Emerging as the leading market player for electric and hybrid cars, China isn’t taking any chances on securing their future for the lithium needed to keep up the pace.
Although domestically, China has only 20% of the world’s lithium resources, but consumes more than 40% of the world’s lithium deposits.
The rise in Chinese interest in the lithium supply chain has put several lithium companies in the crosshairs of Beijing businesses, including NRG Metals Inc. (TSX.V: NGZ) (OTC: NRGMF), FMC Lithium (NYSE: FMC), Sociedad Quimica y Minera de Chile (NYSE: SQM), and Galaxy Resources Limited (OTC: GALXF).
Already, Chinese businesses have made moves to secure lithium projects, large and small—the bulk of the projects coming from South America’s prolific “Lithium Triangle.”
In the region, both Canadian junior miner NRG Metals Inc. (TSX.V: NGZ) (OTC: NRGMF) and major lithium producer Sociedad Quimica y Minera de Chile (NYSE: SQM) drew the interest of respective Chinese lithium suppliers.
Whether these deals involve offtake agreements, promises of financings, or acquisition of equity, the fact is that China sees securing the lithium supply chain as a major national interest.
The result will be increased interest and shareholder value in many lithium companies, including NRG Metals Inc. (TSX.V: NGZ) (OTC: NRGMF), FMC Lithium (NYSE: FMC), Sociedad Quimica y Minera de Chile (NYSE: SQM), and Galaxy Resources Limited (OTC: GALXF).
CHINA’S SOUTH AMERICAN LITHIUM REVOLUTION
In 2016, Australia remained the leading lithium producing nation on the planet—but not for much longer.
While China has taken steps to secure lithium supplies all over the world, but the largest expansionary zone that Chinese businesses are pursuing is in South America’s “Lithium Triangle”.
Chile alone possesses half the world's lithium, while South America as a whole controls two-thirds of global reserves. However the region's supply is still underutilized.
Chinese lithium interests will inevitably circle around South America, during China’s ramp up of electric vehicle (EV) sales.
In 2016, China sold 500,700 EVs, and in 2017 those sales are expected to hit 700,000—representing a 40% increase in just one year.
But an EV-friendly automobile policy out of Beijing aims to increase those sales significantly in an effort towards capping its national carbon emissions by 2030. Chinese EV sales are projected to go as high as 7 million by 2025.
The EV tax rebate was expected to expire at the end of this year, however, Chinese bureaucrats liked the results enough to hint at an extension of the policy through 2020.
By dangling a carrot in the form of a 10% purchase tax exemption on new EVs, automakers including Volkswagen, Ford, and Tesla are considering setting up factories in China. However, Chinese firms have held their own, with several domestically-produced already on the market.
But with that many EVs in the pipeline in the coming years, the biggest question will be over if there will be a lithium supply to meet that increase or not.
"We must secure lithium resources to prepare for the era of electric vehicles," Heyi Xu, chairman of Chinese automakers, the Beijing Automotive Group told Japanese publication Nikkei.
The Beijing Automotive group, is in negotiations with Chilean economic development agency Corfo. Their proposal includes industrial development that incorporates lithium mining, battery production and electric vehicle assembly in Chile.
Already this year there have been multiple signs that China’s interests in South American lithium are only just beginning to ramp up—and it’s going to be parade of partnerships to come, as Chinese businesses secure all stages of development they can get their hands on.
A LEADING EXAMPLE: NRG METALS AND CHEMPHYS
A recent announcement made shockwaves in the lithium sector with the compelled sale for a 32% stake in one of the world’s largest lithium producers, Sociedad Quimica y Minera de Chile (NYSE: SQM), bidder GSR Capital became the second Chinese firm to seek equity in the South American giant.
However, it’s not just the largest lithium players that are drawing the interest of Chinese investors and businesses.
