KEY POINTS
- Arkansas lithium projects face a royalty dispute between landowners and companies.
- A massive lithium resource has been discovered in the Smackover Formation.
- Direct lithium extraction technology offers faster production but comes with higher costs.
Lithium prospecting has exploded in Arkansas, with big players like ExxonMobil and Albemarle at the forefront.
A new dispute over royalty rates has surfaced as the state sees a boom in lithium finds. Landowners are advocating for a far higher royalty rate of 12.5 percent, while companies have suggested 1.82 percent.
Dispute over royalty rates
On November 4, these businesses will submit an application to the Arkansas Oil and Gas Commission, which will then decide on the ultimate royalty rate.
Greg Jones, a mining analyst at BMO Capital Markets, pointed out that project cash flows would be significantly strained by the landowners’ suggested 12.5 percent rate. Jones thinks that the growth of Arkansas’s lithium industry would be better supported by a more balanced rate, like 2.5 percent.
Landowners are represented by the South Arkansas Minerals Association, which contends that businesses have not offered enough financial information to support their reduced offer.
The commission is charged with making sure that a fair decision is made, and both parties are looking to state law for advice on how to determine a reasonable rate.
Significant lithium resource discovered
In the center of the controversy over royalties, officials of the AR and the US Geological Survey reported large amounts of lithium in Smackover Formation.
The resources are located in porous limestone that has formed part of an ancient seabed and is estimated to hold between 5 million and 19 million tonnes of lithium.
According to Mining.com, this discovery extends beyond Arkansas into nearby states and has the potential to meet worldwide need.
Among the major companies working on projects in the area are Standard Lithium and its partner Equinor. With plans for further funding, their South West Arkansas project is progressing toward a conclusive feasibility study.
As part of the Biden administration’s effort for essential mineral sourcing, the U.S. Department of Energy is also thinking about awarding a $225 million grant to help the project.
Emerging technology in lithium extraction
Direct lithium extraction (DLE) technology, which enables quicker production periods than conventional methods, is being used by Arkansas and other places.
In order to supply enough lithium for one million electric vehicles by 2030, ExxonMobil intends to start producing lithium by 2027 and is now drilling exploratory wells in the Smackover Formation.
The new lithium industry of Arkansas and the royalty issue also prove that the state plays an important role in the shift in energy.
However, to meet the growing demand for the metals used in batteries, the industry will have to surmount the two challenges of finance and the environment.
