Albemarle Corporation (ALB) Earnings Call Transcript & Summary

Good morning, and thank you for joining us. It's Laurence Alexander with the Jefferies' chemicals team. And with me today is management from Albemarle to discuss current trends and structural setup in the lithium markets. We have 2 speakers today. Eric Norris is the President of Albemarle's lithium global business unit. He joined Albemarle in 2018 after stints at FMC as managing both the lithium business and the health and nutrition business. Also with us today is Dr. Glen Merfeld, who is the Chief Technology Officer for lithium at Albemarle. And he had, prior to joining Albemarle, a 20-year stint at GE in their research division. Before we begin, a couple of housekeeping measures. First, if you have any questions, please enter them through your interface or by e-mailing me at [email protected]. Again, [email protected]. We will have an opening presentation, and then we will move on to a Q&A session. Secondly, just a compliance reminder, please add -- do not try and solicit any material nonpublic information. If you do attempt to do so, then the speakers can refuse to or deign not to answer any questions at their sole discretion. Without any further ado, let me pass it over to Eric, and we'll get started.

Thank you, Laurence, and thanks to Jefferies for hosting us today. On the call today, I'll quickly introduce Albemarle and our businesses and how we think about different lithium resources around the world. Glen Merfeld will then cover ways to concentrate and convert those resources into battery-grade products. And finally, I'll cover recent lithium projects and closing remarks before turning it back over to Laurence for Q&A. We have a slide deck that accompanies this. And as usual, you'll see on Page 2, legal disclaimers and on Page 3, non-GAAP reconciliations, and they're also available on our website. So we'll turn first to Slide 4. Just as a brief background, Albemarle -- put everybody on the same page, Albemarle is a global specialty chemicals business and a leader in 3 core businesses: lithium, bromine and catalysts. Of the 3, lithium is the largest represented here on this slide by revenue and is expected to be the highest growth business for the foreseeable future. At a high level, Albemarle's strategy is to invest in and grow our lithium business and fund the growth of that business with cash flows from our other more mature businesses. Historically, we've actively managed our portfolio to generate shareholder value, and we'll continue to do so. We'll also continue to maintain a disciplined approach to capital allocation. Albemarle lithium has access to a geographically diverse portfolio of some of the largest, highest concentrated resources in the world. We are vertically integrated from resources, specialty products and we have the expertise in extraction, concentration, conversion of lithium to offer our customers a wide variety of products, including industrial-grade, specialties-grade and importantly, battery-grade. Battery-grade products, in fact, take up about 60% of our revenues and are the key growth driver for our business. Our battery-grade products are essential to the transition to green energy and carbon-free mobility. Let's now take a look at Slide 5. For the better part of the last decade, Albemarle has had a comprehensive effort to closely monitor lithium resource landscape and analyze many complex considerations, which are depicted here on this slide when it comes to resource development. Just as a bit of a background, over that time, we've assembled a team of expert geologists, mining and process chemical experts and engineers focused on resource development. We maintain a comprehensive database of brine and mineral resources. We've assessed these resources, these resource sites. We've evaluated known extraction technologies to extract the lithium from the minerals or brines at these sites. And we've built our own IP and know-how around novel extraction techniques, and finally, we've created models to quantify the technical and economic factors of new resources as they become known to us. All of this work has guided our understanding of alternative resources and extraction processes compared to the ones we own and operate today and has informed our M&A and resource development strategies over the past years and will do so into the future. So now to this chart. This chart is a simple way, a spider diagram to boil down that complexity to a simple framework. While each of the factors on the points of this diagram is important to the success of a project, as noted here on the left-hand side in bullet form, there are really 3 key drivers that determine technical and economic viability. The first is grade. That's the concentration of lithium and the resources that are available to be extracted. Second is size and the length -- long-lived length of that resource over time and the economies of scale it could provide. And the third and importantly is chemistry. Each resource is different. And so one has to tailor the technology or know of a technology or possess a technology that can be used to convert that lithium to high-quality battery-grade materials and manage the associated impurities. Think of impurities as all the other things that are in that resource that aren't lithium that we need to find a way to work around to extract the lithium. Of course, there are a lot of trade-offs, and that is exactly what this chart is trying to show. For example, a large high-grade resource with no infrastructure and no rule of law is going to be a challenge. A smaller resource with good infrastructure and access to low-cost energy could be very successful. Now if you look at this chart, we've given 2 examples: a low-quality rock resource and a high-quality rock resource. And as we've noted here on this slide, resource grade, resource scale and resource chemistry really are the differentiators that drive that high-quality rock to being commercially viable. Why don't we now then dive into, on Slide 6, these 2 factors: greater concentration and scale or size? So if we go to the next slide, this chart shows key lithium mineral operations and projects around the world. Mineral here refers to hard rock or spodumene often and soft rock or clays. We'll talk about both in this chart. Lithium is not rare. Commercially and economically viable scale-up has thus far only been successful in the 2 types I just referenced. Spodumene, this is a hard rock resource, which we extract in Australia, and process in China. In the future, we'll process in Australia. Lepidolite, this is a softer clay like material that we are not involved yet with, but that is commercially extracted and processed in parts of China. There are many other types of lithium resources that are known, laterite, polylithionite, zinnwaldite, petalite. Resources vary greatly in terms of grade, chemical structure and impurities. As you look at this chart, there are a couple of points to make. First, you can see we identified the resources that Albemarle has or operates. First you see the Greenbushes, in the upper right hand quadrant. It's a world-class asset. It's large in scale, high-grade quality, located in a country of Australia with good access to energy infrastructure and a mining-friendly jurisdiction. Second, you can see that there are many known clay deposits, and this has been a subject of discussion quite a bit recently here in the U.S. They're highlighted here in red. They're not relegated just to the U.S. The only clay resources actually producing today are lepidolite resources in China. None of the other clays are producing assets today. Glen will get into a bit more details in a moment, but clearly, as you look at this chart, you can see the factors here of grade and size, and the more economically low-cost resources are going to be up and away to the right of this chart. Now let's look at brines. Similar chart, same thing. Size and concentration [ of ] lithium varies widely by resources, where mineral resources tend to be located in Australia, in the U.S. brine resources tend to be located largely in South America, especially Chile and Argentina. And you can see those 2 countries' names mentioned all over this chart. Impurities, the presence of other minerals are potential -- are critical for the potential of these resources, as is certainly the concentration of lithium depicted on the vertical axis here of this chart. Tailored chemical technology is required to manage the impurities in that brine. And those impurities, just to throw out some names, are things like sodium, potassium, magnesium, calcium, boron, et cetera. This impacts cost competitiveness, throughput and final product quality. Now coproducts and the production of coproducts is a way to monetize and potentially support the economics of a project but management of those can be both challenging, technically and commercially, given size of markets for those coproducts in the various geographies in which one might operate. Here again, you can see that the Salar de Atacama in Chile is a world-class asset in terms of size or scale and grade, up and to the right of this chart. Albemarle has been operating successfully in this environmentally sensitive region for 40 years. We are proud that we've been able to successfully produce the lithium that is needed to combat climate change, while minimizing our environmental footprint and maximizing the benefits for all stakeholders. You can also see that the bulk of their resources tend to be in that sort of a 400 to 800 ppm range and somewhat small -- a lot smaller scale than those identified here that Albemarle participates in. So that's the resource picture. But that's just the beginning of what it takes to bring lithium to market and, in particular, bring high-grade battery-quality lithium to the market. I'm going to turn it over to Glen now to walk us through those next steps and how the minerals and brines are further processed. Glen?

