Sociedad Quimica y Minera (SQM) is the second largest
lithium producer in the world, just behind US-based Albemarle, which takes top
spot with lithium mines in Chile (La Negra and Salar
de Atacama), Australia (49% stake in Talison
Lithium’s Greenbushes hard rock mine), the shuttered Kings Mountain Mine in
North Carolina, and the Silver Peak Mine in Nevada, the only operating lithium
mine in the United States, currently.
SQM has been making noises about ramping up production and overtaking Albemarle
to become the top dog in the lithium space, predicting lower prices, and
claiming that not enough investment is going into lithium production – crucial
for making electric batteries for electric vehicles and energy storage.
a ploy to unseat its main competitor, Albemarle, and to discourage others from
entering the industry, but it could backfire, big time. That’s because picking
a fight with Albemarle is one that it is likely to lose. Why? Because unlike
Albemarle, which has its fingers in three “pies” around the world, SQM really
has only one pie: Chile. The company produces lithium carbonate and lithium
hydroxide from its Salar del Carmen plant (48,000
tonnes capacity Li2CO3, 6,000 tonnes LiOH).
it sold its 50% stake in the Cauchari-Olaroz project
in Argentina to Ganfeng Lithium of China, leaving just one project outside of Chile, the Early Grey Lithium
Project (Mt. Holland) in Australia, in which it splits
ownership with Kidman Resources. The mine has a resource but is not expected to
start production until 2021. It has an offtake agreement with Tesla.
a great jurisdiction for mining lithium (Read our Lithium Chile, a perfect storm to find
out more) but being so dependent on Chile puts SQM in a precarious position as
it “goes to war” with Albemarle. The issue of water rights is key (see below).
The best way for Albemarle to stay on top is to start looking around the
Clayton Valley where it has an excellent opportunity to partner with one or
more lithium explorers who are looking for lithium around the Silver Peak Mine,
which is depleting. Clayton Valley is producing at around 200 milligrams per
liter lithium whereas lithium brines in Chile are upwards of 1,000 mg/l and
Argentina averages 600 mg/l.
Nevada project with the best chance of becoming a mine, in our opinion, is the
Clayton Valley Lithium Project by Cypress Development Corp (TSX-V:CYP). The
company in May put out a monstrous resource of 1.3
billion tonnes lithium containing 6.4 million tonnes lithium carbonate
equivalent (LCE) in the indicated and inferred categories. The potential mine
is so large, it could influence the world price of lithium. The deposit is on
par with some of the biggest lithium mines in the world (around the same as Orocobre’s Salar de Oroz in
Argentina) with exceptional grades of 889 parts per million lithium.
better way for Albemarle to stay on top than to partner with Cypress to
significantly up the grades at its processing plant from CYP’s high-grade clay
lithium deposit, or to buy them out? The company is working on a preliminary
economic assessment as we speak, including economics, metallurgy and a pilot
plant. We think it’s likely to surprise the market and awaken the lithium bears
out of their slumber. We don’t know what’s in the PEA, but what we can say is
that some big changes are underway in the lithium market, and they all point to
blue sky ahead for both Albemarle and Cypress – neighbours in the Clayton
Valley of Nevada.
The doubters: Falling prices and an
onslaught of supply
take a look at the blue sky, let’s examine the negative scenarios for the lithium market
that have been floated by the big banks, some analysts and ironically, SQM,
which has all but declared the lithium boom dead.
February investment bank Morgan Stanley was first out of the gate with a
damning report on lithium; its research team concluded that an avalanche of
lithium was in the works and would put the roughly 200,000 tonnes per year
lithium market into surplus. The glut would mean a fall to around US$13,000 a
ton in 2018, before halving to $7,000 by 2021. The bank put out a base-case
supply-demand and price forecast leading up to 2025, indicating that lithium
prices in China and Chile would trend below the market-equilibrium price for
the next seven years. Curiously though, the report skewed heavily towards
supply with little to no mention of demand.
lithium bear to roar was commodities researcher Wood Mackenzie, which forecast
a rout in lithium and cobalt both key ingredients in EV batteries. While Woodmac at least didn’t lowball demand growth expecting
it to grow from 233 kilo-tonnes lithium carbonate equivalent (LCE) in 2017 to
330,000t in 2020 and 405,000t in 2022 it too forecast an imminent tsunami of
bears seem to have in common is the belief that a rush of new lithium supply
will soon hit the market, but what the analysts don’t realize, or maybe for their
own reasons neglect to mention, is that a lot of these mines will fail to
junior exploration companies chasing lithium projects are not cognizant of the
economic and technical challenges no brine mining projects and even fewer
hard rock projects have been put into production for the last two decades and
when done so it’s been by the major lithium producers in just four countries
Chile, Argentina, China and Australia.
