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Investors Beware of “Nothing but sophistry and illusion” with regard to Lithium in Bolivia and in the electrification of cars.

My article below is analysis, and is intended as a cautionary tale for those who would rush into lithium investments for the long term! As I have written before, and will do so again, investing in lithium mining, refining, and battery development (for personal passenger carrying vehicles) is basically just a timing game based on “announcements” made to advertise government and industry moves, so as to get public approval for speculating with some people’s or everyone else’s money.

Buy low, either after the announcement of a setback in development or delivery time, and sell high, after the announcement of an “investment” by someone, (eg, famously mostly right Warren Buffett), or after an announcement that the US government will subsidize a technology or a factory. I recognize, of course, that some announcements target specific battery developers and some are more general. I call these “tips” and “trends,” so that they fit into the categories of advice we get daily on television and in the newsletters and mainstream press.

If you’re still with me I urge you to read this article first and then to read the short succinct and superb, hyperlinked, article by John L. Petersen entitled “The Time is Right for Gas-guzzler to Dual-mode EV Conversions,” in which John tells you why, economically, you should support the conversion of gasoline powered vehicles, such as pickup trucks, to dual mode hybrids using (drum roll) the new lead-carbon based batteries made by , Axion Power International (OTCQB:AXPW). John L. Petersen, who, in the interests of full disclosure here, is a former director of Axion, for which he was a securities counsel. I mention this, because, John is overwhelmingly more knowledgeable about alternate energy than Warren Buffett. Don’t ever say that I didn’t tell you this.

I do not own any shares in Axion, or in any other battery developer or manufacturer, or in any lithium producer or end user.

Why am I beginning an article about a highly publicized aspect of the global market fundamentals of lithium, the size of Bolivian lithium containing brine deposits, with a phrase made famous not by a geologist but by perhaps the most influential philosopher ever to write in the English language, the Scottish genius, David Hume? Bear with me for a second, and stay alert, while I ask you to read the entire quotation from Hume’s iconic An Inquiry Concerning Human Understanding from which the quoted phrase in the above title is taken:

When we run over libraries, persuaded of these principles, what havoc must we make? If we take in our hand any volume of divinity or school metaphysics, for instance, let us ask, does it contain any abstract reasoning concerning quantity or number? No. Does it contain any experimental reasoning concerning matter of fact and existence? No. Commit it then to the flames, for it can contain nothing but sophistry and illusion.

Let’s now talk about, not a volume of divinity or school [scholastic] metaphysics but the enormous volume of puffery of junior mining promotion.

It has recently become a hot topic of discussion among investors in speculative junior mining that there may not be enough lithium resources and reserves to meet the speculated demand in the (near?) future for lithium from which to make the rechargeable storage batteries, which are being touted (literally - look up the meaning of the word) as the solution for the supposed need to reduce, perhaps, even to eliminate the carbon dioxide emissions caused by the operation of privately owned vehicles intended for the carriage of a limited number of passengers [typically 4 passenger “cars”] and a limited amount of freight [pickup trucks and SUVs]. There are more than 700 million such sized vehicles in operation globally today, and more than 2/3 of them are in North America, Western Europe, and Japan. This source of manmade carbon dioxide emissions is collectively called the “transportation” problem in the debate on so-called global warming.

The proposed solution to transportation emissions problem is to replace the internal combustion engines, ICEs, burning hydrocarbon fuels, which account for 99% of the aforementioned vehicles today, with, first, hybrid power trains consisting of a rechargeable storage battery, RSB, to power an electric motor and an ICE both of which are capable of driving the vehicle directly, such as a Toyota (TM) Prius, then with a plug-in hybrid, which only uses an electric motor powered by a RSB, but may have an onboard ICE to maintain the battery’s charge until the vehicle can be brought to a charging point, such as the proposed Chevrolet Volt, and finally to replace both of these power trains with a battery powered vehicle with a RSB of sufficient storage capacity and power output so as to give the vehicle a range equivalent to an ICE powered vehicle of the same size and passenger or cargo carrying capacity.

It has now been decided by the mainstream media, MSM, politicians, and investment promoters that there is certain to be developed a lithium-ion technology based RSB of sufficient power and capacity to make the above solution to the transportation emissions problem a certainty. I would like to make the observation at this point that there is little or no evidence concerning quantity or number nor any reproducible experimental reasoning concerning matter of fact and existence to support the MSM’s endless recitations of this conclusion.

