Some of the people paying closest attention to the birth of a lithium industry in south Arkansas are the landowners with mineral rights leased out for their underground brine.
When will they get royalties for the lithium extracted from the saltwater pumped up on their acres, and how much money will those royalties bring?
The quick answer is we won’t know for a while, but we have some hints.
Standard Lithium Ltd. and Lanxess AG are moving ahead with plans to build a $365 million commercial lithium production facility near El Dorado, and they have proposed preliminary lithium royalty rates for the landowners. The companies expect the plant to produce 5,400 tons of battery-quality lithium carbonate a year.
Standard, of Vancouver, British Columbia, has been extracting lithium at pilot facilities at the Lanxess South brine plant in Union County for three years, but no lithium from the testing phase has been sold, according to a July 23 letter from company lawyers to the Arkansas Oil & Gas Commission. The commission will set a lithium royalty eventually, and is holding a hearing tomorrow to consider the companies’ request for a continuance on the royalty issue until December.
Standard and Lanxess expect to start construction on the Union County project next year, but commercial production won’t begin until 2026.
Lanxess, of Cologne, Germany, has been producing bromine from Smackover Formation brines for years, and paying landowners a royalty of $56 per acre per year. But lithium royalties will be based on tonnage of lithium carbonate, and the El Dorado facility looks to produce some 5,400 tons a year for at least 25 years. Its feasibility study reflects a long-term price estimate of $30,000 per ton.
Standard is planning a bigger $1.27 billion commercial lithium plant west of Magnolia and announced earlier this month that it bought a 118-acre parcel in Lafayette County as a possible site for it. The plant could create as much as 30,000 tons of lithium chemicals per year. But for now, let’s leave that aside.
O&GC Director Lawrence E. Bengal told Arkansas Business that although the letter from lawyer Robert M. Honea of the Hardin Jesson & Terry firm of Fort Smith includes proposed royalties, “that proposed royalty amount has not yet been approved or established” by his commission. “As you know, there are now other companies evaluating the area and have also announced proposed development plans,” Bengal said.
Those ventures, by Exxon Mobil Corp., Tetra Technologies Inc., Albemarle Corp. and others, could affect the royalty calculation.
“The continuation of the Standard Lithium royalty determination hearing does not reflect on the feasibility of the project but more on the development of necessary information to present to the commission,” Bengal said.
Honea’s letter said that Lanxess and Arkansas Lithium Corp., a wholly owned subsidiary of Standard, propose a royalty to be based on the price the companies receive from third-party purchasers.
For lithium carbonate sold at $30,000 per metric ton, the royalty would be $400 per ton. Prices up to $40,000 would bring $450 a ton, on up to a $900 royalty for prices above $60,000 per ton.
“The applicants request that the royalty established by the AOGC to be payable quarterly,” Honea’s letter says, based on the quarterly average gross sales price of lithium carbonate.
The companies are also asking for the Oil & Gas Commission to make any order apply to the Union County project “in recognition of the fact that the economics underlying” a fair royalty rate “will vary from one brine producing unit to another.”
In other words, royalties could most likely differ for landowners involved in the Union County and Lafayette County projects.