Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Lithium has been touted as the energy metal of the future due to the renaissance of electric vehicles (EVs), which depend on lithium for their lithium-ion battery packs.
For the past two years the silvery-white metal has been a darling of the junior mining investment space, and for good reason. Speculation of a lithium shortage, led by Tesla which is helping to drive demand for EVs, albeit models out of the price range of most North Americans, almost tripled the price of lithium carbonate to over $20,000 a ton in 10 months. The burgeoning energy storage market for intermittent wind and solar power is also poised to become a major demand driver for lithium.
Battery makers are certainly going to need more mines to keep up with demand, and lithium miners will have to build them quicker than anyone ever thought.
According to Bloomberg New Energy Finance (BNEF), electric car production is expected to increase more than 30 times by 2030. All of these new vehicles will require lithium, which also goes into tiny batteries for smartphones and laptops, and a host of other uses, from lubricating grease and glass fabrication, to glazes for ceramics.
Lithium is not that rare, but it is notoriously difficult to mine. The two principal means of extracting it – either through brines or hard-rock – are both fraught with technical challenges, meaning the number of new entries into the currently small lithium mining space is not likely to be huge.
Notwithstanding processing issues, the supply-demand picture for lithium investors is certainly a pretty one.
The investment thesis looks something like this:
China and India are both going to 100% electric vehicles. Every major car manufacturer has electric models. Volvo has even promised to phase out traditional internal combustion engines from 2019.
France has promised to end the sale of gasoline and diesel vehicles by 2040; the U.K. quickly followed suit. Morgan Stanley analysts project that by 2050, 81% of 132 million new auto sales will be electric.
Gigafactories making lithium-ion batteries for electric vehicles are springing up across the globe. Bloomberg reports that global battery-making capacity is set to more than double by 2021, topping 278 gigawatt-hours a year compared to 103 gigawatt-hours at present.
Tesla’s Nevada Gigafactory, to be completed in 2018, will produce more lithium-ion batteries than were produced globally in all of 2013. Elon Musk, Tesla’s CEO, has already announced plans to build four more gigafactories.
By 2021, Chinese gigafactories will provide 3.5 times more gigawatt-hours of battery cells than Tesla’s current Gigafactory.
Europe recently announced five gigafactories will be built.
But there’s a looming problem. “It’s not clear that the resource supply chains exist yet for all these factories,” said David Hart, director at E4tech, a sustainable energy consultancy.
Translation: There isn’t enough lithium currently being mined to supply all those gigafactories.
Daniela Desormeaux, CEO of Santiago-based lithium consulting firm SignumBOX, agrees. “We need a new project entering the market every year to satisfy growing demand. If that doesn’t happen, the market will be tight,” she’s been quoted saying.
BNEF predicts that by 2030, the four companies that dominate lithium production – Tianqi Lithium, SQM, Albemarle, and FMC – will have to supply enough lithium to feed the equivalent of 35 plants the size of Tesla’s Nevada Gigafactory. That factory alone is expected to produce half a million vehicles a year, with each Model S requiring 100 pounds of lithium carbonate in the battery pack. By 2020 Musk wants to pump out a million cars from his Gigafactory.
The lithium market projected out to 2025 not only depicts the “hockey stick” shape that shows exponential annual growth – but a shift in the use of the metal, according to Deutsche Bank Markets Research. Graphs from the bank show electric vehicle demand for lithium was at just 14% in 2015, compared to 38% expected in 2025.
In a previous Ahead of the Herd article I calculated that between sales of electric cars in China, the UK and France, in 2016 there were 32.73 million electric vehicles all requiring lithium-ion battery packs. If each vehicle uses the same amount of lithium carbonate as Tesla’s Model S, that’s 3.273 billion pounds or 1.487 million tonnes of new lithium carbonate demand. These numbers do NOT count electric bikes and electric buses, which are going great guns in China and India, and Tesla’s electric trucks, both the smaller consumer vehicle and the much larger transport trucks. Where will all the lithium be found? Clearly this is a market that is heading for a supply crunch.
That brings us to North America.
If we want a lithium-ion battery industry and electric vehicles built in North America, we need lithium security of supply. No longer can we rely on the good graces of other countries: Chile, Argentina, Bolivia, China and Australia – the top five lithium producers. We need to develop an energy metals industry in North America – from mine to battery. Lithium stocks, the producers and the near-term producers are expensive; there are few bargains to be found among the more developed plays. Fortunately for investors and our planet’s health, the move towards electrifying the global transportation system is fully underway and appears unstoppable. And that means, in this author’s opinion, the earlier-stage, lithium-focused resource plays are going to receive major investor attention. But not just any early stage lithium company is worthy of our gaze.
Ahead of the Herd picked five juniors in various development stages. Decide for yourselves which one will become the next lithium producer.