Olivia Newton-John’s hit song in my youth was “Let’s Get Physical.” My lyrics are going to be “Let’s Get Numerical” in the sense that David Hume prescribed in order for us to understand the problem and the likelihood of the proposed solution.

In August 2007 I attended a meeting at General Motors (GM) between the GM battery development operations group and SQM, the Chilean producer of lithium from brine. SQM was then as now the world’s largest producer of lithium. GM was then and is not now the world’s largest car maker.

At that meeting the technical managers of both companies agreed that a figure of 1 kilogram of lithium, calculated, as I recall, as metallic weight equivalent of lithium, per kilowatt hour of battery storage capacity was correct, in general and on average, for the production of RSBs for the electrification of vehicles. Therefore it is obvious that the battery pack for the Chevrolet Volt, extended range, plug-in hybrid, which has been announced to utilize a 16 kWh lithium-ion technology RSB will require 16 kg of lithium to build.

The United States Geological Survey, USGS, most recent edition of its Mineral Commodity Summary for Lithium, (.pdf) dated January 31, 2009, states that in 2008 27,400 metric tons of lithium, calculated as lithium metal, was produced globally. Of that total the USGS says 25% was demanded by battery producers.

Lithium production numbers are typically reported not as metallic lithium but as lithium carbonate, Li 2CO 3, which is only 1/6 lithium. For example, SQM reported that by 2008 it would have a capacity of 42,000 metric tons a year of lithium carbonate; this means that SQM’s capacity would be 7,000 metric tons a year calculated as metallic lithium. Thus it is reasonable to assume that in 2008 SQM produced more than 25% of the total world production of lithium.

The USGS 2007 Minerals Yearbook for Lithium, (.pdf) released in August 2008 has a detailed discussion of the companies now producing lithium and their future plans and present and future capacities. Yet there is no mention of any Bolivian mining developments in either of the two USGS publications cited (and linked). There is mention of Bolivian reserves, which is mining geology’s term for estimated quantities “unverified” by believed to be present due to professional surveys and comparisons with other known deposits of similar types.

Notwithstanding the fact that Bolivian lithium production was so low or nonexistent that it was not noted or even discussed by the USGS 9 months ago, promoters of investments have sown enough of their own “information” to have gotten Thompson Reuters, on April 14, 2009, to publish an “analysis” called “Bolivia holds key to lithium, the battery car metal” If you go to Google news, and enter “Bolivia and lithium” you will get this story and a whole group of similar and derivative stories. Alas, they all omit a salient fact, which I am now going to tell you and explain why this fact obviates all of the stories.

A friend of mine who has been a geologist working in South America for nearly fifty years pointed out to me yesterday that he was astounded by the lack of mention in any of the recent analytical articles, such as the one by Reuters, that Bolivian deposits are, to use his precise term, “lousy.”

He told me that I could find this out, as could anyone else, by looking, carefully and analytically, at a study jointly carried out by the USGS and the Bolivian Geological Service. The data below for Bolivia’s Uyuni Desert were published by Pergamon Press in 1978! The other data come from industry consultants and can be located from the web site, the USGS’s, linked above. He constructed for me the following table:

Deposit

% Li

Mg/Li ratio

Atacama

0.150

6.4

Hombre Muerto

0.062

1.37

Uyuni

0.028

19.9

The deposits above, all inhospitable alkaline-it go without saying-deserts are in Chile (Atacama), Argentina (Hombre Muerto), and Bolivia (Uyuni). All are lithium containing brines, which present as immense salt “flats’ under the surface of which are highly concentrated liquids, brines. The manner in which such brines are processed is to create vast ponds which are allowed to evaporate naturally using solar irradiation (i.e., sunlight) as the drying agent. SQM told me that for their Atacama works this step takes 18 months! It is simply not, and never will be, practical to move mountains of slush through drying kilns which would need to be powered by immense fossil fuel burning or nuclear plants. The cost of building such facilities in the remote desert or even of solar thermal facilities to concentrate the sun’s heat would be so expensive as to destroy the economics of any battery project.

Note that since the 1978 studies the successful development of lithium producing industries has gone ahead in both Chile and Argentina but not in Bolivia!