Great. Thank you, Eric. We actually have -- we have just 2 charts here. And the first one is really meant to just set the table, talk about a little bit of a nomenclature at a macro level. And then we'll get really into more substance in Chart #9, where we'll talk about some of the chemical pathways. But what we're highlighting here on Chart 8 are some views of conventional processing and it allows you to look at both hard rock on the top part of the graph and the analogy to brine, on the lower part. The first thing that we really want to point out is there are really 2 blocks of consideration when you think about conventional processing. You have a first stage, which is concentration and then a downstream stage, which is your conversion. Analogously hard rock and brine, both those lithium resources are relatively dilute in their natural resources. The quality of those vary, as Eric showed on the prior chart. But with hard rock, you'll find lithium in the form of lithium hydroxide. And we go through a crushing and flotation, a real mechanical process to bring those up to a lithium oxide equivalent concentration of 5% to 7%, you see that there on the chart in the dark blue. Right below that, brines tend to be a little bit more dilute in their concentration of lithium as low as 0.01% and as high as 0.3%. Similarly, we go through a concentration process. Here, we're depicting what is most predominantly done commercially is using pond systems to achieve that higher level of concentration. Simultaneously, actually, you benefit by removing some impurities through that pond system. Now when you go downstream to the conversion, this is where things look a little bit different when you're dealing with rock versus brine. What's worth pointing out is with a rock, you usually need to do some work to open it up to be able to liberate those lithium ions. And this is true whether you're dealing with a spodumene hard rock or if you're dealing with a clay, a relatively softer rock. You need to open it up, and it's often done with calcination. It's a high-temperature process that takes the form of the crystals, and it makes them more open, so you can more readily access the lithium. You can see it depicted there, downstream and purification, filtration, crystallization steps that we go through to achieve the battery-grade products there on the right-hand margin. Analogously, depending on the source of your brine, you can carry in different types of impurities, and that opens up different opportunities to purify through the train that's shown there on the bottom part of the chart. Similarly, there are reactive precipitation. There's different crystallization rates that we'll highlight. Most commonly, you'll find with brines, we drive that towards a lithium carbonate. And then further, in a secondary process, you can take those carbonates and further process them on to lithium hydroxide. So that, again, is the general framework, and we'll flip to Slide 9 now. And we'll get a little bit more detail about the specifical chemical pathways. Now what I want to introduce here is some constructs on the slide to make it a little bit easier to discuss. First of all, you'll notice, we've broken this down into 3 different rows, if you will, that represent spodumene and then you have brine and then you have clay. Within each of those chemical pathways, you'll notice some darker filled-in blocks, and those represent the established, mature, demonstrated chemical processes. So with spodumene, you see that in the dark blue, with brine, in a lighter blue, and in clays, all the way to the bottom, you see that's illustrated with the green color. You'll also notice in each of these pathways, we highlight there are some pilot or concept technologies that are worth consideration in this comparison. And lastly, what I'll point out in -- by way of introduction of this chart, all the way in the right-hand margin, we wanted to provide some relative figures of merit. Eric mentioned before, we have really high fidelity physics-based models of these chemistries. We also have detailed economic models, those are behind some of these relative comparisons. You'll notice that table includes not only economic figures of merit, but the last 2, in particular, really highlight some of the sustainability attributes that we want to keep in front of us in terms of energy and water, fresh water consumption, specifically. So maybe to start the conversation, then let's take a look at spodumene in the top row here. This, by far, is the preferred route or the most prevalent route today to get to lithium hydroxide. And I should mention, we put all of these on a common lithium hydroxide parity point. So all of these processes were driving to lithium hydroxide for this comparison. So you'll see in spodumene, we go through the concentration steps that I alluded to before. But once you get into the conversion and you've gotten the calcined spodumene available, you have a number of different options available to extract that lithium. It's leaching. So the route that we practice and is practiced commercially by others today is using sulfuric acid. That's a very efficient way to access the ions. It also makes it amenable to downstream purification by precipitation/ion exchange type processes. The top most level though, downstream that we practice at a large degree is this crystallization with a caustic, a conversion using sodium hydroxide to get all the way to the lithium hydroxide that we desire. And you can see the basis case that we're establishing for that path. We represent at that basis, that reference as all pluses in that table to the right. So now relative to that, you have some other options and practiced to a lower degree, is going through a crystallization process with a soda ash. And that's interesting because you can get to a lithium carbonate, which can allow you to feed certain application spaces. And then you can subsequently crystallize that with lime or convert it with lime through to hydroxide. So a lot of chemical details there. What I should point out is if you really wanted to expand this out, there's literally tens, if not more, different chemical pathways, but only a few that are commercially relevant. And that's what we're trying to highlight here in the darker blue. Now what I also want to put reference to is some alternative ways to do that leaching process. You can use what I would characterize as weaker reagents like a soda ash or an alkyne type -- alkaline type process to get access to those lithium ions. It's certainly technically possible. And what's interesting about this is that technology has been pretty well-established and known dating back to the 1960s. So it's chemically very relevant from that standpoint. The challenge that you can probably appreciate is because those are weaker reagents, you have to do a little bit more work with them. Many times you combine pressure with those processes or you put some temperature with them and sort of make up for that weaker reagent. And so that's -- you'll see that noted in our relative figures of merit table off to the right that there's some penalties that you have to recognize when you lower your yield because of that -- those concerns that I just mentioned, you pick up some additional costs, the capital that you need to do it tend to be more expensive. And certainly from an energy and water intensity standpoint, there's some challenges that would need to be addressed. So that's something we keep on our radar screen, and I think it's something of merit to note. I think then by a point of comparison, then it's worth contrasting that to brines. You'll see it noted there in the solid blue, light blue, the predominant way of taking brines and concentrating them is through solar evaporation. There is some work done with absorption, as you're probably well aware of, downstream from that. There's a number of different ways you can purify this, and it's highly dependent, as Eric mentioned, on what impurities you have in there. So if you're purifying a brine from the Atacama in Chile versus what you're trying to do from Argentina or elsewhere in the world, you really have to have that expertise to tune it to that resource. That's what we do. We crystallize our materials with soda ash. And then ultimately, if we wanted to come to a like-for-like basis of comparison, we recrystallize that and convert it with lime to a hydroxide. We do want to give a nod to some of the advanced technologies that are noted with brine. There's things like adsorption and nanofiltration, ion exchange, solvent extraction, sophisticated membrane technologies that are very interesting, definitely, technically, you can do some pretty interesting things and recovery in your lithium. The challenge there really is the cost of those additional materials, the energy that you need, for example, to pump, to high pressures, to use a membrane or the heat that you need to use to regenerate an absorption type material. And those are the considerations that we're referencing here when you look at the relative figures of merit in the rightmost table. Lastly, at the very bottom of the chart, it's worth hitting this a bit. And it's -- the discussion around clay is very analogous to spodumene. It's a rock. It's -- you have to do some work to get access to it. Admittedly, clays are softer. So usually, the upfront mining and crushing and collection tend to be less expensive. As Eric mentioned before, there are some commercial demonstrations of taking lepidolite clays and using sulfate and roasting through the process that's shown there to get that hydroxide. There are some other areas of interest that you could potentially use sulfuric acid or there's other means to open up that clay material to get access to the lithium ion. The thing that I would point out is if those processes open up the use of an aqueous media to get the leached lithium ion, you essentially then transfer that leachate into a brine-type process downstream. So that's what we tried to highlight here. The challenge that I do want to point out though with clay's generally is, as we mentioned previously, they tend to be more dilute in concentration naturally. So you do have to do quite a bit more work in getting the lithium concentrated. And in the process, you're carrying a lot more tailings and byproducts that you have to -- you need to address. So that hits you on your cost, that hits you on your capital. And I think the thing that you really need to keep an eye on, when you have to do more work potentially to get access to that, how much energy you're using and how much water, fresh water in particular, are you using to get access to those materials. So hopefully, this gives you a flavor in a fairly highly-simplified summary that captures this essence of how we marry the resource type, its concentration with how you convert it downstream. We're really continuously evaluating, testing, even piloting potential technology advancements while simultaneously working on ways to improve our current processes.

