Salt on the Salad
Lithium is, as Tesla co-founder Elon Musk called it, “the salt on the salad” — an interesting analogy since the bulk of the world’s lithium comes from salt brines. More importantly, Tesla and every other company dependent on lithium need to be certain there’s a steady supply. Even if the market triples, there are still about 185 years’ worth of lithium reserves, according to Deutsche Bank estimates. Unmined lithium is so abundant that the next dozen years of production will drain less than 1 percent of global reserves. Lithium is plentiful but critical and in critically short supply. By 2030, lithium miners will have to supply enough lithium to feed the equivalent of 35 battery plants the size of the Tesla Gigafactory in Nevada. Like the salt on a salad, the cost of lithium is negligible — absolutely nothing compared to the current price of an electric vehicle — but it is critical for the future.
Fueling the Future
Located in the heart of South America’s “lithium triangle,” Lithium Chile (TSX.V: LITH) (OTC: LTMCF) is about to unearth what may be a mother lode of the scarce metal. Quietly and strategically, Lithium Chile has managed to amass over 152,900 hectares (590 square miles) across 15 properties in the middle of the world’s foremost lithium reserves. Lithium Chile’s holdings represent the largest wholly owned lithium land package of any private operating company in all of Chile.
About half the world’s lithium reserves are in Chile, predominantly in the arid Atacama Plateau. Lithium Chile’s assets include 66 square kilometers directly on the Salar de Atacama, Chile’s largest mineral salt flat and home to about 30 percent of the world’s lithium production. The Salar de Atacama offers multiple competitive advantages in lithium production including good infrastructure, high concentrations of salar brines, low processing costs, superior evaporation rates and favorable year-round weather.
Results of field tests announced in April (http://nnw.fm/N9SHl) identified multiple high-priority target areas at both Lithium Chile’s Salar De Atacama and Salar Ollague properties. Large, multiple lithium brine targets of 20 to 25 square kilometers were discovered at both properties. The Atacama property contains near-surface lithium brine values up to 1330 mg/L of lithium and the Ollague Property contains near-surface Li brine values up to 1140 mg/L of lithium. By comparison, typical lithium concentration needed for production in the United States is between 190 to 200 milligrams of lithium per liter.
Lithium Chile plans to commence drilling post-haste. Lithium Chile’s President and CEO Steve Cochrane stated, “We are delighted with the discovery of such impressive drill target areas at Atacama and Ollague. The results also follow the recent discovery of a 60km2 target area at another of our top Chilean projects – Helados. . . . We have an aggressive multi-project drill program planned for this year, which includes all three of these exciting projects and we look forward to sharing drill results as they come through.”
For a Song
Amazingly, Lithium Chile acquired its large property reserves for a song. Land prices in lithium-rich Chile are currently pegged at $1,500 per hectare, but over the last three years Lithium Chile accumulated large tracts of prime lithium-bearing properties for only $3 dollars per hectare. Terry Walker, vice president of exploration and the chief geologist, spearheaded the company’s procurement of these properties. Using a 1970s French technical report overlaid on a national database of water well hydrology and water chemistry, he meticulously matched their information with an extensive lands claim database. With full financial backing and support from the company, Terry identified and Lithium Chile acquired the best salars in proximity to the highest lithium concentrations and closest to needed infrastructure such as roads and power. The result may be the most promising lithium-rich land package in Chile.
Quick math shows that Lithium Chile paid less than a half million dollars for its entire 152,900 hectares encompassing 14 salars and one laguna, and the company currently trades at a market valuation of just over $70 million. If Lithium Chile were able to sell all its properties today at the current ask price of $1,500 per hectare, the imputed value would be over $222 million. Obviously, that’s not about to happen, but it does give cause to consider what the company may be worth if the promising field tests turn into positive drilling results. Proved lithium reserve parcels sell for north of $10,000 per hectare.
Demand Drivers
Commonly recognized as power sources for portable electronics, rechargeable lithium-ion batteries are lighter and smaller than lead acid batteries, have a high tolerance for movement and temperature changes, recharge much faster and, importantly, maintain their power delivery during use. These attributes are what make Li-ion batteries essential to electric vehicles (EVs). Driving demand much faster that anyone foresaw, the global transition to electric vehicles has created a serious squeeze on lithium. Miners can’t deliver it fast enough to satisfy the tsunami of EVs about to hit the road. The world’s fleet of electric vehicles grew 54 percent year over year to about 3.1 million in 2017. By 2030, the International Energy Agency forecasts (http://nnw.fm/Ju510) that a minimum of 125 million and as high as 220 million electric vehicles will be on the road around the world.
Ubiquitous EVs are no pipe dream. Bloomberg New Energy Finance forecasts electric car production will increase more than thirtyfold by 2030, and China is leading the way. China wants a sevenfold increase in electric vehicle sales by 2025 and is plotting a course for phasing out fossil-fuel vehicles altogether.
Tripling its demand forecast for lithium, Roskill, a respected leader in international metals and minerals research, raised its projection of lithium carbonate equivalent (http://nnw.fm/P6y7p) to more than 1 million tons in the next eight years. With electric vehicles suddenly competing against laptops and smartphones for lithium-ion batteries, the demand for lithium isn’t expected to slacken anytime soon. The planet has plenty of lithium reserves, but battery makers need massive new lithium sources to support production, and they need it much more quickly than anyone thought.
Where Will the Lithium Come From?
With the world racing to an electric future, there’s no doubt that more lithium must be produced. Established producers such as FMC Corp. (NYSE: FMC) have announced plans to aggressively expand production, but it won’t be nearly enough to meet demand. Estimated to be the fourth- or fifth-largest lithium producer in the world, FMC Corporation primarily serves the agricultural industry, providing solutions to enhance crop yield and quality. FMC is planning to sell off around 15 percent of its lithium business in an IPO late this year, giving the business a market value of more than $3 billion.
Listed on the Australia and Toronto Stock Exchanges, Orocobre Ltd. (ASX: ORE; TSX: ORL) is a global lithium carbonate supplier and an established producer of boron. Orocobre has announced expanded production at its Olaroz Lithium Facility in northern Argentina. The company also owns Borax Argentina, an established Argentine boron minerals and refined chemicals producer, and a 29 percent interest in Advantage Lithium. Lithium Americas Corp. (LAC) is also advancing several lithium projects. In a joint venture with Sociedad Quimica y Minera de Chile (NYSE: SQM), it is advancing its Cauchari-Olaroz project with target production of 50,000 tpa of LCE expected to come on line in 2020.
If there is any doubt at all about the lithium shortage, look at any lithium mining company — every single one is working to rapidly expand production. The shortage won’t end any time soon, and increased production isn’t likely to keep pace with the burgeoning demand. It appears that a company with vast promising resources in the heart of the lithium triangle may be in for a promising upside ride.
For more information about Lithium Chile, visit Lithium Chile (TSX.V: LITH) (OTC: LTMCF).
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