Lithium: Namibia’s cure or curse?

By | 2018-11-19T09:09:40+00:00 November 19th, 2018|Mine Excursion|
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Desert Lion Energy’s operation in Namibia remains an exciting project, despite the recent slump in the price of lithium, writes Leon Louw, who recently visited the mine during a road trip to the country. 

DSC_0010 - Johan Coetzee, chief operating officer of Desert Lion Energy (on the left), and Simon Kahovera, exploration manager and chief geologist at Desert Lion Energy, at their collection of rocks and minerals. Image credit: Leon Louw

Johan Coetzee, chief operating officer of Desert Lion Energy (on the left), and Simon Kahovera, exploration manager and chief geologist at Desert Lion Energy, at their collection of rocks and minerals. Image credit: Leon Louw

At first glance, Karibib is just an ordinary Namibian small town. Dusty streets, a few drowsy dogs, and keen fuel attendants; nothing more to write a story about — one would think. Yet, Karibib once played a leading role in the railroad network of Namibia. The historic railway station, completed in June 1900, linked the west coast to the Namibian interior; something that came in handy for mining companies that started operating in the area a few years later. The town blossomed, but its development was stopped in its tracks when some 20 or 30 years later, the town ran out of drinking water, and most activities and business opportunities migrated west to Usakos, about 34km from Karibib, on the way to the harbour of Walvis Bay and the coastal town of Swakopmund.

Geologically, Karibib is located in the Damara metasedimentary belt. For geologists and explorers, this means granites, schist, marble, pegmatite, lepidolite, petalite, tantalite, and gold. For artisanal collectors of gemstones, it means crystals as well as tourmaline and beryl, which they sell in large quantities on the sandy roadsides of the Erongo region. For travellers, it means breathing in fascinating, ancient landscapes shaped by eons of unrelenting erosion.

The marble factory on the corner of Kalk Street and the white reflection from a number of distant koppies welcome visitors to Karibib’s marble country. Once the domicile of wealthy German traders, the many marble quarries that dot the landscape, and even the factory, have fallen into the hands of Chinese operators — an indication of Namibia’s new reality, where Chinese influence is growing day by day.

Gold mining in Karibib

As one enters Karibib, there is a sign to Navachab, which is a gold mine once owned and operated by global mining giant AngloGold Ashanti. Navachab was discovered in October 1984 after an extensive exploration programme and poured its first gold in 1989. It was originally owned by the Erongo Exploration and Mining Company (70%), in partnership with the Metal Mining Company of Canada (20%) and Rand Mines Exploration (10%). AngloGold acquired a 70% interest in the mine in 1998, after which it bought all the shares in 1999. In 2004, AngloGold and Ashanti merged to form AngloGold Ashanti.

Like all other gold deposits in Namibia, the grades at Navachab are reasonably low. The mine has never really lived up to expectations and had to overcome several challenges during the almost 29 years of operation. In June 2014, AngloGold Ashanti sold Navachab to QKR, a private company in which Namibia’s state-owned mining company Epangelo is a partner. QKR has struggled to make ends meet, but Navachab is still operating. Nevertheless, all is not lost for gold hopes in the hills and hummocks of Erongo: There are known deposits of gold in the region (including in the Karibib) and a number of gold exploration companies have set up base in the harsh semi-desert.

Scouring for pegmatites

DSC_0049 - The stope-and-pillar mining methods are evident after blasting opened up the old underground workings. Image credit: Leon Louw

The stope-and-pillar mining methods are evident after blasting opened up the old underground workings. Image credit: Leon Louw

But I visited Karibib for another reason: I wanted to get a glimpse of Canadian company Desert Lion Energy’s lithium project and the famous pegmatites of the Damara Belt. At the same time, I was hoping to gain a better understanding of what the fuss about lithium is all about. Lithium and cobalt are punted by many investors as the mineral of the future, as more and more electric vehicles are rolled out from the factory floors.

Cobalt and lithium are key in manufacturing the batteries that power these electric vehicles, and Namibia, especially the central regions, have proven deposits of lithium-bearing minerals. The entire Erongo region is a geologist’s dream, particularly if you are interested in pegmatites. Pegmatites are formed when granitic magma cools down and produces exceptionally large crystals in the final stages of crystallisation. These crystals sometimes contain rare minerals like lepidolite, which is used to produce the necessary oxides in the production of lithium.