Thanks, Glen. My suspicion is, is that while highly simplified, we may be coming back to Slide 9, during the Q&A, but very helpful. Appreciate that. As part of our resource effort, that I earlier described, we track announced projects around the world, and here they are anonymously tracked. We've got country, resource type and start -- and projected start date or current start date. We track these around the world and this table outlines them. We put them in 2 categories, mining-only projects and integrated projects that include both the mining or the extraction and the further processing. What's important to note is this list is the same list that we put forth in the 2017 Investor Day. This would -- you really have to think of this as from the early 2000s onwards. So anything that's commercial prior to that -- which would certainly include the Atacama, it would include Greenbushes, it would include Hombre Muerto in Argentina -- is not on this list, but these are the ones that have been developed since. So as you look at them, you can see that mining capacity has been faster to bring to online and proven easier to get to market than than the integrated projects are. And if you look further, you'll see that some of the earlier start date projects in spodumene took up to 10 years. And -- but we've seen more recently for some of the projects started in the mid-, say, 2014 to '16 time frame, close to about a 4-year average to come to mind. Keep in mind, though, that mining only still requires upgrading and salt derivative capacity in order to add meaningful supply to the demand in the marketplace. From our own experiences, we know how hard -- from a firsthand, how hard it is to bring on integrated mining capacity. Of the integrated projects listed here, you'll note that only one has come online. It's the first one listed. It's a brine project, started in 2007, came on in 2016. New players have struggled to bring on capacity. So we estimate, in fact, that it probably takes up to 12 years to bring an integrated production, including exploration, permitting, mine design and construction, process plant design and production ramp-up to market. And in fact, this time frame has probably elongated even over the past couple of years. This same list, as I said, was presented in our 2017 Investor Day, and we had a projection number instead of a hard production date, and we had many of those that are TBD or a collection of them already in the market now, and yet they are still not in the market. So it goes to illustrate how challenging it is to bring projects to market, which is certainly another consideration and is reflected in some of the complexity that Glen just walked through. Now turning to our closing remarks and last slides, and then I'll give it over to Laurence. But first, just to summarize, as a market leader, Albemarle is well-positioned to benefit from the long-term secular growth of the lithium industry. We have access to diverse low-cost resources in various geographies, including Australia, Chile and the U.S. We are vertically integrated with experience in extracting/inverting lithium from multiple types of geological deposits. Our technical expertise provides the ability to provide a wide variety of products today and help our customers and customers' customers develop next-generation materials. The near-term outlook remains uncertain given the recent economic downturn related to COVID-19 and the inventory build that's occurred in the channel. But we are seeing green shoots. Automotive OEM production is largely back online. European EV sales have been strong year-to-date and getting stronger as each month has passed recently, supported by regulatory changes to address climate change. And EV sales in China and the U.S. are rebounding from low rates of earlier this year. Just recently, I saw that the IHS, in fact, has upgraded its forecast for EV production in both 2020 and 2021, another positive sign, we believe, that the significant inflection in EV growth is now emerging. So with all that, now I'll turn it over to Laurence to begin Q&A.

