The lithium market, which continues to draw interest thanks to demand by EVs and high tech power applications, is shifting as companies seek to shore up supplies in order to meet the growing demand.
News from Chinese Mining Company Tianqi Lithium about its Chilean interests show the drive by China to gain more access to lithium supplies. Tianqi Lithium just announced it has acquired a 24% stake in Chilean lithium giant SQM (NYSE: SQM) (Sociedad Quimica y Minera de Chile S.A.,) to help bolster its South American access.
At the same time, numbers emerging from junior mining exploration company NRG Metals Inc. indicate there are some very promising new discoveries at hand in South America’s lithium triangle where SQM also operates. NRG Metals (TSXV: NGZ) (OTC: NRGMF) has reported what geologist are calling “exceptional results” from the company’s Hombre Muerto Salar prospect in Argentina. The emerging lithium grades and low Manganese to Lithium ratios are exceeding expectations, even for this prolific lithium region.
EVs and High Tech Driving Forces
It is no secret that the future of motoring is going electric. Breakthroughs in battery technology have enabled the proliferation of EVs (electric vehicles) to replace combustion engines after a century of being a low-key technology. Lithium ion batteries form the bulk of new electric vehicle batteries, which means that lithium has grown into one of the most important commodities today. The metal’s light weight and high electrochemical potential, make it very suitable for high capacity rechargeable batteries used to power EVs along with other high tech devices.
Until entrants like Tesla and Volkswagen entered the electric vehicle sector, China had been the epicenter of the EV market. The Chinese government made it a national policy to promote electric vehicles long before other governments started adopting such policies on masse. The Asian country still remains a major EV powerhouse, constituting the largest market for electric cars. As such, it is of deep concern that the country is able to able to access lithium supplies in sufficient quantities.
Still in Need of More Lithium
The Paris agreement, which came about as a result of the increasing threat of climate change, has spurred many developed markets to promote the replacement of combustion engine vehicles with EVs as well. Coupled with various breakthroughs in eliminating various limitations in li-ion technology, companies like Tesla have been able to speed up the adoption of EVs in markets outside China. So with competition for lithium supplies from EV and electronics manufacturers intensifying, Chinese companies and the government are moving fast to secure lithium resources across the globe. This is especially evident in South America where the majority of active lithium supplies are located. In order to grow output, global mining concerns are investing huge amounts of money.
Most recently, Chinese mining company Tianqi Lithium acquired a 24% stake in Chilean company SQM, with further intentions to invest $525 million to expand refining facilities. This is expected to increase annual output of lithium carbonate by nearly four times from the current 48,000 tons to 180,000 in three years.
Companies from other countries are also positioning themselves for the inevitable demand crisis. In Argentina, American chemical maker FMC is expected to inject $300 million by 2019 in the hope of doubling lithium carbonate output to 40,000 tons. NRG Metals Inc. has seen a caravan of companies looking to capitalize on the high grade lithium emerging in this region. Both FMC's producing Fenix mine and Galaxy Resources' Sal de Vida development stage project are in close proximity to NRG Metal’s project in northern Argentina.
NRG Metals just published assays from the drilling program on its Hombre Muerto Norte project that include some very important results collected over the first 100 meters of the hole, including average 905 mg/l lithium with a low Mg to Li ratio of 3.0 to 1.0. These are significantly above expectations for this salar (brine type deposit) and have industry peers watching NRG as even more results emerge from drilling.
Not to miss a beat, a recognized Chinese battery material producer closed on a $1.4 million private placement with NRG Metals to fund ongoing exploration activities in Argentina and the potential, as an Off-Take producer, for future lithium products extracted. In this scenario, NRG Metals could end up selling its lithium before it’s mined.
Japanese company Toyota Tsusho has its eyes set on Australian mines, having acquired a 15% stake in Australia’s Orocobre. The company is set to invest $292 million with the aim of increasing output. The deal will see Tsusho acquire sales rights for the lithium with an outlook of raising production capacity by more than 140% in the next few years.
Lithium Market Maturing
As expected, the lithium market is experiencing a maturation process that involves acquisitions, mergers and shifts among the major and minor players. The smaller players, such junior exploration companies, tend to allow demand forces to push up prices up before making a capital outlay on mining. That has been NRG Metals’ strategy and it appears to be paying off.
As demand rises, the prices of lithium should strengthen further, as evidenced by a doubling of prices in the last two years. In the interest of profits arising from these price hikes, more mining companies will be incentivized to set up the enormous capital outlays required to bring more mining infrastructure online. On the demand side, lower production costs of li-ion batteries accelerate the adoption of battery-powered devices, creating a cycle of lithium demand hike.
Lithium mining companies looking to increase their interest in the South America’s lithium zones include:
Sociedad Quimica y Minera de Chile S.A., (NYSE: SQM) is a producer of potassium nitrate and iodine. Its segments include specialty plant nutrients, industrial chemicals, iodine and derivatives, lithium and derivatives, potassium, and other products.
FMC (NYSE: FMC) is a Philadelphia-based chemical company that continues to ramp up its lithium production. FMC is not solely focused on lithium but this segment of its operations has been very profitable recently. FMC is planning to triple its lithium hydroxide production capacity by 2019.
Galaxy Resources (OTC: GALXF) is a lithium-focused resources company with assets spanning Australia, Canada and Argentina. Galaxy is currently advancing plans to develop the Sal de Vida Lithium and Potash Brine Project (“Sal de Vida”) in Argentina.
For a more in-depth look into NGZ and the shifts in the lithium space you see the article at Energy Metal News:
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