Lithium Prospects Looking Good
Posted by Cheryl Rutledge on 8/18/2015 10:41:08 AM
Alexander Collen, Taylor Jackson, and Kenneth P. Green
Lithium’s importance to battery systems may lead it to become the next booming material, according to James Stafford of Oilprice.com. The push for electric transportation and green energy, which is often intermittent by nature, will create competition for cheaper and more efficient batteries to store the energy.
Mining.com’s Frik Els (citing a report by the UK Energy Research Centre) noted that there is currently no effective substitute for lithium batteries due to the naturally high energy density of the chemical reaction driving them. It is estimated that there will be approximately 40 million battery-powered vehicles being sold per year by 2050, up from 150,000. These estimates point to a probable steady increase in demand for lithium. Whether or not the prices ‘boom’ or not will depend on how well lithium production can adjust to demand.
It seems that demand could well outstrip supply in the short term. Tesla’s US$5 billion battery-building ‘gigafactory’ is set to begin producing batteries in 2017 to supply planned production of 500,000 electric cars (assembled in Fremont, CA) per year, once fully operational. This amount of cars alone would require all of the lithium ion batteries in the world today, and account for 17 percent of today’s worldwide demand for lithium.
Build Your Dreams (BYD), backed by Warren Buffet, is set to expand its presence in the battery market as well, with a target of 34GWh of battery production capacity by 2020, about the same as Tesla’s capacity. According to Stafford, other potential competitors include Foxconn, LG Chem and Samsung. The market for lithium is currently dominated by three or four major suppliers, who transact with a small group of buyers on longer term contractual bases which set the market price.
If there is a sharp increase in demand, we could see smaller miners enter the market to compete. However, the viability of lithium investments will vary significantly based on the deposit type. According to Stafford, lithium carbonate sells at around US$6000/ton, whilst lithium hydroxide (used in many of the new battery technologies) sells at around US$2000/ton more. Lithium contained in brine is the most cost effective to mine.
The caveat for potential investors is that many of the known large brine resources are in China, and are controlled by Chinese companies. The other significant brine-type deposits known today are located in Chile, Bolivia and Argentina, the latter two having significant investment uncertainty.
The Fraser Institute’s 2014 Survey of Mining Companies ranked Bolivia 95th of the 122 jurisdictions surveyed in investment attractiveness and 105th in Policy Perception Index (a measure of how much government policy encourages investment, as perceived by the survey respondents). Argentina’s North-Western provinces which contain lithium-rich brines include Salta, Catamarca and Jujuy. According to the Fraser Institute’s survey, these provinces ranked 17th, 35th and 45th of the 122 jurisdictions worldwide for investment attractiveness, respectively. Argentina’s current fiscal debt obligations, capital controls and currency controls may also be a deterrent to investing in the region’s lithium mines.
Chile would seem to be the most attractive place to invest in lithium at the moment, due to both its large brine resources and attractive mining policies. Respondents in the Fraser Institute’s survey ranked Chile 13th of 122 jurisdictions in investment attractiveness and 22nd in the Policy Perception Index. Investing in Chile allows investors access to lithium-rich deposits with less uncertainty.
The demand for lithium is likely to increase in coming years, although the rate at which increases and by how much will depend on the ability of suppliers to keep pace. The opportunity for miners to capitalize on the increased demand will depend on the deposit types and the regions within which they are invested. The financial benefit of richer mineral deposits may not be achieved because of the uncertainties associated with certain regions which can deter investment.