Sigma Lithium ‘pacing, not racing’ growth in current market environment | Hotter Commodities

Cabral told Fastmarkets in a recent interview that, in contrast to when the company first commissioned production at its Grota do Cirilo operation in Brazil, it has opted to slow down and sequence the next two phases of growth.

“It’s totally different to 2022, when we were racing to capture the bull market before it disappeared. We’re no longer in a rush, given current lithium prices. So, we’re pacing, not racing,” Cabral said.

This means the company is not deploying acceleration capital expenditure (capex) and will initiate Phase 2 production in a 12-15 month timeframe, instead of around nine months, she noted.

Phase 2 and 3 material can be processed in a similar way as Phase 1, so if things improve, the company has budgeted for accelerated growth once again, Cabral added.

“We’re just going to phase into the cycle – if the cycle warrants, we will race; if the cycle doesn’t warrant it, we will phase. This means we’re always going to be building – we haven’t stopped in any way, but the approach to construction is different,” she added.

Grota do Cirilo was developed at an impressively fast speed compared with other projects, something that Cabral attributed to Sigma’s push to change the mindset of how the lithium sector was viewed.

“Everywhere we went, we would say, the mining industry works on geological time, and we need to change the paradigm to technology time. Somewhere between the mine and a car sits a tech company, and that’s a battery maker; they are constantly reinventing, disrupting and innovating,” she told Fastmarkets.

“We needed a change of paradigm and culture, because if we were going to set out to develop a leading lithium champion, we needed to think like and react at the speed of our client,” she said.

“If you tell a tech firm that the approval process to production takes 13 years, guess what? They probably won’t be using lithium anymore. I think the whole supply chain has now fully grasped what it means to have an end user in the technology industry,” she added.

The result was a project that moved from definitive feasibility study in 2019 to commercial production in April 2023. That compares with an estimated average of eight to nine years for a typical hard rock lithium project.

Grota do Cirilo

The project, located in the state of Minas Gerais, includes a Greentech plant producing 270,000 tonnes per year of zero-carbon lithium, or around 37,000 tpy of lithium carbon equivalent (LCE). It is the fourth-largest operating hard rock industrial mineral complex in the world behind Greenbushes, Pilgangoora and Wodgina, and the first of its kind outside Australia, Cabral said.

While speed was a competitive advantage, Cabral said the key is to assure that project development does not come at the expense of sustainability, governance and other key metrics. Instead of promoting a race to the bottom, Sigma’s goal is to create a race to the top, Cabral said, setting a high bar for standards and investing accordingly.

As a result, the project uses 100% hydropower electricity, recycles all water it consumes and uses no harmful chemicals. It also dry stacks its tailings from the production process instead of using a tailings dam.

“Your social license today is your operating license tomorrow. There’s only one binary risk in this industry that takes my sleep away,” Cabral said. “We have to do all of it at a very low cost, because otherwise we’re out of the game, because we’re competing with best in breed, including China, on industrial prowess,” she added.

Phase 2 will nearly double capacity to 520,000 tonnes of concentrate via the expansion of the Greentech plant; this will mean the company will be producing around 70,000-80,000 tonnes of LCE in 2025. After this, Phase 3 will boost Sigma’s production rate to 766,000 tpy of concentrate, or 104,200 tpy of LCE.

“The vision for the industrial complex is to live to the full potential of the integrated assets, which is100,000 tonnes of LCE for the duration of 30 years,” Cabral noted.

Eventually, Cabral said, the company has ambitions to move further downstream, into the intermediate chemicals segment of the lithium supply chain.

“Once I have the two lines, the next natural step will be to effectively become our own demand; we’ll take some of our lithium production and feed it into ourselves,” she added.

The company has studied the supply chain and remains confident it can achieve efficiency in this stage, because it has the advantage of a zero-waste product and experience in recycling.

“When you think about chemicals, part of what you transport is waste. China dominates the refined industry because it is formidable in waste management,” Cabral noted. “We can deliver a zero-waste, zero-carbon chemical intermediate product, and we can make Brazil the axis of a global chemical-to-chemical, sustainable, low-carbon supply chain, and ship it globally,” she added.

Premiumization

While green premiums look like an unlikely prospect for lithium miners, Cabral believes that there are ways to be rewarded for superior product. It is a strategy the company has adopted with its customers, and, she noted, it is finally working.

“We deliver a high-quality product with coarse crystals over 5.5mm, which improve efficiency and performance for refiners during calcination. In doing so, we are able to transfer savings to the customer or to the supply chain – there’s 20-30% less money spent on materials if the customer purchases Sigma material versus its peers,” she said.

The company spent around six months from the start of production establishing the Sigma brand, all the while asking its customers to run the product through their refining plants and measure the performance compared with other producers.

“You would need seven tonnes of the Sigma product versus nine to ten tonnes of the competing product to achieve the same result. We asked customers to split the resulting savings,” she told Fastmarkets.

As time went on, Sigma became very assertive, Cabral noted, even declining to sell unless companies split the savings in some shape or form. The strategy has paid off: Cabral said that in a good sale, Sigma now receives around one-third of the customers’ savings.

Traceability through the supply chain is central to demonstrating the sustainability credentials of a product, Cabral added.

For its part, Sigma commissioned a full life-cycle analysis in 2019.

“Let’s put a floor on this race to the bottom, because that’s what’s going on in the race to achieve lower cost. The industry is sometimes going anywhere for low-cost product, even if it is at the expense of its own reputation,” Cabral said.

“The industry has a very short memory and forgets that just as recently as 2017 and 2018, cobalt was innovated out of the battery supply chain because no one could enforce the traceability on human rights and child labor in the Democratic Republic of Congo,” she told Fastmarkets.

Industry consolidation

While Sigma has no plans to get involved in the current spate of industry consolidation, the company is a big supporter of growth in the Brazilian lithium sector, Cabral said.

“I’ve been very public about not consolidating here, and instead welcoming anybody who wants to come, because the objective is to have critical mass in Brazil,” she noted.

Cabral welcomed the addition of Pilbara Minerals to Brazil’s “Lithium Valley,” referring to its planned $370 million acquisition of Latin Resources.

“Having two producing anchor companies on the scale of Pilbara and Sigma in Brazil makes it a really consolidated, mature territory. When it was previously just Sigma, Brazil was seen as a one-off in lithium,” she added.

Cabral meanwhile noted that there was potential for the current softness in lithium prices to create a series of corporate casualties akin to those seen in 2019, adding that it depended on how long the downturn lasted.

“The 2019 downturn was exacerbated by Covid in 2020 – there were a lot of bailouts and rescues and shotgun marriages, a lot of corpses in that cycle. People forget,” she told Fastmarkets.

“We want our peers to succeed, because it’s too nascent an industry to ever wish for competitors’ death – it contaminates the entire sector,” she said.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.