Aussie lithium miners tapped out; who else is there?

As a general rule, the most successful man in life is the man who has the best information




Battery and automakers hoping to lock up a supply of lithium for electric vehicle batteries should probably forget about looking Down Under.


That’s because nearly all the lithium the country produces, and will produce for quite a while, has been spoken for. This is quite an impressive statement to make, considering that Australia is the world’s number one lithium miner.


According to the latest data from the USGS (United States Geological Survey), Australia cranked out 18,700 tonnes of lithium in 2017, with Chile coming close at 14,100 tonnes. Argentina was a distant third at 5,500 tonnes. The global market for lithium carbonate equivalent (LCE), as the mined product is measured, was 284,839 tonnes last year. 




Up until a few years ago there wasn’t much buyers’ competition for lithium, since it was a relatively small market that supplied lithium ion batteries for electronics and power tools, mostly. Since the electric vehicle began to penetrate the internal combustion engine (ICE) car market, however, lithium has become THE commodity to secure.


Reuters reports that Ganfeng Lithium - China’s top lithium producer - Albemarle, the world’s largest lithium miner, and luxury EV carmaker Tesla have all grabbed Australian lithium supply this past year, by signing offtake agreements with lithium mining companies producing in Australia.


But they’re far from alone. All six lithium mines in Australia already know who their current and future customers will be. Here’s a rundown:


  •  Greenbushes, the largest hard rock (spodumene) lithium mine in the world, apportions its lithium concentrate to its equity shareholders, Albemarle and Tianqi Lithium.
  • Galaxy Resources’ Mount Cattlin mine has sold the next five years of production, through Mitsubishi Corp.
  • Mount Holland, a future lithium mine being developed by Kidman Resources and Chilean state lithium miner SQM, has committed between 70 and 80% of its spodumene, a lithium source mineral, to offtake agreements, including with Tesla and Mitsui & Co., who will buy lithium hydroxide incorporated into lithium ion batteries for EVs.
  • The Mount Marion Mine owned jointly between Australia’s Mineral Resources and Ganfeng Lithium, has an offtake with Ganfeng. Neometals, which plans to sell its minority stake in the mine, has an option to buy 57,000 tonnes of spodumene concentrate a year, starting in 2020.
  • Bald Hill, owned by Alliance Mineral Assets, has committed half its production to a Chinese chemicals company. It plans to announce the customers for its other half in coming weeks.
  • Wodgina Lithium, a proposed joint venture between Mineral Resources and Albemarle, in November agreed to acquire a 50% stake in the project for $1.5 billion. All 750,000 tonnes of spodumene concentrate production is expected to be sold by Albemarle.


Automakers ‘all in’ to EVs


The lock down on Australian production is an indication of just how tight the supply of lithium is becoming, as battery makers and automobile manufacturers scramble to ensure they have enough supply of the silvery-white metal.


In North America, electric vehicles are still a niche market, with Tesla’s currently too expensive for the average consumer to afford, and a lack of charging infrastructure failing to provide an incentive for consumers to switch. Globally it’s a different story. The International Energy Agency is predicting 24% growth in EVs every year until 2030. The global fleet is expected to triple by 2020, from 3.7 million in 2017 to 13 million in 2020, according to the IEA. Bloomberg New Energy Finance notes that sales of EVs are accelerating quickly. It took five years (2010 to 2015) to hit one million electric vehicles, 17 months from 1 million to 2 million, and six months to move from 3 to 4 million. The 5th million is expected to be hit in March of this year.




All these EVs will need lithium-ion batteries with their metallic components - lithium, cobalt, nickel - not to mention copper and rare earths for other parts of the vehicles. (the rare earths neodymium and prasedymium are used in permanent magnets)


A recent Reuters analysis shows that automakers are planning on spending a combined $300 billion on electrification in the next decade - of which $135 billion will be spent in China. Over half of global electric vehicle sales were in China in 2017.


The most ambitious is Volkswagen, which alone is budgeting $94 billion on EVs, autonomous vehicles and battery procurement. Volkswagen has already bought the batteries needed to make 50 million EVs! (current global EV sales are around 4 million)


The German car-maker has said it will invest $800 million to construct a new electric vehicle – likely an SUV - at its plant in Chattanooga, Tennessee, starting in 2022.