As noted by Bloomberg recently, lithium
also has a funding problem, with a lot of banks unwilling to touch it. While
this is frustrating for mine developers, it’s good for prices, since a
financing obstacle puts a lid on new supply. Here’s Bloomberg:
are wary, citing everything from the industry’s poor track record on delivering
earlier projects to a lack of insight into a small, opaque market. Without more
investment, supplies of the commodity could remain tight, sustaining a boom
that already has seen prices triple since 2015.
SQM joins the bears
know this, plus the technical challenges in bringing on new lithium mines,
which typically take two years to build and five years to repay the loan.
didn’t stop SQM from piling on with the lithium bears. In an Aug. 22 article,
MINING.com reported that SQM expects prices to be lower in the second half
of 2018 due to new supply from Australia and its own increase in sales – even
though global lithium demand is forecast to grow by over 20% this year.
been ramping up production from its Salar del Carmen
and expects to reach 120,000 tonnes a year by the end of 2019, and 180,000t by
2021, from the current 48,000t. SQM is so confident in its production increase it is boldly predicting that by 2022, it
will overtake Albemarle as the world’s top lithium miner, boosting its
production capacity to 28% of the world’s total versus Albemarle’s 16%.
this year SQM complained that the industry isn’t attracting enough
investment, saying that lithium miners needs $10-12 billion
over the next decade to meet the surging demand for electric vehicle batteries,
expected to grow by 600,000 to 800,000 tonnes of LCE – three to four times the
current lithium market.
SQM underplayed that range, forecasting the demand for lithium growing at a
compound rate of between just 13 and 17% over the next 10 years – putting it
firmly in the bear camp. It also predicts the market will be oversupplied by 2022,
with a whopping 735,000t of LCE being produced, against demand of just
Chile’s water problem
is dissing the lithium industry by predicting lower prices and oversupply, a
pall hangs over its expansion plans: access to water. For decades the Chilean
government granted water rights to lithium companies like SQM and Albemarle in
the Salar de Atacama – the driest desert in the world
– without considering the long-term consequences. Many of the aquifers have
government has finally got smart, and is preparing to put new restrictions on water use in the
salar. Albemarle, SQM, Antofagasta and BHP are among the
companies that will be affected by a ban on new permits to extract water from
the southern portion of the salar’s watershed, which
supplies BHP’s Escondida, the world’s largest copper
mine, and Antofagasta’s Zaldivar Mine. Indigenous
populations are also vying for access to water in the parched region.
Reuters reports the problem is compounded by the fact that the
government doesn’t know how much water lies beneath the cracked soil.
these two amazing statements:
and Albemarle say they have all the water rights they need and do not expect
new restrictions to impact their current or future production of lithium.
and Albemarle both recently signed deals with the government to sharply
increase their quotas for extracting lithium from the Salar,
although they say they will not use any more water than they have already been
So, SQM says it plans to
raise lithium production in the next three years from 48,000 tonnes a year to
180,000 tonnes, a 3.75X increase, but is not planning on using any more water?
That is rather hard to believe. Will the government dig in its heels and say no
to more water extraction, in spite of the huge windfall it would expect to
receive from much higher lithium exports? Or will it cave in to the mining
companies? This is a question that must be considered when mining lithium in
China and falling prices
lithium prices have risen steadily since 2015 and reached a peak in the first
quarter of 2018 at $24,750 a tonne. Since then, a reduction of subsidies to
electrical vehicles in China, the world’s largest market for EVs, has seen
prices slump, due to less vehicles being manufactured.
of battery-grade lithium carbonate in China slipped 9% in July to $16,500 per
according to Benchmark Mineral Intelligence, a trusted source of data for the
industry, the fall in lithium prices is misunderstood.