Thank you. [Operator Instructions] I've had quite a few come in. I'm going to try and structure them. But if you want to follow up, please feel free to ping us, and we'll try and fit it in. Can we go back to Slide 9? And I guess the question, maybe if we can start with the pluses and minuses. Can you give us a sense for what the scale of the difference? Are you talking orders of magnitude north of 20% changes in CapEx? Like what's the benchmark that we should be thinking about that this is telling us about some of the potential technologies?

Yes. I'll let Glen answer that. The upfront sort of disclaimer I want to give is, this is very hard to do, right, because these processes for one resource, a common resource you can make comparisons. So I can make a comparison between Greenbushes and the Atacama and do pluses and minuses. But if now I use another spodumene resource that is less concentrated in Greenbushes, as in Atacama, some of that skews. So they are generalized to be sure. Glen, you just want to comment on how you thought about it?

Yes. Yes. So there are higher fidelity models behind us in dollars and cents and tons that we are taking into account here. Particularly, I thought the question was specifically about clays, if I remember correctly. And the challenge there, and this is where even the lepidolite resources that were referenced there in China, they're particularly challenged with the amount of energy that it's taking to recover those materials and the water intensity, the fresh water intensity. So that's the basis for which you're seeing double to triple minuses relative to the reference state. So we're talking about things that -- in some instances, are at least 50%, if not 2x out of step with what we would say is world-class today. And that's -- there's regions that are willing to pay that deficiency and work it forward, but it becomes very limited, we think and the ability to scale those approaches. So there's opportunity, of course, for innovation and improvements. It's starting from a pretty challenged position because just by the nature of the clay materials, the amount of work, as we talked about before, the potential amount of chemistry that you have to do to get those 2 battery-grade products is a lot more heavy lifting than when you would compare it to a spodumene type resource.

And I guess maybe just because I can tell that sort of -- is during the [ pot ], can you translate the 50% to 2x? Are you speaking about like total CapEx, total OpEx or just the economics on the conversion cost? I guess people are wrestling with -- at what -- how can we extrapolate from the pluses and minuses to an indication of whether something is either difficult or prohibitively expensive that it wouldn't happen in -- except for in the wildest scenarios. I mean just what is the message that you're trying to calibrate here?