GM is planning to sell its first EV this year, a 2020 Cadillac SUV, built in Spring Hill, Tennessee, in a move designed to challenge Tesla.


Battery growth phenomenal


Meanwhile more battery factories are being built, driven by the demand for lithium ion batteries which is forecast to grow at a CAGR of over 13% by 2023.


In December Korean company SK Innovation said it will invest US$1.6 billion in the first electric vehicle battery plant in the United States, and is considering plowing an additional $5 billion into the project, planned for Jackson County, Georgia.


For more about SK Innovation’s plans in the southeastern United States, and the beginnings of a mine to EV supply chain, read our SK Innovation mulling another $5B for America’s first EV battery plant and Volkswagen to drag Tesla, making EVs in Tennessee.


In South Korea, the three battery makers - LG Chem, SDI and SK Innovation - can barely keep up with the demand. Last year the trio sold around $97 billion worth of EV batteries and they have a backlog of orders worth $154 billion. In 2018 SK Innovation had over 10 times the backlog it had in 2016, 320 gigawatt-hours versus 30 GWh.


A recent article in The Korea Herald states that the battery industry, growing at an annual 40-50%, is, shockingly, forecast to outperform computer microchips (semiconductors), a major Korean export commodity.


Globally, the number of battery mega-factories being built is astounding. While five years ago three were planned, there are currently 26 either in production or due to expand their capacity, according to Benchmark Mineral Intelligence. This would triple global supply from around 100 GWh in 2017 to 344.5 GWh.


Supply problems


The average EV uses about four kilograms (nine pounds) of lithium. Where is all the lithium for these batteries going to come from? As we have just proven, almost 100% of Australia’s lithium production is reserved, locked up in offtake agreements. The next three on the list - China, Chile and Argentina - are all facing supply problems, as we shall see below.


According to a recent USGS report, there are 14 million tonnes of proven lithium reserves worldwide. Chile has the most, at 7.5 million tonnes. Quoting a post-doctoral researcher in the UK, Digital Journal states that, based on the 4 kg of lithium per EV requirement, 250,000 tonnes of lithium will be needed annually. Total mine production in 2017 was just 35,000 tonnes. At this rate, the 14 million tons of lithium reserves would be depleted in about 51 years.


Yet some say there’s plenty of lithium, in fact there’s going to be a tsunami of lithium coming from all the new mines. These people are wrong, for a number of reasons. Let’s start with South America.


Chile, the second largest producer, has problems with water. The value of Chile’s exports of lithium carbonate were 38% higher in 2018 than 2017, but it is doubtful the country will hit those numbers again this year unless it can resolve its differences with the two largest lithium miners active there: state-owned SQM and US-based Albemarle.


The number one and two lithium giants for years have blamed each other for over-exploiting their water rights in the Salar de Atacama, where they operate just 12 miles apart. The Chilean government, fearing a water shortage, last summer put restrictions on water use in the salar.


Argentina is considered to be a risky place for mining companies to do business. Despite the end of 12 years of leftist rule, a shaky economy and a lack of regulatory clarity has meant the mining industry and its investors are hesitant. Also, lithium grades in Argentina are low, around 600 milligrams a liter, compared to Chile’s Salar de Atacama - the main production area - which average 863 mg/l.


How about Bolivia, the third side of the “lithium triangle” stretched across Chile, Argentina and Bolivia? Lithium contained in Bolivian salars are higher in altitude, not as dry, and contain more magnesium (Mg) and potassium than in neighboring Chile, making the extraction process much more complicated, and costly.


Uyuni’s higher rainfall and cooler climate mean that its evaporation rate is not even half that of Chile’s Salar de Atacama, which is ideal for lithium mining because the lithium-containing brine ponds evaporate quickly and the solution is concentrated into lithium carbonate and lithium hydroxide used in EV batteries.


