Global lithium supply is plentiful, despite naysayers.
Growth will be strong, primarily due to electric vehicles, but sustainable.
Description of production process, reserves, and undeveloped resources.
Brief description of current and would-be lithium producers.
Global market predictions for lithium-ion batteries range from aggressive ($26 billion in 2023, Navigant Research) to highly optimistic ($33 billion in 2019, Transparency Market Research). Where will we get the lithium necessary to feed burgeoning energy storage needs in the military, consumer, and especially the automotive sectors? Lithium is a finite natural resource, and sure enough, talking heads assure us in measured tones that lithium reserves are sparse at best, insufficient for the convoy of electric vehicles on tomorrow's highways. Can it be true, that we are replacing one waning energy source - petroleum - for another? This paper describes global lithium assets, providing data supporting my contention that we have centuries' worth of lithium reserves and resources.
A more important question is: what are the obstacles to the industry's development? Are the resources in accessible locations, and can lower-quality brines and ores be economically processed as rich sources are depleted? Answers may depend more on politics than engineering, despite (or because of) accelerating demand.
Lithium is one of the less common elements, most frequently found in deposits such as spodumene and pegmatite minerals, with larger resources in the U.S., Canada, Australia, China, Zimbabwe, and Russia. Processing is relatively simple: the raw ore is crushed, slurried for cleaning, heated, and acid-leached to extract alkalis and some metals. The liquor is concentrated and coagulants added to remove impurities. Finally, the lithium-rich acid solution is neutralized with Na2CO3 (soda ash) which precipitates lithium carbonate (Li2CO3), the feedstock in the production of virtually all lithium chemicals.
In the late 1960s, a Li-rich brine aquifer was discovered in the desert soil of Chile's Salar de Atacama (below) by Foote Mineral Co. (now part of Rockwood Holdings, (NYSE:ROC)). The brine, trapped in an orphaned bay of the Pacific Ocean that was tectonically elevated into the Andes' foothills, is pumped into shallow, 5-20 acre artificial ponds, where salts are concentrated by natural evaporation. Critical aspects of this process are the Salar's elevation of 2300 meters/7130 feet and its miniscule rainfall, averaging less than 5cm/2 inches per decade.) The brine moves through a series of treatment ponds, increasing the salt concentration, while impurities and Li2CO3 are separated as described above. Chile is the leading brine-derived Li2CO3 producer (Rockwood and Sociedad Quimica y Minera de Chile (NYSE:SQM). Bolivia (undeveloped), Argentina (FMC Corp (NYSE:FMC)), and China (nationalized operations) also boast lithium brines, and there is a second Foote-exploited field north of Death Valley, in Nevada.
Figure 1. Salar de Atacama brine seep (Wikipedia). The jagged crust is rock-hard halite.
Obviously, rock mining is more costly than pumping salt water, thus companies (and countries) with established access to Li brines in arid environments have considerable financial advantage: Chile's Li2CO3 production cost is roughly $1630/ton-1300 €/tonne, less than half that of mining operations. Accountants may object, citing the time value of money: brine processing takes up to 18 months from pump head to product packaging, while lithium minerals can be converted to Li2CO3 in 3-5 weeks. On inspection, this argument fails. Ore reduction is a batch process limited by equipment size and availability, with substantial operating costs, while brine fields, although requiring up to 2 years to first harvest, thereafter are in continuous production with low process expenses. Further, mining is a capital-intensive industry, much more so than setting up evaporation basins.
The favorable economics of brine processing caused Foote and Lithco (now part of FMC Corp.) to close their North Carolina open pit spodumene mines in the 1980s. Although a number of lithium mines are in production - Talison, the largest, is in western Australia - most are small regional suppliers still in or not far removed from the exploratory stage. Less than 20% of Li2CO3 annual production is from ore-derived material, a number that will likely remain static even with accelerating lithium demand from the battery industry. Li2CO3 market prices (minimum order 1 tonne/1000kg) depend on purity: from $2.60/lb (4.1 €/kg, ceramic grade) to $3.30/lb (5.3 €/kg, battery grade), while pharmaceutical Li2CO3 (≥99.99%) costs $4.00+/lb (6.4+ €/kg).