So I mean, I'll be honest, when we went -- and tell me if I'm wrong, Glen, but as we think about this and thought about preparing for today and putting our knowledge on a piece of paper like we have here, particularly once you get into those gray bars, the pilot and concept, we're generally thinking that model we refer to is an operating model. So we're thinking about operating expense, OpEx. We have some ideas on CapEx. But I'll be honest with you, I don't know that anybody has the full picture on CapEx because these -- as they are piloted processes, they've never been scaled. And one can only start to just, schematically on a piece of paper, say, given the amount of material handling, given the amount of energy, given the amount of water, this -- given the amount, if I need to do evaporation, given the size of the concentration, the amount of evaporation I have to do, I can ballpark that I think the capital intensity is at. But that -- we're not able to confidently come out to you and say that the clay process that's -- one of these clay processes is more capital-intensive than the other. We just don't have that degree of precision. But we feel stronger about the operating benefits. Is that -- or the operating relative comparison in there, is that fair, Glen?

Yes. I think that's exactly fair. And across the board here, most of these operations, in a classical sense, they're well established. So if it's -- we're talking about derivatives, deviations from maybe the upper part in the spodumene route, we can make pretty good confident comparison in contrast of alternative ways to this, like the nonsulfate routes, for example. We've looked at those. We've built pilots. We've tested those sort of technologies. So I think our confidence on this relative ranking is good. I understand that people would love to see the decimal points behind our analysis, once we kind of get into that fidelity, that's really kind of the bread and butter of why we are, who we are and how we are differentiated. So we're going to be a little bit protective of those sort of details. But the sentiment of the question, I think, is fair. And once you get into these areas where we've gone through and let's take a look at lithium yield, the conversion. That across the board is probably your most dominant factor. Your ability to get access to that lithium ion, how efficiently you're using that resource hits you on 2 sides. It hits you on how much work you have to do in that upfront concentration part. And if you don't do it very well, you got to work even harder up there. And downstream, similarly, if you're not good at getting good high efficiencies and recoveries in your conversion, it penalizes you on your variable costs of all your reagents. It penalizes you in terms of you need bigger equipment, now to process more nonlithium sort of coreagents and comaterials that you're carrying in along. And then you can imagine, just generally, if you're going to a process where you just have to work harder because the resource is lower quality. You pay the penalty in energy and fresh water. These are the areas where hypothetically or theoretically, there are hundreds of chemical pathways very few of them are commercially relevant. And I think that's really what's driving the basis of us trying to offer these points of comparison.

I can offer one example that a colleague of mine shared with me is -- and it reminded me again, earlier this morning, the assets we acquired in China, which are now part of our spodumene to hydroxide supply chain, were -- was a Chinese local company that was a converter with no resource. For many years until Talison became part of both Tianqi and Albemarle, that asset marketed in the merchant market, it's spodumene, 6%, as we know, spodumene, highest-grade quality in the world. That was provided to these sorts of converts, including the one that we ultimately acquired in China. When spodumene from Talison was no longer available because it was going to be used for the internal consumption purposes of its -- of its JV owners, many of these assets had to explore other alternatives. In many cases, they were looking at local Chinese for petalite, which they could run through the same process. They were not able to get the same concentration. It might have been half to 60% of the concentration of lithium oxide versus -- so 3% to 4% versus the 6% that they're getting. And that was the limits of the process at that point. As I understand, at least for that source of clay that they were buying at the time and their capacity was less than half, obviously, they derated the plan. So when you think about capital intensity then and you think about China being under $10,000, in some cases, close to $5,000 a metric ton of capital intensity, and now you run a lower grade through, you've doubled it, right? If you derate the capacity, to get the same capacity, you're going to -- you have to spend twice as much, right? So I mean, that's one way of thinking of the factors around resource quality and its impact on capital intensity.

What are the key determinants for conversion costs from spodumene to lithium hydroxide? I guess people have seen estimates from $1,500 to $3,000 per ton for different companies. What makes the difference? Or like -- are there 1 or 2 chokepoints? And also, what does the learning curve look like? Or -- and should that spread get wider or narrower over time?

So I think, as you know, there's a spread, I think part of it is scale and experience. So that is the learning curve you're referring to. So those that tend to have larger plants, 20,000-plus ton per annum plants that have operated for a while, you're going to tend to see them closer to the lower end of that range that you referenced, those that are operating plants that are small are at higher. So that's an obvious one. Beyond that, in terms of the process steps, it really comes down -- there's fundamentally 2 parts to the process that Glen has described here. There is what we call the front end and the back end, just informally. The front end is the thermal process to -- or I wish the product is run -- the 6% rock is passed through this kiln, hit with sulfuric acid and converted to lithium sulfate. There are a lot -- there's a lot of, believe it or not, know-how around how to do that well and how to do that better. Efficiencies of the kiln such that it's a very energy-intensive process. You might imagine to get a kiln up to 1,000 degrees. So if -- there are modification one can make for efficient use of energy. In our case, we've made those investments. We've also made investments in using natural gas instead of coal. So that gives us a sustainability edge in how we operate our plant in China as an example. So the things there and then on the back end, which is really the value-added tuning of converting first semichemical inversion from lithium sulfate to using caustic to get to lithium hydroxide. There's a lot of know-how and efficiency around the purification and crystallization. And for us, that's a lot of our proprietary know-how. That's an area where if you don't do it well, you have to recycle, you can get lower yields. That area can really start to drive up your costs. And so I think there's a real -- to your point, there's a real experience curve there that's important for sure. So does it get narrower? I mean look, my guess is, if I was a prognosticator, I would assume over a decade long period, this industry grows. There are a lot of young companies, new companies, projects coming in. There's a proliferation and a subsequent consolidation, right? That happens in every industry that I think that's ever gone through a maturation process. And those that end up being the leaders in the industry do go down that experience curve against that lower end because of their knowledge they've built in those respective areas I've just described.