Market cap: $294.86 million
Flagship: Rhyolite Ridge Lithium-Boron Project, Nevada
Global Geoscience’s (ASX:GSC) Rhyolite Ridge Lithium-Boron Project in southern Nevada is a large, shallow lithium boron deposit 25 km west of Albemarle’s Silver Peak lithium mine. The outcropping is amenable to open-pit mining at low strip ratios. The mineralization is hosted within two sedimentary basins 2.4 miles apart: South Basin and North Basin. Drilling at South Basin has defined an indicated and inferred resource of 460 million tonnes (0.9% Li2CO3) and 2.6% (H3BO3) containing 4.1 million tonnes of lithium carbonate and 11.9 million tonnes of boric acid. Metallurgical testwork announced in May confirmed the potential for a low-cost acid-leach process to produce lithium carbonate and boric acid. The flowsheet involves crushing, grinding and flotation followed by agitation (tank) leaching. Non-executive Chairman James Calaway held the same position
on the board of Orocobre – the only other significant lithium company with exposure to boron.
Market cap: $9.76 million
Flagship: Dean/Glory Lithium Claystone Project, Nevada
The Dean Lithium Claystone Project is located within 200 metres of brine wells owned by Albemarle’s 50-year-old Silver Peak lithium mine, and borders three potential production wells owned by Pure Energy Minerals. Geological data indicates that several targets exist on the property including extensive outcropping of lithium-rich “claystone”. Cypress Development Corp (TSXV:CYP) believes that lithium-bearing brine aquifers could be located below the claystone. The first stage of a 2017 drill program involving nine core holes in the claystone delivered average grades of 900 ppm, or 0.48% lithium carbonate equivalent (LCE), throughout an average thickness of 250 feet starting from just below surface. Cypress has just completed the first five holes of a second-stage 12 to 14-hole program – with results expected soon. The now known strike length at both the Dean and Glory projects is 3.7 miles long by 1.2 miles wide. Importantly, Cypress has tested surface samples of Dean claystone and determined that a synthetic brine can be created that is similar to those produced by Albemarle and Pure Energy brines. In fact a synthetic brine from Dean shows double the lithium value compared to an actual production well from Pure Energy and four times the Albemarle production brine.
Cypress recently appointed Dr. Bill Willoughby as CEO. A PhD with a Doctorate in Mining Engineering & Metallurgy, Willoughby has 38 years of mining industry experience including roles with Teck Cominco and his own consulting firm.
Market cap: $12.22 million
Flagship project: Clayton Valley Project, Nevada
Noram Ventures’ (TSXV:NRM) land package includes three contiguous claim blocks covering 12,920 acres in Nevada’s Clayton Valley. The claims are within a mile of Albemarle’s Silver Creek lithium brine operation. A maiden inferred resource of 17 million tonnes grading about 1,060 ppm lithium was recently released – which equates to 94,476 tonnes of lithium carbonate equivalent. The resource estimate was based on a 46-hole drill program, where the results were consistent with median lithium values in the core samples exceeding the average lithium values at surface by 46%. Noram Ventures is investigating whether lithium can be extracted from the sediments using membranes. Tests show the sample sediments are amenable to an acid leach, ultrafiltration and nanofiltration process that separates the lithium while removing a large percentage of calcium and magnesium.
Market cap: $3.89 million
Flagship: Bonnie Claire Lithium Project, Nevada
Iconic Minerals (TSXV:ICM) has three gold and three lithium properties, all located in Nevada. Its Bonnie Claire lithium brine project consists of 23,100 acres of contiguous placer claims, contained within a valley that is 37 miles from Albemarle’s Silver Peak mine. Sampling of salt flats within the 800-square-mile basin found lithium values up to 340 ppm. Assays of lithium cuttings from the first drill hole discovered lithium sediments averaging 1,153 ppm over 1,560 feet. Initial leaching tests showed recoveries up to 98%. At Smith Creek, Iconic controls 808 placer claims totalling 25 square miles within the Smith Creek Valley Basin, which is slightly larger than the Clayton Valley Basin. Mud flat sediments have a calculated thickness of over 4,000 feet. Sampling of brine evaporates deposited just north of the mud flat returned lithium values up to 470 ppm. CEO Richard Kern is a professional geologist with over 25 years experience in base and precious metals exploration in the U.S.
Market cap: $213.79 million
Flagship: Sonora Lithium Project, Mexico
Bacanora Minerals (TSXV:BCN) is developing the Sonora Lithium Project in Mexico which has an NI 43-101 resource estimate and a prefeasibility study done on it. The clay lithium deposit has an indicated resource of 4.5 million tonnes lithium carbonate equivalent (LCE) and an inferred resource of 2.7Mt LCE. Indicated grades are 3,200 ppm and 1.4% potassium. According to the PFS, Sonora would produce up to 35,000 tonnes of battery-grade lithium carbonate over a minelife of 20 years. Up to 100% of production will be sold to Hanwa, an Asian battery chemical trader. According to Bacanora CAD$17 million has been spent thus far on developing a pilot plant near Hermosillo, which has produced lithium carbonate for the past two years. Bacanora also owns a borate project that could provide cash flow as the company advances its lithium assets, which also include a lithium project in Germany. CEO Peter Secker is a mining engineering with 30 years experience including as Chief Executive of Canada Lithium Corporation. Project Manager Eric Carter has over 22 years lithium carbonate production experience with FMC in North America.
We seem to be going through an Eco-Energy Revolution. This energy revolution is a serious investable long-term trend and we, as investors, have to take advantage of the opportunities being presented.
Richard (Rick) Mills
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Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard owns shares of Cypress Development Corp. TSX.V:CYP. Cypress Development Corp. is a paid advertiser on Richard’s website aheadoftheherd.com