Everyone needs also to understand that all of the South American brine deposits being worked, or looked at, for lithium are primarily potash deposits with lithium as a by-product of low overall value. SQM’s potash deposits (Atacama), which have the highest lithium content, show that 11% of revenues are from lithium. This is today a blessing, and even if lithium value should decline, SQM will and can produce potash. The question for Bolivia is: Could Uyuni deposits be stand alone producers of lithium, or does Bolivia first have to develop a major potash industry? Stock tipsters and analysts aren’t interested in these details, but as we all know, therein lays the devil!

In summary I conclude that the production of lithium from brines has been the majority source of lithium production only since 1994, and that in South America it is the chemistry of the brines that is critical to their economics being practical.

As my South American geologist colleague also pointed out to me:

Magnesium is anathema, or poison to the recovery process. The reason Atacama works is its high Li content. The reason Hombre Muerto works is its low Mg/Li ratio. The problems with Uyuni become self-evident!

He also said that

Notwithstanding the socialist government in Bolivia, I doubt (from personal experience and that of colleagues) that you could marshall all the small miners there or get them to give up their meagre holdings for the good of one common socialist salt pond.

It is economics dear readers that determines whether or not a “deposit” is mineable, and the economics are calculated (There’s that quantitative term again) by summing all the costs and dividing into them the total production tonnage. For Bolivia’s high magnesium brines there is no practical process known at this time to remove enough magnesium, even on a large scale basis, so that it would not “poison” the lithium produced in the sense that the lithium would contain so much magnesium that it would be ineffective as a battery electrode. Thus for use in making batteries this material could be infinitely expensive to process to “battery grade” and thus useless. Bolivia thus has reserves at present of no useful lithium producible from its brines.

I admit that the Reuters reporter understood part of the problem, because on April 15, 2009, he wrote a follow up story, Bolivian politics could stymie future of global lithium supply, which appeared on the IBT (International Business Times) web site.

Back to the numbers: Let’s assume that the amount of lithium, 1 kg, calculated as metallic lithium, that I stated above for each kWh of battery capacity is correct:

This means that for a Chevrolet Volt, extended range plug-in hybrid, it will take 16 kg of lithium metal to make the battery. General Motors famous curmudgeon, Bob Lutz, has said that the battery will have a life of 150,000 miles or 10 years. This means that even if the lithium were recycled, it would be 10 years before it could be returned to the supply pool, so that any meaningful augmentation of the lithium supply from recycling will not occur until 10 years after large scale production of the batteries for cars has begun. This is fortunate since as SQM told GM in August of 2007 they had no way to recycle the lithium from the batteries economically and at that time declined to be involved in such a venture as they had no facility for such processing and they had calculated that in any case new production would be much cheaper than recycling as a source of lithium.

I pointed out that there might be a social need for a closed loop recycling stem for lithium-ion batteries and that the added costs would be borne by society through taxes and subsidies. I also mentioned at that meeting that my understanding of GM and US rules was that a cradle to grave system for managing waste from scrap operations was mandated by both the company and the government, so someone would have to devise a verifiable recycling system for lithium-ion batteries even if their destination was land fill. I was ignored both by GM and by SQM on this point.

Note here that SQM, the world’s largest producer of lithium from brine has just completed a five year expansion program bringing its output to 42,000 metric tons of lithium carbonate a year.

The move to producing lithium from brine since 1994 has been due to the fact that it is cheaper than producing lithium carbonate from the mineral spodumene, which process was the only one used prior. Spodumene, a natural mineral, containing 3%% of lithium, when it is pure lithium aluminum silicate, has been used as an additive for making lightweight glasses and ceramics for some time. The miner of the largest deposit of spodumene in the world is Australia’s Talison and Talison’s largest customer has been China, which has both Spodumene and lithium brines, but not enough production domestically to supply its domestic needs for either.

Note well that the total world reserves identified by the USGs are a combination of both brine deposits and spodumene deposits, and that if you withdraw the Bolivian “reserves’ from the USGS figures the world’s resources drop by nearly half!

Now let’s look at possible limitations on the production of lithium-ion battery packs for cars: Assuming that lithium production for 2009 is going to be the same as for 2008, or some 27,000 metric tons, and that, as the USGS says, 25% of that went to battery production, and that all of the lithium that went into battery production was for personal electronics, laptop computers, and power tools, which uses are increasing ,and increasing, in the case of power tools, dramatically, again according to the USGS, then we must also note that since the other 75% of the lithium produced went to existing uses such as the production of glass, ceramics, plastics and pharmaceuticals, and that since these areas of lithium demand are also increasing, then batteries for cars will require new production of lithium.