And as the industry moves down the curve and becomes better asset extraction and conversion, can existing sites be retrofitted or are sites -- or is there going to be a natural drift of older sites moving up the curve relative to newer facility designs? How flexible is this industry going to be?

I don't know this is any different than any other chemical process, meaning that you're not going to -- kilns, as an example, a very expensive piece of equipment. You're not necessarily going to change out and build a whole new kiln at a plant. You will continually optimize the asset you have and debottleneck it. It's not unusual for -- in this industry or any other one that -- a market that -- business that Albemarle's involved in or any other one I've been involved in my experience to see over time, debottlenecking of 10% to 20%, to see over time, costs dropping 10% to 20%. And that's just the continuous improvement efforts of being able to run that asset better. But what you're doing when you learn -- you look for that continuous improvement, particularly in a growing industry like ours is incorporating the learnings there into the design of the next plant. So you will think of this much like you think of software, I think, a version 1.0, version 2.0, et cetera. The key is to get enough scale on each one of those versions as you build, so you can drive down the cost and the speed to get those assets to market. And that's a very big part of Albemarle's focus right now, is to build that horsepower.

So [indiscernible]

Go ahead.

But maybe just to add on to that. I realized that question and the preceding one, really, I think, tried to divorce the conversation around what's the quality of the resource from what it costs for downstream. And that's a fair question. But the thing that Eric addressed, and I wanted just to augment along is that it's what you have to do to get rid of all the things you don't want. We'd characterize resources most readily by how much lithium is there. The chemist and the geologists think about additionally, what else are you bringing in to it, the aluminum, the silicates, all the other contaminants. So those are factors that you got to address in that economic equation. And then I think -- I understand the nature of productivity improvements that we're going to continue to bring to the market and others are bringing those as well. The nature of mining, though, I think it's fair to say that you typically go after your highest-quality resources early. So then as you start reaching farther and farther into sort of, what I consider a merit stack, you start pulling in other perhaps lower-quality resources. So when you're trying to address the question that you're asking there, which is a great one. You have to also consider what you're feeding into your process over time likely is not going to be as good as what we have today. And this is part of our strategy really right now to secure those resources that are higher quality so that we can try to maintain that advantage.

So if you look at the sort of the lessons learned and the economics on clay resources in China, which are actively producing. What does that tell us about the framework for making U.S. resources economic? And I guess I'm getting questions on both sides. One is obviously, what would be the incentive environment for Albemarle to look at moving the U.S. up the stack? But also for somebody who doesn't have your quality resources as options, how do we evaluate kind of the incentive structure between China and the U.S.? And I think there's going to be a political discussion that comes next, so...

So yes. So Laurence, you asked it in clay, but you also asked it in terms of U.S., so I'll answer both angles of that question. But I'll start with, as we look at the world and we look at the U.S. and we look at the emerging trend for a lot of reasons, which politically we could discuss around localization of supply chains. What's important to note is that any one of the resources, we're talking about this in Chile or Australia, can have a localization component, right? We can bring the final asset closer to the customer. We can bring the last step into the country, right? We haven't done that to date, that's something we can think about. But we're also thinking about the resources we have. And if we were to bring a resource and when it is a part of our planning, so it's not a hypothetical, I think we'll plan to bring a resource. As the market grows and as the economics warrant, we would look at bringing Kings Mountain to the market. That is the best spodumene resource in North America. It has a concentration -- it has the highest concentration, so a little over 1.3% lithium oxide concentration. It's actually slightly higher, believe it or not, than Wodgina, not as large as Wodgina, not as in quite as a jurisdiction is quite as familiar with mining as Wodgina, and in a more densely populated area than Wodgina. So there's some other challenges on that spider diagram we talked about earlier that speak to that, but it is the most attractive resource. And we've spent tens of millions of dollars, in excess of $30 million over the past couple of years, going back and reconfirming all the information I've given to you. And it's, like I said, the best resource in North America. Now so to clays. For us, clays are a lower concentration resource. Nevada is a more mining-friendly jurisdiction, more accustomed to this and less populated. So in terms of the other things that are on that spider chart, there's some advantages there. And we know that operating Silver Peak in that part of the world. However, the key components here were size. Well, you saw there's a lot of it in the ground on that chart. It was on the right-hand -- lower right-hand side, but also grade, so low grade. So what we would be looking for, and this is part of our efforts in the industry, part of our -- we have collaborations that are confidential, I can't speak to, in the industry. We have technology efforts we're doing. We will look at whether know-how technology can overcome resource deficiency in this case, right? Now there's yet another factor that could come into play. If we extrapolate out to 3 terawatt hours for Tesla alone by 2030, you're going to need those -- quite a resource at that point. Now it will potentially -- not potentially, it will come at a lot higher cost. Therefore, selling prices will have to be a lot higher to support investment in it than they are today. Today's selling prices aren't even sufficient to support nearly all the resources that are in play already. So they're going to have to be -- as they're lower-quality resources, price will have to be significantly higher to support that. But the market migration of pricing, the -- if you will, said from a cost-curve standpoint, the higher marginal -- the movement of marginal cash cost even higher than $6 to $7 we say it is today, will be necessary to bring that supply into the market, barring technology innovation. So we're very focused on that as well. And I think you know that from their pronouncement, Tesla is doing the same. They view that technology as being the key there. So more work to go, conceptual at this point, a lot to be proven. We're very engaged in that pursuit.