While exploring the area with Johan Coetzee, chief operating officer of Desert Lion Energy, the deep purple colour of the lepidolite is unmistakable. “This is what Desert Lion Energy is interested in,” explains Coetzee, as he finds his way through the rubble and rock produced after a recent blast. Desert Lion Energy’s license area includes two main mining sites, or pits, namely Helikon and Rubikon. Two smaller pits are associated with Rubikon, while more than seven smaller workings are associated with Helikon. In addition, about 32 historical stockpiles are scattered throughout the entire license area, on top of even more artisanal workings, tunnels, and open pits.

Since 2017, when Desert Lion Energy acquired the property, Coetzee and his team have completed two blasts — one at Rubikon and one at Helikon. These blasts have uncovered what was once underground stope-and-pillar mining operations. “Both Rubikon and Helikon were owned by Klochner & Company, who in October 1990 sold to Namibia Lithium Mines, a Namibian registered company and a wholly owned subsidiary of South African Afmin. However, the previous owners mined petalite and tantalum that were, and still are, used in the ceramics and glass industries. Thereafter, a company named Namibian Lithium Mines held the mining rights, before Desert Lion Energy bought the exploration rights in 2017,” Coetzee explains. Lithium, electric vehicles, and batteries to drive this new technology, were, of course, not in demand in the 1930s, with the result that the previous owners dumped the lepidolite (or lithium) on the dispersed stockpiles found throughout the property. “This material is enough to keep the crushers and mills turning for at least a year and a half,” says Coetzee.

The purple of lepidolites

Walking through the freshly blasted old mining sites is not only a lesson in the mining methods of yesteryear, but a geology lesson par excellence. Purple, pink, and marble white fragments dominate the multicoloured piles of rock, while the different layers of geological history are on display right in front of you. In these layers, the distinct pegmatites and purple colour of lepidolites make one wonder to what depths these minerals have penetrated. When the previous miners extracted and stockpiled the minerals that host lithium, they only touched the tip of the iceberg. Between the old stopes (clearly visible after the blast), wooden pillars, and even the remains of rusted underground rail tracks and other rubble, the lepidolite and pegmatite seams run at a constant dip, deeper and deeper into the unexposed interior of the earth. Much of the mineralisation at Rubikon and Helikon is still to be drilled and remains open at depth.

“Desert Lion Energy has completed significant work to understand the local geology, which includes more than 20 000m of exploration drilling on the property, which will be used to produce a maiden mineral resource estimate (MRE). However, there are gaps and unanswered questions, as very little exploration work has been completed in the past,” says Coetzee. It does seem, by looking at the stopes and tunnels, that the old-timers, much like the artisanal miners of today, followed the seams more on instinct than according to drilling results and mine planning. The more recent and haphazard artisanal tunnels intersperse the greater historical workings everywhere — an indication of the substantial value left in the ground.

Did the bubble burst?

Although Desert Lion Energy plans to mine the pegmatites from several open pits at first, it is possible that the company could decide to probe the deeper-dipping seams by means of underground methods in the future — but that would depend entirely on the price of lithium. And, as we have seen since August, the lithium price has bottomed out to levels that make it unprofitable even to mine the stockpiles on site, which Coetzee was doing at the time of Mining Mirror’s visit.

The plan was to generate enough material from the surface stock to supply Chinese offtake partner and lepidolite converter Jaingxi Jinhui Lithium Company for a full year or so, from which enough capital would be generated to start mining from the open pits. Desert Lion Energy delivered its first shipment of 30 000 tonnes of lithium concentrate to the Port of Walvis Bay in April this year.

Yet, it seems as if all the hype about lithium has caused its own downfall. A proliferation of lithium mines in Australia and an oversupply in China have temporarily disrupted the market. Desert Lion Energy had to suspend all mining activities by the end of August (just after Mining Mirror visited the project), soon after the company was awarded a Phase 2 mining license by the Ministry of Mines and Energy of Namibia, which meant it could start mining in situ material. The lithium market remains strong, though, with growth of 12–14% year on year. Desert Lion Energy’s mining license has been granted for an initial 10-year period and covers an area of 68.7km², which includes the area where the Rubikon and Helikon mines are located.

