New World Resource banks on Bolivian brine

New World Resource (NW-V) is betting that future demand for hybrid electric vehicles and portable electronic devices like laptops, cell phones and blackberries will drive profits for its newly acquired lithium-brine project in Bolivia.

The Canadian junior is taking a 99% stake in the lithium-potash Pastos Grandes brine project in southern Bolivia’s Altiplano (Spanish for high plain), a vast plateau containing more than 200 alkaline and saline lakes and salt flats.

Demand for lithium-ion batteries is projected to continue significantly as the lightweight batteries have become fixtures in a number of new battery driven industrial applications, New World says.

“The great choice going forward from a battery is nickel cadmium versus lithium-ion and I think a lot of people believe that lithium-ion is proving to be the better technology,” says Don Flahiff, New World’s Vancouver-based head of investor relations.

“There’s been a bit of buzz about lithium,” he adds. “People are always trying to be ahead of the next big curve on opportunities out there. They are tough assets to find. But there appears to be quite a pool of private money trying to position itself within the lithium market.”

Electric vehicles, cell phones and handheld computers are just a few examples of the rapidly growing industry uses for the power generating capability of lithium.

Virtually all of the world’s brine-produced-lithium comes from Chile and Argentina, within the Altiplano basin.

The Altiplano was originally covered by an immense lake, called Ballivian, at the end of the Pleistocene period. Today the remnants of that lake include Lake Titicaca, straddling Bolivia’s border with Peru, and Poopo, a saline lake extending south of Oruro in Bolivia.

New World’s Pastos Grandes property sits 4,000 metres up in southern Bolivia’s Altiplano region, which is also home to Salar de Uyuni, one of the biggest dry salt flats in the world.

Many foreign companiesespecially from Japanhave tried unsuccessfully to set up joint venture projects with the Bolivian government on Salar de Uyuni, Flahiff notes.

“Salar Uyuni has been deemed a fiscal reserve for a very long time,” he explains. “They have been completely uninterested in any joint venture and are now undertaking a $5.5 million pilot plant there.”

But Flahiff adds the Altiplano is a vast area and Pastos Grandes is an excellent property containing a thick sequence of sediments with a shallow water table. Its previous owner, Gonzaolo Miranda Salles, previously harvested salt on the property.

Pastos Grandes has an alkaline make-up (sodium-calcium-sulfate-chlorine) with high concentrations of lithium, potassium and boron. Minerals identified in the crust include halite, gypsum, clay, ulexite and calcite.

Flahiff says New World likes the fact that the project involves processing lithium from brine as opposed to from pegmatites in hard rock, which requires more costly infrastructure and more energy. Grinding, crushing and a flotation circuit are required for hard rock mining, followed by a sulfuric acid process and then the addition of sodium carbonate

In exploiting the brines, which occur in closed basins in high evaporation environments, the brine is pumped into a series of evaporation ponds, which concentrates the lithium chloride, from which lithium carbonate is precipitated by the addition of soda ash. By-products include potash and or boron.

Historical sampling from Pastos Grandes returned grades of 0.16% lithium. According to New World, major brine deposits worldwide generally have lithium grades ranging from 0.015% to 0.125%.

Major companies involved in lithium production include Sociedad Quimica y Minera de Chile (SQM-N) and FMC Corp. (FMC-N) in Argentina. “They are very large market cap companies and have very successful operations in Chile and Argentina,” Flahiff points out. “And there are a bunch of smaller cap companies out of Australia that are trying to do the same thing.”

Under the terms of the acquisition, New World will pay the previous owner of the concession US$446,000 over five years, US$10,000 of which is due upon execution of the agreement. Upon completion of the payments, New World Bolivia will have a 99% interest in the project.

The remaining 1% interest in the project will be held by Gonzalo Miranda Salles as a free carried interest, although Gonzalo Miranda Salles’s share of the net proceeds from production may be purchased by New World Bolivia at any time for US$250,000.

New World Bolivia will be the sole manager and operator of the project, and will be responsible for all exploration and development costs. New World Bolivia will be entitled to recover all costs before it distributes any proceeds from production.

Pastos Grande isn’t New World’s first investment in this landlocked South American country and it won’t be its last. Flahiff says New World is looking at other properties in the Altiplano and already owns a copper-gold property in southwestern Bolivia called the Lipena project.

While debates over resource ownership have permeated Bolivian politics for many years and the country elected a populist, left-wing president, Evo Morales, in December 2005, who quickly renegotiated outdated energy contracts with foreign oil companies, New World says political risk, while it exists, has been vastly overestimated.

“Nationalizing is a different term to us than it is to South Americans,” Flahiff explains. “In the oil and gas sector, they went back to the companies and said we need a different split on this but it’s not taking back 100% or nationalizing and confiscating the rights of companies there.”

Morales used the revenues from the renegotiated contracts to raise teachers’ salaries by 10% in a country that ranks as the poorest on the continent. (Upon taking office, he also cut the presidential salary in half, declaring that he would use the balance to hire more schoolteachers.)

“There is political risk, there is no doubt, with something like ninety presidents in the last 100 years,” he says. “Politics can change quickly in this part of the world but for the most part mining is ongoing and it does appear to be business as usual.”

As proof, he points to India’s third-largest steel maker, Jindal Steel and Power, which signed a US$2.5 billion contract to develop the El Mutun iron-ore deposit just six months after Morales was sworn into office. El Mutan is believed to be one of the world’s largest iron ore deposits.

And to further prove his point, he cites major companies active in the country such as Newmont Mining (NMC-T, NEM-N), Coeur D’Alene Mines (CDM-T, CDE-N), Apex Silver Mines (SIL-X) and Pan American Silver (PAA-T, PAAS-Q)all of which have spent a considerable amount of time and money there.

Apex shipped its first concentrate from San Cristobal, one of the world’s largest silver-zinc-lead development projects, in November 2007.San Cristobal in the Potosi district of southwestern Bolivia, hosts about 450 million oz. silver and 8 billion lbs. zinc and 3 billion lbs. lead contained in 231 million tonnes of open-pittable proven and probable reserves.

Coeur D’Alene recently began operations at its new San Bartolome mine, the largest pure silver mine in the world. Production there is expected to produce 3.2 million oz. silver this year and 9 million oz. silver in 2009, with an expected 14-year mine life.

“Coeur D’Alene is ramping up operations there and is looking at other things in the country,” Flahiff says. “Newmont has had a presence there and they are actively looking for other projects. They’ve knocked on our door and others.”

Says Flahiff: “Companies don’t make massive investments in countries they think will expropriate assets,” Flahiff argues

In Toronto New World Resource is trading at 37 a share and has a 52-week trading range of 25.5-60 per share.