Bolivia also has limited infrastructure compared to Chile, Argentina or the US, and lacks access to the sea, not to mention a leftist government led by Evo Morales who has proven to be a resource nationalist prone to expropriating foreign-owned mines and oil and gas assets. For more read our Bolivia: Where revolutionaries and lithium miners go to die


China used to have ample reserves of battery-grade lithium, but has either depleted them or they are expensive to develop. Benchmark Intelligence states that in 2017, China mostly supplied technical-grade lithium (unsuitable for batteries) and that Chinese feedstock has a higher cost base than South American lithium. This is why China is pushing hard to get offtake agreements in Chile and Argentina.


Even if new sources of battery-grade lithium can be found, only a fraction of these mines will ever become viable. According to the slide below, in 2012, major lithium mines planned to produce an extra 200,000 tonnes of new supply by 2016. But when 2016 rolled around, under 50,000 new tonnes came online, despite “expansions from existing operations” (see right part of the slide).



Why is this? Because lithium is quite difficult to mine and process. Many junior exploration companies chasing lithium projects are not cognizant of the economic and technical challenges – no brine mining projects and even fewer hard rock projects have been put into production for the last two decades and when done so it’s been by the major lithium producers in just four countries – Chile, Argentina, China and Australia. This exposes something in the industry no one talks about – a lack of skilled personnel to get involved with mineralogy/metallurgy and the engineering side of production.


Extracting lithium from spodumene requires a whole range of hydrometallurgical processes. The ore is first crushed and heated in a kiln to create a spodumene concentrate, which is then cooled and milled into a fine powder. It is then mixed with sulfuric acid and roasted again, before waste is separated from the concentrated liquor, and magnesium and calcium are precipitated out. Finally soda ash and lithium carbonate is crystallized, heated, filtered, and dried, creating 99% lithium carbonate.


Lithium carbonate is turned into metal in an electrolytic cell using lithium chloride.


Lithium from oilfield brines, so-called “petro-lithium”, is an expensive and technically challenging undertaking. Proponents underestimate the difficulty in extracting lithium from spent oilfields. Some of these wells are up to four kilometers deep, the brine needs to be pumped and trucked to a storage site, then the lithium has to be separated from all the other impurities which could include uranium, thorium, magnesium and potash. It's neither an easy nor a cheap process and no company has yet been able to do it on a commercial scale.


The next US lithium producer


This leaves the United States as a safe and viable jurisdiction for mining lithium.


US lithium resources (which include reserves plus lithium that can't yet be economically mined) currently stand at about 36 million tonnes of LCE, versus 217 million tonnes globally. That leaves a lot of lithium in the US, still to be converted from resources to reserves through exploration drilling.


Albemarle's Silver Peak mine in Nevada is the only producing lithium mine in the US, but there are other properties around Silver Peak that could become the next big producer that goes a long way towards satisfying the monstrous coming demand for lithium.


The company we at Ahead of the Herd are most bullish on, is Cypress Development Corp (TSX-V:CYP). Last year Cypress came out with an eye-popping Indicated Resource of 3.835 million tonnes LCE (lithium carbonate equivalent) and an Inferred Resource of 5.126 million tonnes LCE - more than enough to supply America’s current lithium needs, and then some.


Its claystone lithium operation is pegged at around 24,000 LCE tonnes a year, according to the preliminary economic assessment (PEA) released last fall.


Cypress’ mine has no issues with water, is lower-cost than brine or hard-rock lithium operations, and has rare earths and other by-product credits to boot.


Just as important, Cypress has not currently signed any offtake agreements or financial commitments; all the other lithium development companies with prospective mines in North America have.


Foreign lithium supplies can no longer be taken for granted. Resource nationalism is once again rearing its head in Argentina and Chile, two of the top producers. Australia is tapped out. This leaves the United States and Cypress Development Corp to carry the freight. Why not take advantage of this opportunity - with Australia booked solid and South American lithium having problems - for the US to become a significant player in the lithium market?


Cypress should be coming out soon with a prefeasibility study on its Clayton Valley Lithium Project. Expect some important numbers to come out of the prefeas. You’ll read about it first at Ahead of the Herd.

 Richard (Rick) Mills


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 This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified. Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


Cypress Development Corp is a paid sponsor of Richards site Richard owns shares of CYP.

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