In mid-November 2017, Canadian junior lithium player NRG Metals Inc. (TSX.V: NGZ) (OTC: NRGMF) finalized a strategic alliance with Chinese high-purity lithium manufacturers Chengdu Chemphys Chemical Industry Co., Ltd (“Chemphys”).
The Chemphys deal represented a major shift for companies the in the same size category, and development stage as NRG. The Chinese lithium firm entered the partnership with the junior to advance the exploration and development of NRG’s flagship Hombre Muerto North Lithium Project (“HMN Project”).
NRG Metals President and CEO Adrian Hobkirk said of the deal:
“We are very pleased with the investment in NRG by Chemphys and establishing a relationship with a high purity lithium manufacturer in China that supplies its products to the battery and energy markets. With the completion of this private placement, and the financial support of warrant and option holders, the Company is now fully funded to carry out its planned work program on the HMN Project.”
Unlike the interest in SQM, the Chemphys/NRG alliance is pre-production, meaning Chemphys entered the story nearer to the beginning, based on the promise of a future offtake agreement.
On the HMN, Chemphys liked what they saw, enough to want to help make sure it gets to its production goals.
Samples on the HMN have already returned concentrations as high as 1,064 mg/L Li, and average 587 mg/L Li, with seven samples over 800 mg/L Li.
The HMN Project is 3,287-hectare property, consisting of 6 concessions all located in a great lithium neighborhood—the Salar de Hombre Muerto district, which also hosts FMC’s Fenix Mine to the South, and Galaxy Resources’ Sal de Vida lithium project to the east.
With a dance partner already selected on HMN, it’s realistic to project that NRG could also find another ally for its second project which is a much larger land parcel also within Argentina’s portion of the prolific “Lithium Triangle”.
The Salar Escondido Lithium Project covers 29,180 hectares, and is believed to house a very large salar of its own, spanning at least 700km2. Should samples scheduled to be done on the project return concentrations in the ballpark of the HMN, another lucrative partnership shouldn’t be difficult to secure.
Having already proven it can draw the interest of a Chinese buyer, NRG Metals is well positioned to repeat its success with its second major project, and to continue its steady path to production with Chemphys on the HMN Project. As a junior, they have plenty of blue sky room left to continue to make gains like they’ve proven they’re capable of already this year.
POTENTIAL COMPARABLES
FMC Lithium (NYSE: FMC)
FMC Lithium is a subsidiary of the FMC Corporation, which is a diversified chemical company, that provides solutions, applications, and products for the global agricultural, consumer, and industrial markets. FMC Lithium offers lithium for use in batteries, polymers, pharmaceuticals, greases and lubricants, glass and ceramics, and other industrial uses. FMC Corporation was founded in 1884 and is headquartered in Philadelphia, Pennsylvania.
Sociedad Quimica y Minera de Chile (NYSE: SQM)
Sociedad Quimica y Minera de Chile S.A., is a producer of potassium nitrate and iodine. The Company produces specialty plant nutrients, iodine derivatives, lithium and its derivatives, potassium chloride, potassium sulfate and certain industrial chemicals. Its segments include specialty plant nutrients, industrial chemicals, iodine and derivatives, lithium and derivatives, potassium, and other products and services Lithium and its derivatives are used in batteries, greases and frits for production of ceramics. Potassium chloride is a commodity fertilizer that is produced and sold by the Company across the world.
Galaxy Resources Limited (OTC: GALXF)
Galaxy Resources is a lithium-focused resource company that explores and produces lithium carbonate mineral properties. The company holds interests in the Sal de Vida brine project in Argentina; the Mt Cattlin spodumene mine in Western Australia; and the James Bay spodumene project in Quebec, Canada. Galaxy Resources Limited is based in Applecross, Australia.
For a more in-depth look into NGZ you can view the in-depth report at USA News Group: http://energymetalnews.com/2018/01/13/energy-metals-prices-will-continue-to-grow-past-2024-junior-miners-are-the-catalyst/
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