While Chinese prices for Li2CO3 have fallen, this is not the case for the rest
of the world (ROW) or lithium hydroxide. (see graph below, where the red line,
the global weighted average price, and the South American price, show much
gentler declines than Chinese prices).
nature of ROW lithium prices “will protect them from falling to China levels in
2018,” Benchmark explains, adding that the lithium market outside China remains
research firm also notes that despite a downturn in Chinese NEV production in
the first half, it was still up 94% compared to H1 2017, and the second half of
this year is also expected to break a record.
Battery demand continues to soar
Indeed the demand side of the lithium market is still booming,
despite the price decline for lithium carbonate over the past few months.
India are both going to 100% electric vehicles. Every major car manufacturer
has electric models. Volvo has even promised to phase out internal combustion
engines (ICEs) from 2019. France has vowed to end the sale of gasoline and
diesel vehicles by 2040; the UK quickly followed suit. Almost a third of cars
sold in Norway in 2016 were electric and Germany could outpace its neighbors as
Volkswagen aims to become a leader in both EVs and automated vehicles. EVs
surpassed 2 million units in 2016 and Bloomberg New Energy Finance predicts
they will make up an astounding 54% of new car sales by 2040. In 2016, Chinese
carmakers sold 28.03 million cars. If China follows through on its promise to
go 100% electric that’s a minimum 28.03 million lithium-ion battery packs for
EVs per year. Last year China sold 777,000 units of battery-powered, plug-in
hybrids, and fuel-cell vehicles, and could surpass a million this year
according to estimates from the China Association of Automobile Manufacturers.
the UK’s 2.7 million car sales in 2016 and France’s 2 million car sales in
2016. That’s 32.73 million electric vehicles all requiring lithium-ion battery
packs, without counting electric buses (a big deal in China, and going to be in
India as well) or annual growth rates in auto sales. One Tesla car battery uses
45 kg or 100 pounds of lithium carbonate. The IEA expects the number of EVs to
more than triple by the end of the decade, from 3.7 million last year to 13
million in 2020. According to the organization the biggest adopters will be
Europe and China, due to credits and subsidies provided by the Chinese
government, and tighter fuel emissions standards plus higher fuel taxes in
An Aug. 21 report from Bloomberg states
that a new record for EVs sold globally, was cracked in the second quarter,
zooming past 400,000 a year earlier to 411,000. At 225,000 units, China outsold
the rest of the world combined.
the most telling signs of the tectonic shift from gas-powered vehicles to EVs
was the $40-billion-euro deal that Volkswagen inked with major EV battery
SoftBank invested $100 million into Nemaska Lithium’s
mine in Quebec. Nemaska also has an offtake agreement
with Northvolt, which is aiming to have Europe’s
largest battery factory.
recent deal was announced on Monday. POSCO will acquire lithium mining rights in Argentina
from Australia’s Galaxy Resources, for $280 million. The South Korean
steelmaker plans to secure lithium for its battery-making arm, POSCO ES
Materials, and build a processing plant in Argentina.
multi-million and multi-billion-dollar deals show that the world’s largest car
and battery companies and big business, governments and consumers get it,
that they are all serious about combating pollution and climate change; the
electrification of our transportation system is underway. And it all comes down
to security of lithium supply because it is all about the batteries. As
automakers cut deals for large-scale battery production they also see massive
potential in the residential/commercial energy storage business through the
lithium battery packs they’re already building. But without batteries, ie. lithium, they’re dead in the water because without
battery materials, their production lines grind to a halt.
lithium-ion battery storage, a new report from GTM Research states that global
Li battery deployments will grow by 55% annually. That’s quite a CAGR, although
it’s easy to get big growth numbers with so small a market: just 2 gigawatt
hours of storage in 2017 compared to 112 GWh of batteries demanded by EVs the
demand for EV batteries has incentivized a massive build-out in production
capacity, which reduces the cost of batteries for grid applications.
electric cars have had a few more years on the road, their used batteries will
become cheap, secondhand stationary storage devices.
told, authors Mitalee Gupta and Ravi Manghani expect battery pack prices to fall from
$219/kilowatt-hour in 2017 to $39/kilowatt-hour in 2040, an 82 percent
we are seeing this technology in use. In November 2017 the world’s largest
lithium-ion battery, a 100-megawatt monster made by Tesla, was installed next to a windfarm in South Australia.