So if we look at sort of the legacy pricing dynamics and then the incentive pricing that you think is needed for the industry to invest going forward, has the incentive -- level of incentive pricing changed? And if so, why?

Well, it's changed in the past 10 years.

Because compared to the last 4, 5 years, what we saw in the most recent kind of [indiscernible] project? I mean like coming out of the crisis in the new environment, is the incentive pricing level needed for new projects? Is that moving higher or lower?

It's moving higher because it's not going to be a spike, right? It's going to come in stages. We have only a fraction of Talison we're operating, right? So the next -- we double, triple the size of Talison. We're doing that at the same sort of cost curve we were before, the same sort of returns we were for Albemarle. A lot of the new projects that are required to support growth in this industry are going to be at a higher cost. So as a result, it's gradually increasing. As they become necessities, projects come to market and can economically compete either because they're able to get -- to prove out their technology or because pricing has come up to a point that they're now economic, then the return thresholds are going to go up from there, right? So it's gradually increasing. Because in the end, going back to your efficiency point, everybody can make improvements in their processing costs. But in the end, the cost curve is driven by that resource grade, right, in the end, it's the resource cost. So as a result, as you bring on higher cost resources, like clays, the incentive -- the price for economic incentive to expand is going up.

And then how does that sort of perspective, then also factor in vertical integration by the OEMs? I mean, several have discussed it, I mean, Tesla has obviously been noisiest about it.

Yes.

Obviously, then they sort of cut out the sort of profit margin component on the conversion steps.

That's right.

How do you think about what that does to the cost stack and how feasible -- how does the industry adapt? Or does that just mean you delay projects? How do you adapt to that?

That's -- I mean, it all -- obviously all depends on the extent to which that comes to pass. There aren't many examples in sort of the chemical industrial world where backward integration has been sustained. It's often been a part of a business, but it hasn't been sustained, I think about markets I've been in like coatings, where there was a point in time where Sherwin-Williams and many other companies may have been backward integrated, but have since given that up to focus on their core business. So it's hard for me to imagine it's pervasive, that, that trend becomes pervasive. I can understand wanting to do it to secure supply. I can understand wanting to do it because you don't feel there's enough coming to market or you feel it's going to give you a competitive advantage. But you're right. I mean it does erase the margin. So it doesn't change the cash cost of production or marginal cash cost of production. But it obviously -- now as Tesla doing it is going to look at their entire profit in the channel to justify return on entire investment as opposed to the return that -- with the way we look at it, which is the difference between our cost and our selling price today, right? So that's obvious. I don't know if I'm fully answering your question the way you want, Laurence, but that's how I think about it.

And so when you think about Slide 9, I guess Slide 9 really did stir people -- it's just a good slide. The economics were tied to, did you just use some sort of -- is this kind of perspective tied to conventional electricity prices or a normalized electricity price? Or did you also try and adjust for difference in electricity prices in regions in different scenarios?

Well, as I said, these are generalized numbers. So Glen, do you want to comment?

[indiscernible] electricity price is fair.

The ones we're offering in this table are certainly more industry average. For example, when we're looking at alternative advanced ways potentially to consider how we want to process our brines, for example, in the Atacama, we certainly would consider the local cost of electricity. The thing I would point out, though, when we're talking about energy, electricity is certainly a component. And that's, as you mentioned, if you're running a pump or another process -- it depends on electrons. But really a larger component of your energy, many times, it's heat, as we talked about, the need to heat or to open up your resource to get access to the materials. So it's more than just electricity. So some instances, it's about your cost of natural gas. And certainly, that's -- you can factor that into your analysis, and you should, depending on which region of the world you're considering.

Can you give a perspective on brine extraction in the U.S.? I believe you've looked at that before. And also an update on the new brine extraction technology that you were looking at rolling out in Argentina? And could that be applied in the U.S.? Or is this a different technology path?

Well, let me -- I'm not clear about your second -- let me answer the first question first, and then we'll come to clarify, so I want to make sure we answer what you're asking. On the first question, this goes back before Albemarle owned Rockwood, Albemarle spent a lot of time and effort looking at the smackover brines. And so I assume that's what you're referring to as opposed to Silver Peak, right, geothermal or oilfield brines. I think the challenge there comes to one of chemistry. It's kind of like clays. You can say there's an abundance of lithium there, but that isn't the whole answer. That's only one note on that spider diagram. In some cases, the concentration is not -- the ppm level concentration is not far off of some of all those resources that were clustered on the left corner -- or sort of the left-hand side of that chart, we had a bunch of Argentina names, for instance. In some cases, concentrations can be reasonable. The challenge is that it varies. It can be variable. The level of concentration can be variable. And the further challenge is the presence of all these impurities, which are significant in the case of oilfield brine. So that -- again, it's possible with chemistry and technological innovation and a selling price that supports that kind of investment that it could make sense. But to date, relative to all the other things we're looking at, we would prioritize that, and we have access, right, because we operate our bromine business in those brines. We have prioritized that down the list for those reasons. Glen, would you add anything?