A staged approach

Although all activities have ceased, Tim Johnson, CEO of Desert Lion Energy, remains hopeful that the market will turn and that the project will be back on track soon. “We will continue developing the asset and have started negotiations to reprice the offtake agreement with Jaingxi Jinhui. Pricing depends on the product and on the form in which we restart the operation,” he told Mining Mirror during a telephonic interview after news broke that mining at Desert Lion Energy had been put on hold. The company stated in a press release that it is reassessing its strategy and has ceased all operations at its hard-rock property in Namibia.

The company’s strategy, before the price slump, was to pursue a staged approach to developing the asset, to de-risk production and generate near-term cash flow. It processed stockpiled material to produce a coarse lithium concentrate (1.7% to 2.0% lithium oxide [Li2O]) and was in the process of constructing a flotation plant to produce a high-grade concentrate of about 4% Li2O. These two steps formed part of stage one, while the next stage of production (Phase 2) would have focused on mining lithium from in situ ore, which would increase high-grade concentrate production and include petalite and tantalum concentrates. Phase 3 would have included lithium carbonate production.

The Phase 1 flotation plant (under construction) will be capable of processing 350 000–400 000 tonnes of feed per year to produce approximately 70 000 tonnes per year of 4% Li2O. The intention is to have production increase to more than 220 000 tonnes per year of 4% Li2O by 2020.

DSC_0065 - Screening the waste stockpiles at one of the mining sites. Image credit: Leon Louw

Screening the waste stockpiles at one of the mining sites. Image credit: Leon Louw

Demand and supply

Whether this is achievable all depends on demand and supply, and on the number of new lithium projects that come online in the next year or so. At the moment, it does not really make sense to invest capital in developing lithium mines, although many analysts feel that the demand will continue to grow.

North-east of the Damara Belt, between Henties Bay on the coast and inland towards the historic tin mining town of Uis, lies another prolific pegmatite belt that is better known for its tin deposits but that could also host significant deposits of lithium. Tony Harwood, CEO of Montero Mining, has been looking to get his Soris (close to the Brandberg) and Uis lithium projects off the ground in this area, but the dip in lithium prices would have halted his endeavours. The oversupply of lithium is bad news for Desert Lion Energy, Montero Mining, and Namibia in general, as the mineral could have resulted in a revival of the stagnating mining industry in the country.

DSC_0022 - One of the mining sites identified by Desert Lion Energy as having a high occurrence of lepidolites, is Rubikon (in picture). Image credit: Leon Louw

One of the mining sites identified by Desert Lion Energy as having a high occurrence of lepidolites, is Rubikon (in picture). Image credit: Leon Louw

“Up to the beginning of 2018, lithium’s price had roughly doubled since the beginning of 2016,” says Nicolaas Steenkamp, an independent geological and geotechnical consultant. “August 2018, however, saw a global slump in lithium product prices,” he adds.

Many analysts believe that the dip in lithium prices is driven by Australian lithium miners, listing new mines on the ASX, and as a result supply is outpacing demand. This has led to a surge in short selling on the ASX, fueling the fears of a global lithium oversupply.

Investment bank Morgan Stanley predicted in February that global lithium prices would drop 45% by 2021 on the back of increased production from Chile. This was backed up by a note issued in August 2018 by Macquarie Research that there was a looming lithium oversupply. These reports also had a negative effect, with some companies losing a significant chunk of their value. “The industry replied to these reports by stating that the reports underestimated demand and that lithium chemicals end-use product is in short supply, with little effect on the market,” says Steenkamp.

The fact is, nobody really knows how to predict the volatilities of, and demand for, a new mineral and product. Desert Lion Energy’s project in Namibia is unique, and it is the first operating lithium asset in Namibia and one of the first on the African continent. The infrastructure in terms of road and rail is readily accessible and in a superb condition, while the Port of Walvis Bay is only about 260km away. Water and electricity supply would not be a concern.

“This is a significant deposit,” says Simon Kahovera, exploration manager and chief geologist at Desert Lion Energy. Kahovera is optimistic about the Karibib geology and what might await brave exploration companies like Desert Lion Energy when they venture into the thick layers of rock underlaying the denuded earth towards the coast on the west and the towering sand dunes of the Namib. Desert Lion Energy’s project, even if mining has ceased, remains an exciting new development in Namibia and is well worth a visit, even if just for an outstanding geology lesson.