has so far flown under the radar of investors, trading at just 0.39 cents a
share as of Wednesday’s close. The stock price is nowhere near reflective of
what Cypress has in the ground, providing junior mining investors with a
spectacular entry point. (Read Cypress has world class Clayton Valley Nevada lithium
to Roskill’s 15th edition market outlook report, demand from companies that
produce batteries to power electric cars, laptops, cell phones etc is expected
to increase 650% by 2027, with overall lithium demand forecast to rise more
than threefold over that period. Electric vehicle lithium-ion battery pack
manufacturers’ share of the overall market for lithium-ion batteries will grow
from 46% in 2017 to 83% by 2027.
It is in
this context that a new US lithium mine is being proposed next to Albemarle’s
Clayton Valley Nevada, Silver Peak Mine.
Cypress Development Corp. has released positive
results from a preliminary economic assessment (PEA) of the company’s Clayton
Valley lithium project in Nevada. The PEA was prepared by Global Resource
Engineering (GRE) of Denver, Colorado, an independent engineering services firm
with extensive experience in mining and mineral processing. All dollar values
are in US dollars.
Net present value of $1.45 billion at 8%
discount rate and 32.7% internal rate of return on after-tax cash flow.
Lithium carbonate price of $13,000 per tonne
based on Benchmark Research market study.
Average annual production rate of 24,042
tonnes of lithium carbonate over 40-year life.
Capital cost estimate of $482 million,
pre-production and operating cost estimate averaging $3,983 per tonne of
Updated Resources from May 1, 2018 estimate:
Indicated Resource of 831 million tonnes at 867
ppm Li, or 3.835 million tonnes lithium carbonate equivalent (LCE).
Inferred Resource of 1.12 billion tonnes at 860
ppm Li, or 5.126 million tonnes LCE.
Cypress CEO Dr. Bill Willoughby commented
“This is another important milestone for the project and Cypress. The PEA
outlines the steps necessary for a mine and mill at Clayton Valley, including a
sulfuric acid plant which is the main driver in the costs. GRE uses a conventional
approach in processing and developed a production schedule that utilizes only a
small fraction of the total resources on the property. The end result is a
project that has strong economics and the potential to generate significant
timing is excellent. Silver Peak failed to increase production between 2012 and
2016 and its lithium grades are rumored to be dropping.
Development Corp has discovered a different type of deposit than the usual
brine or hard rock lithium deposits, which must either be mined using drill and
blast methods, or pumped into shallow ponds and allowed to evaporate, after
which the concentrated lithium carbonate is extracted.
estimate is based on drill results from 23 holes completed by Cypress in 2017
and 2018. The deposit remains open at depth, with 21 of 23 holes ending in
lithium mineralization, meaning the drills have plenty of room to run in
expanding and growing the resource.
course, the size of a lithium deposit is of limited value if the metallurgy
doesn’t work. In an earlier article we discussed the difficulties
of processing lithium, but in Cypress’ case the metallurgy looks
relatively simple. The company has shown that lithium can be extracted from the
clay using a flow sheet whereby recoveries of +80% can be achieved in short
leach times (4 to 8 hours) using conventional dilute sulfuric acid and
leaching. The amount of sulfuric acid and reagents needed is relatively low,
and being able to leach the lithium with acid avoids costly calcine and regrind
of material during processing, which would be the case if the deposit was
lithium-rich clays aren’t as high-grade as some hard rock lithium mines, but
the mining and processing is simpler and less expensive.
itself is volcanic-derived ash that fell into a lake bed and metamorphosed into
clay. One theory about the brine that Albemarle has been pumping over the years
is that it’s derived from volcanic ash, which is the source of the lithium
brine. Cypress believes that lithium-bearing brine aquifers could be located
below the clay. The company has identified rare “mudstones” found at the
eastern flank of the Clayton Valley; nothing similar has been found at other
properties in the valley.
lithium would be processed from a pregnant leach solution, similar to
processing copper oxide ore. Iron, silica, calcium and magnesium are
precipitated out, leaving a solution containing lithium, potassium and sodium.
The latter two minerals can be sold as by-products. The process is different
from a lithium brine operation one might find in Chile or Argentina, because it
involves a conventional mill, versus evaporation ponds found for example in the
Salar de Atacama, Chile. That also saves time.