Much depends on the operating expenses and the extent of subsidies: for example, the Chinese government supports its lithium industry, so Li2CO3 pricing is on the low end, but OpEx is high for both brine and ore production because sources are in the remote Himalayas. OpEx estimates from various sources are shown in Table 1; accessibility and ore/brine quality account for much of the differences. Examples include Chilean brine, which has higher lithium content and fewer impurities than other South American brines, and Canadian ores with cheap electricity and generally greater percentage lithium than Australia's. Companies in possession of undeveloped hard-rock lithium fields, where start-up costs can easily soar into 9 figures, optimistically predict OpEx less than $2700/ton-2200 €/tonne, but industry analysts calculate OpEx for existing spodumene (the richest lithium ore) mines above $5000/ton-4100 €/tonne. To be fair, companies attempting to enter the lithium arena generally expect to extract several industrial chemicals from their ore bodies, thus mitigating OpEx.
Table 1. Operating expenses for Li2CO3 production from different locations and sources. Values approximately ±10%; Canadian estimates are for developing fields.
The four largest lithium chemical producers are SQM, Rockwood, FMC, and Talison, while emerging Canada Lithium (OTCQX:CLQMF) is challenging Talison for the greatest hard-rock lithium output. Note that Talison (TLH) was acquired in 2012 by Chengdu Tianqi Industry Group, and Rockwood established a 49% joint venture with Chengdu in late 2013. Talison ships most of its process concentrate to China for conversion into Li2CO3; FMC and SQM have diverse product lines, while Rockwood is a pure lithium play. In a sign of the times, International Lithium (TSX.V), an exploration company, has formed a strategic partnership with China's Ganfeng Lithium to assist development of resources in Argentina and Ireland. Finally, for more risk-averse investors, there is a lithium ETF - the Global X Lithium ETF (NYSEARCA:LIT) - with 58% of its assets in lithium processors and producers, and the rest in battery manufacturers, not including a just-announced $1 billion investment in the new Tesla (NASDAQ:TSLA) gigafactory.
The usage profile for lithium chemicals has changed dramatically over the last 20 years with the advent of lithium-ion batteries (LIBs). In the early 1990s, roughly 40% of lithium production went to glass and ceramic companies, another 20% was used to produce high-temperature greases, and batteries weren't in the picture. In 2013, glass and ceramics accounted for 35%, LIBs nearly 30%, and greases about 10%. The dynamic projections for LIB growth, especially for vehicular applications, predict that roughly half the global lithium output in 2025 will be used for energy storage. The critical question is, are there enough lithium reserves and resources to match this growth curve?
Table 2, below, clearly reveals that 2013 production of Li2CO3 equivalents was less than 0.3% of identified reserves and a mere 0.1% of undeveloped resources. Further, 2013 demand was roughly 30 metric tons, a sure sign that suppliers are stockpiling lithium chemicals in expectation of growing industry needs. The caveat for undeveloped resources, and even some existing producers, is the high cost of doing business. There is considerable doubt that the world-leading Bolivian brine fields will be activated within 50 years, despite nationalistic announcements, Argentinean production has stagnated due to exchange rate controls on mining operations, and remote Chinese reserves are slow-growth ventures. These high-altitude brines are marginally accessible and do not exist in a desert-dry environment, slowing evaporation and forcing costly transport of concentrate to processing plants. Lastly, South American brines, other than Chilean, have difficult-to-remove impurities that further exacerbate OpEx. Recently-identified Australian, North American, and African hard-rock sources have relatively low Li contents, unlikely to significantly impact the market unless and until there is a major increase in lithium pricing. As with all products, supply and demand will dictate the exploitation of less-favorable lithium resources, but current reserves appear plentiful.
