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A Coming Lithium Oversupply?

May 31, 2011 11:15 AM ETLAC, CLQMF, OROCF, TLTHF
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I recently came across an industry report written by World Street Fundamentals.  It reported that the global recession has hurt demand for lithium and would position the industry into oversupply through the year 2013, with a return of balance lasting as long as the year 2018.  These estimates were calculated based on the existing supply of lithium mining operations worldwide.

As skeptical I was about the report, it did at least get me thinking about if this report was half true, which lithium mining companies would have a chance of succeeding regardless if there was an anticipated oversupply?  I’m aware of the group of large diversified mining companies (SQM, FMC, and Rockwood) who already have existing production and have established leading market shares in this industry.  But let’s take a look at pure lithium mining companies in this area who are already in production (or will be in production in the very near future) based on their current progress and timeline schedules.  This will be very important towards producing lithium carbonate downstream, arguably the most important area where demand is known to arise from to create many types of lithium batteries in Asia.

Talison Lithium (TSX: TLH.TO, TLTHF.PK) – Reported production of 88 315 tonnes (13 100 tonnes of lithium carbonate equivalent) representing a 33% increase over a year ago.  Sales revenue reached $6.3 million during last quarter, representing a 123% increase from a year ago.  Talison’s board also approved the stage 2 expansion of the Greenbrushes Lithium Operations to 740 000 tonnes per annum of lithium concentrate (110 000 lithium carbonate).  CEO Peter Oliver also recently told the mining weekly online recently, “we don’t see there being an opening for a new producer until the second half of this decade, and that would include for our own Salares project”.  The company was also considering building a lithium carbonate plant in Australia, at a cost ranging from $160 to $200 million for a facility that can produce around 20 000 tonnes per year.  A production date of 2014 can be arranged at the earliest for this proposed facility.

Galaxy Resources (ASX: GXY.AX, GALXF.PK) - The company is currently in the final stages of developing its Mt. Cattlin Lithium Project (spodumene) in Ravensthorpe of Western Australia. This project includes a mine and minerals plant which will produce 137,000 tonnes per annum of 6% Li2O spodumene concentrate.  The Company is in the process of finalizing plans to establish a lithium carbonate chemical facility in China, producing 17,000 tonnes per annum of lithium carbonate.  It should  be completing its commissioning process and startup by the end of Q2 of 2011.

Orocobre (TSX: ORL.TO, OROCF.PK) – Recently announced results from its definitive feasibility study,  the Olaroz project.  The deposit registered strong fundamentals with an estimated resource of 6.4 million tonnes of lithium carbonate equivalent.  The project is scheduled to begin commissioning in late 2012.  This project is known to be the next low cost lithium operation, as it will become the next brine deposit ready for production.  Assuming the deposit will take 6 months to fully develop and produce its lithium product,  it should be up and delivering its first orders in mid-2013.  Toyota Tusho has partnered with them to develop the deposit towards securing a future supply of Lithium.

Canada Lithium Corp. (TSX: CLQ.TO, CLQMF.PK) – Recently reported a resource material reduction from their Quebec Lithium Project.  The project now consists of a combined measured and indicated resource of 29 295 000, with a 1.19% grade of Li2O.  The timeline is also being revised for commissioning of the mine to be underway by late 2012, with their first orders of lithium carbonate to be performed during the first quarter of 2013.   Assuming everything goes as plan within time lines and budget from now on, this project is still viewed as a  ”maybe” in terms of succeeding with clients from Asia.  The company still has a marketing deal with Mitsui of Japan.

Western Lithium Corporation (TSX: WLC.TO, WLCDF.PK) The company announced successfully raising funds that would allow them to complete a pre-feasibility study and a demonstration plant later in 2011.  It’s reported that the capacity proposed by the pre-feasibility study will be 13 000 tonnes of lithium carbonate per annum, with a 20 year long mine life.   According to Western Lithium President Jay Chmelauskas, ”Following completion of the pre-feasibility study, we will advance straight into full feasibility study work, targeting a production date in line with new lithium demand requirements expected in 2015. The Company continues permitting activities with baseline environmental studies underway”.  The company’s main operation is the Kings Valley lithium deposit in Nevada.  The Company is trying to become a major US supplier to support the rising global demand for lithium carbonate that’s expected from the increased use of electric vehicles.  As much as their production timeline may be later compared to other projects, domestic support and funding remains a possibility as US president Obama also announced his aim to make electric cars a federal priority recently.  I believe this project will always be unique for being a clay deposit, but will continue to remain on the radar for its proximity location in the US, and being in a stable political and business environment to build an effective mine.

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