Lithium brines can take up to take up to two years to evaporate and concentrate
cost of production is $4,000 a tonne of lithium carbonate equivalent. Set
against an average global 2017 price of $13,900/t for lithium carbonate, the
economics are already looking great.
has identified about 200 million tonnes of ore, estimated to contain a million
tonnes of LCE, it would use for its initial open pit mine. The company is
targeting 20,000 tonnes of lithium carbonate (LCE) production a year
(1,000,000/20,000 = 50 years of mining), which is bang on 10% of the current
global 200,000 tonnes per year LCE production. Ten percent of world production
is considered to be enough to affect the lithium price, so if Cypress goes
mining and starts producing at the numbers it hopes to, the mine will be a
price setter and will influence the entire lithium market.
currently exists no mine to battery supply chain in North America – not in the
United States nor Canada. At Albemarle’s Silver Peak Mine, the lithium,
produced at around 3,500 tonnes LCE a year, is shipped to Kings Mountain in
North Carolina, which produces lithium hydroxide needed for lithium-ion
batteries. This material is then loaded on ships and sent to Asian battery
manufacturers, which sell the batteries to auto-makers. The irony is that
Tesla’s Gigafactory in Nevada is located just a short distance away from
Cypress’ Nevada deposit.
“As global demand for lithium hits overdrive,
Albemarle Corp is investing millions of dollars to engineer specialized types
of the light metal for electric car batteries, part of a strategy to remain the
niche market’s top producer.
The pivot comes as battery makers such as Panasonic
Corp , the sole battery supplier to Tesla Inc, increasingly demand more
purified versions of lithium that can help boost electricity storage and
increase a battery’s charge, shaping Albemarle’s strategy, according to sources
and documents reviewed by Reuters and confirmed by the company.
Roughly 500,000 electric vehicles were sold globally
in 2016, a figure that is expected to jump sevenfold by 2022, according to
estimates from the U.S. Energy Information Administration.
Albemarle’s strategy, which includes developing a
battery research center near its North Carolina headquarters, is aimed at
setting it apart from its major competitors, including Chile’s SQM and China’s Tianqi Lithium Corp.”
can we rely on the good graces of other countries, namely Australia, China,
Chile and Argentina, where 90% of the lithium is produced. We need to develop
an energy metals industry in North America from mine to battery.
has promised 25% tariffs on about $50 billion worth of Chinese products,
including semiconductors and lithium batteries. In the midst of this trade
instability, imagine a North American mine that can supply lithium to American
car companies, making electric vehicles, in the US, free of tariffs, with good
access to water (unlike Chile) and infrastructure?
no foreign off-take agreements in place – the only North American lithium miner
that can say that.
the upcoming PEA as a catalyst that could convince Albemarle that one way to
stop SQM knocking it off its pedestal is to lock up North American lithium
supply by partnering with Cypress or purchasing the lithium deposit outright.
Especially with a whopper of a project right next to its Silver Peak Mine with
the capability to produce at 20,000 to 60,000 tonnes a year.
shenanigans with Elon Musk and taking Tesla private for a price completely
unsupported by the loss-making company has us believing that we need a serious
player to come in and build a North American EV battery industry. Albemarle is
in the driver’s seat to do that, with Cypress’ help. Will it make them an
offer? At aheadoftheherd.com we believe Albemarle will certainly be looking at
the Cypress PEA closely and will no doubt do their own due diligence before
making a move.
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Notice / Disclaimer
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.
Mills has based this document on information obtained from sources he believes
to be reliable but which has not been independently verified.
Mills makes no guarantee, representation or warranty and accepts no
responsibility or liability as to its accuracy or completeness. Expressions of
opinion are those of Richard Mills only and are subject to change without
notice. Richard Mills assumes no warranty, liability or guarantee for the
current relevance, correctness or completeness of any information provided
within this Report and will not be held liable for the consequence of reliance
upon any opinion or statement contained herein or any omission.
I, Richard Mills, assume no liability for any direct or indirect loss or damage
or, in particular, for lost profit, which you may incur as a result of the use
and existence of the information provided within this Report.
owns shares of Cypress Development Corp. (TSX-V:CYP).