Table 2. Lithium production, reserves, and undeveloped resources, 2013, in metric tons. Multiply by 5.3 to determine Li2CO3 equivalents. Primary source US Geologic Survey, 2014. *Estimated.
Assuming the industry pundits are correct and the growth in lithium usage will be dominated by the predicted surge in hybrid (HEV) and electric vehicles (EVs), what will be the impact on lithium production? Let's do the math. HEVs, expected to be the majority class of EVs, require approximately 10kWh of battery energy, incorporating about 3.2kg of lithium equivalents (LEq). EVs with a driving range of 200 miles will need roughly 70kWh, or circa 20kg of LEqs. (Technology advancements impacting energy output may reduce LEq needs up to 25% over the next decade.) Navigant Research forecasts global HEV sales expanding from 1.9 million in 2013 to 5.1 million in 2020, while EV numbers should increase from 200,000 to 1.5 million over the same time frame. Therefore, factoring in larger batteries and higher energy materials, total vehicular lithium demand will jump from 16,000 tonnes last year (actual) to roughly 40,000 tonnes in 2020, a 15%/year growth rate. Estimates of 5% annual expansion in other lithium usages lead to a 10%/year increase in the demand for lithium equivalents, slowing somewhat past 2020.
Such growth curves definitely present a challenge to the lithium industry, although certainly within production capabilities. Some Chicken Littles use the total automobile production as the basis for xEV lithium-ion needs, but that is unrealistic at best. 65 million vehicles - today's global production - would require 200,000 metric tons of Li if all were merely HEVs, while even aggressive estimates from market research companies put xEVs at only 13 million (circa 15%) of all vehicular manufacture in 10 years. This gross overstatement of lithium usage from scaremongers is still less than 1.5% of known, and reachable, reserves, and as lithium demands increases, so will the price, making it easier for chemical companies to justify the development of less favorable resources.
Current lithium production comes from more readily available natural sources; obviously, the expenses of obtaining and processing remote or low-concentration raw materials (ore or brine) will escalate, so expect cost of the primary product (Li2CO3) to rise. For example, China's rich (1200 ppm lithium) Tibetan brine lakes (altitude above 4400 meters - 13,500 feet) were discovered around 1990, when the nearest railhead was 1000 kilometers - 600 miles distant. Development costs and OpEx were and continue to be fearsome, and break-even is years away. The high-altitude Bolivian and Argentinean brines (ca 600 and 400 ppm lithium, respectively), also have accessibility issues, and Bolivia's political climate will continue to hamper development, probably for decades. Unconfirmed claims of vast lithium mineral deposits in Afghanistan are dubious, at best.
There are numerous lesser mineral sites and a few brine bodies owned or leased by companies seeking to join the lithium boom, with very little if any production. Those pure-play lithium operations may be found in US, Canadian, and Australian penny stock listings, and must be considered speculative investments. A scattering of African deposits suffer from a lack of industrialization, and low lithium content brines in the American Southwest will be hard-put to compete with their more robust brethren. Finally, when all other sources are truly depleted, there are an estimated 230 billion metric tons of lithium in our oceans, but with a miniscule 0.17ppm concentration, exploiting this resource will be slow and very costly.
The preceding data clearly indicate no lithium shortfall for at least several decades, even without factoring in lithium chemical recovery from used LIBs, already an active industrial sector. Pessimistic scenarios still calculate 60-90 years lithium supply when EV/HEV demand curves ease after another decade of rapid growth. As lithium reserves start playing out, there are many other undeveloped resources available for exploitation with nearly 3X the current lithium supply. Add to that the possibility of undiscovered lithium-bearing minerals or brines and the probability of technological advances for more efficient energy storage, and you can understand why I am bullish on lithium chemicals. Yes, prices will escalate, but so will demand, and because gloomy lithium forecasts are based on today's battery chemistries and overlook recycling, I disagree with their conclusions, foreseeing no scarcity of lithium for industrial or consumer applications for generations to come.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.