Yes, I'd just add this. In the area of technology, this is a space where we actually -- we have a dedicated team who does technology reconnaissance and intelligence. And we get our hands dirty with this technology. We develop pilots, we use that to inform our models. I think the right question that perhaps you're asking there is, what would need to be true in terms of enhancements of these technologies, whether it's an absorption technology or a solvent extraction or a membrane technology, what would need -- what levels of performance would you need to achieve before that we would find relevance in the merit stack. And this is something that we consider when we're looking at our forecast out to the 10-year horizon beyond, and if anything we can do to break through those levels of performance sooner, I think we're in a good position to bring that technology into the portfolio.

And Eric, I think you mentioned earlier on sort of actively looking for sort of step changes to reduce the conversion economics. What's your sense of the probabilities on a 5- or 10-year horizon that the industry or the other chemical providers -- chemical companies working with the industry could deliver something that would be a dislocation rather than just an incremental move down the learning curve?

I think they're relatively low. I mean I think in the next 5 to 10, maybe 7 years, just to pick a number, there's going to be this notion of what we described earlier of Albemarle and Albemarle's competitors who have the know-how and scale to do so driving down that cost curve, right, getting better, more efficient. You mentioned a range of $1.50 to $1.30 -- or excuse me, $1.50 to $3 a range, driving that average further down. So it's going to be more incremental. There are, and Glen could comment on it, there are some technologies that if proven effective, could be disruptive and enabling, on the other hand as well for resource. Electrodialysis is one, right? It's what Nemaska attempted and has not succeeded at, both as a technology and in their case, as a company. And however, it doesn't mean it's not a viable -- a potentially viable technology. There's a lot of work to be done there. Membranes are sensitive things to work with. We've had some discussions about that recently. And so Glen, I don't know if you'd add anything.

No, I think you nailed it. I think those are the key truths.

And then I guess then the last one that came in is, can you give some perspective on where mica or mica might fit on the cost curve and the prospects of lithium projects in either Europe or Africa sort of becoming material on the 10 to 20-year horizon?

If I am not mistaken, I don't have the data in front of me. I know you sent a link and I was preparing last night on mica, and I clicked on it and Albemarle wouldn't let me access the site. So I probably used and tried it on my own iPad, but -- so I apologize. It was during while I was watching the debate. So I was trying to multitask. But my recollection, so we'll treat it from recollection for moment. I don't know if Glen has anything to add, is that those are still below 1% lithium oxide concentrations. So you're bound by the same challenges, right? I've got to process a lot more mica. I'm going to have a lot more mica byproducts when I get to the lithium. So material handling is a lot larger. I will have to profess, I am not familiar, although people in our organization are, with the mining so that front end that we talk about, how heavy that is, the difference between -- because we talk about rock, it's probably being quite heavy in that regard, right? There's dynamite that's used, right, then there's drilling. And then there's big heavy equipment and clay is softer, easier to get to. Mike, I don't know where it falls in that spectrum, maybe it's somewhere in between. Glen, do you have any further knowledge?

Yes. I think you got it. It's really -- it's probably somewhere in between a spodumene and a clay when it comes to hardness. So -- and there's many forms of mica, so it's even hard to generalize that, but you can look at the hardness and you see -- so you're going to have to do a little bit more work just mechanically to get it out of the ground more likely. You have to think about how contiguous the resource itself is. But then the downstream conversation remains the same as you still got to find a way to open up those particles, the crystal structure, the amenability of that to either using acids or temperature or mechanical means of opening up those materials is the same conversation that we're having just generally on clays and generally on hard rock.

And I guess then just lastly because you mentioned the debate, some questions that came in around the political landscape. And I guess I'm curious on -- maybe if we narrow it down to 2 topics. One is, are there regulatory hurdles for project developments in the U.S. that need to be clarified or resolved? And where do you see -- do you anticipate movement on direct subsidies for lithium projects in the U.S.? Or is it -- or should -- is it more just the indirect support for the EV industry?

We'll have to see on the last one. On the -- I'm sorry, the first one was...

Are the regulatory hurdles or...

Yes. I would say that what our experience here is to date is -- here being North Carolina, as I sit here -- is that it varies by state, right? So I think there's some opportunities to improve in jurisdictions at states that haven't been involved with mining to streamline the process, for sure. The timelines can be extremely long. And they are for good reasons to protect the environment, but I'm not unconvinced there's opportunity to improve efficiencies, right? To still get the right environmental outcomes and conclusions, but get faster time to market. As we all know, this curve happens like we believe it will, getting resources to market is going to be key, and you can't tolerate 3- to 4-year waits for a permit, right? So I think that's a big area. We haven't seen to date in the U.S., certainly, it might be more possible in Europe direct subsidy support for our projects. There are quite a few grants we've gotten from DOE, DOD, various other sort of organizations' part of that, to focus on technology routes, some of them -- focus on electrodialysis, for example, is one of those routes. We have a grant there. So my hunch is it's going to be more indirect subsidies, but they're in both continents, both the North America -- the U.S. as a country and then in the continent of Europe and the EU, there's a very big focus on strategic minerals, critical raw materials. We'll have to see where that goes. And I think, clearly, there will be different incentives depending on who our next president is.

Great. I think on that note, we'll see how things unfold over the next few months. Thank you, everyone, very much for participating. Thanks for all the questions. Thank you, Eric and Glen for doing this today. If there's any follow-ups, please either ping me or Meredith and we can help you sort through this.

Thank you all very much. Have a safe day.