel maker, are moving to build new sources of supply themselves while brine recovery technology lies at the forefront. POSCO recently made a rare bid to invest up to US $5 million in a junior exploration and development company's Mexico brine project if the level of lithium and other metals proved worthwhile. Chile, a hotbed oflithium exploration, is also the world's largest exporter. Pan American Lithium (TSX.V: PL), which entered into the letter of intent with POSCO, is also involved in a 100% company-owned lithium brine property in Chile. The recent earthquake in Chile delayed initial reports on Pan American's lithium property, though the Company continues to see record trading levels despite the delay.