For the sake of debate let’s assume that the global production of lithium can be quadrupled in the next 10 years. There is no evidence that this is underway or planned, but let’s assume anyway that it is going to happen. Let’s now assume further that every bit of the increase will go to produce lithium-ion batteries for cars. This will give us 75,000 metric tons of lithium, calculated as lithium metal, to be used annually to make car batteries by 2020. 75,000 metric tons is 75,000,000 kg.

This means that in 2020 the global car industry will have the resources of lithium to build 75,000,000/15 = 5,000,000 extended range plug-in hybrids of the Chevrolet Volt plug-in hybrid type with a range of 40 miles on a charge and a top speed certainly of less than 70 miles per hour-Note well that this means the car can run at speed for a round trip before recharging of 36 minutes!

A larger car with a higher speed and longer range will require a proportionately larger battery and thus the construction of such vehicles will decrease sharply the total number of lithium-ion battery using electrified cars of all types, hybrids, extended range plug-in hybrids, and true battery powered cars, which can be constructed in 2020. By the time that the battery is recycled, in 10 years, the recycled lithium will be able to add only another 5,000,000 vehicles a year to the global build.

One can draw graphs and do calculations, but the bottom line is that to the assumptions above we must add that the consensus of forecasters of personal vehicle production is that the global production of such vehicles will reach 100 million per year by 2015 and could reach 150 million per year by 2020 with China and India accounting for between 20 and 30 million per year, 20% of that total.

The numbers show that the production of lithium-ion battery packs for vehicle propulsion is and will always be limited by the rate of production for lithium, because even if all of the mineable lithium deposits were exhausted only enough lithium would be produced to build 450,000,000 vehicles per year at equilibrium between mining and recycling at a 100% recovery rate. Today’s fleet of cars is already at 750,000,000 globally with nearly half in North America and 90% or more in North America, Europe, and Japan.

I have written elsewhere about the fact that the maximum production of rare earths required to get lanthanum and neodymium to build nickel metal hydride batteries and electric motors and permanent magnet generators is limited, and at this time, is confined almost entirely within China.

It cannot be overlooked that the electric motors in many electrified vehicles intended to utilize permanent magnet type electric drive motors depend for their maximum efficiency on neodymium-iron-boron magnets, so that even electrified vehicles using lithium-ion batteries will have their total production limited by the availability of rare earths.

The numbers show that for the next generation, at least twenty five years, the total annual possible production of electrified personal vehicles will be limited by the rate of natural resource production, particularly of the rare earths and lithium. The peak possible production will probably be well under 10 million Chevrolet Volt equivalent powered vehicles per year well into the 2030s.After that it may well turn out that we finally exhaust our accessible minable resources of critical metals for the electrification of cars so that recycling or limited availability both become mandatory.

I have not taken into account the effect of the potential increase in price of the rare earths and lithium over the next generation as relatively high grade deposits are worked out and costs increase due to the cost of working lower grades. This is important, because as sales figures for the Toyota Prius and Honda (HMC) Insight hybrids have just shown, in times of economic stress price is the most important factor not novelty or green-ness.

I’d like to end this article on a positive note. The USGS Commodity Mineral Survey for Lead for 2008 (.pdf) shows that the US, Canada, and Australia together have 50% of the world’s known reserve base of lead and that more than 90% of American lead use today comes already from recycling automotive and traction batteries! Even if, therefore, we include the (useless) Bolivian lithium reserves in the calculation the US, Canada, and Australia alone have 6 times as much lead as the world has lithium. This means that the electrification of personal vehicles can proceed much faster if we use lead-carbon batteries such as those devised by Axion, Ltd. to make electrified cars of all types. By giving up some high performance characteristic and some range while still getting far more of each than a Chevrolet Volt and by utilizing our existing recycling and battery manufacturing facilities and enlarging them as needed we can be building an electrified American fleet immediately. The fact that we will need to replace and recycle the batteries every 3-4 year rather than the mythical 10 attributed to lithium-ion batteries that have never achieved anything remotely close to that number is surely an easy trade to make for much cheaper, much more reliable, and safer lead-carbon batteries that have also no critical material shortages.

The ideal future for the electrified car is one of lead-carbon batteries for short range city cars, nickel metal hydride batteries for long range moderate performance, and lithium-ion batteries for high performance long range. Price will both differentiate this cars and determine their market segments, but best of all, we probably have enough accessible, mineable resources to do this.

Source: Lithium Batteries: Nothing But Illusion