Sustainable, clean and innovative ways to ensure the energy security of the planet is a subject that preoccupies governments across the world. While oil and gas prices, and the geo-politics attached to those markets, embark on another roller-coaster, the growing demand for electrified vehicles and the exciting new ways of energy storage means the extraction of lithium compounds and their use in lithium-ion batteries indicates a very bright and exciting light at the end of the energy tunnel.
The law of supply and demand has been a cruel force for uncertainty as the world tries to find a balance between huge new supplies and reducing demand.
The waning demand for iron ore, copper, aluminium and other raw materials have created big questions for investors and those brave souls who risk capital to dig up and process the ingredients that underpin modern society.
The key words at the recent Davos summit were “renewables”, “environmentally friendly” and “sustainability”. To be fair, those words have been ringing in our ears for many years. The ambitions and fears are the same in 2016 as they have been at the many, seemingly endless Climate Change Conferences across the planet.
We have created a world that requires energy, without it we cannot cope. Even the simplest and the most basic of functions is deemed virtually impossible. Our lives come to a grinding halt, both at home and at work. We cannot survive without the trappings of the 21st Century: instant and reliable communication, cheap and convenient modes of transport, power to keep us hot and to cool us down, and to process essential foodstuffs. Yet, with these incredible advancements, we are still reliant on technology that dates back over 100 years to transport us and even older to power us.
That’s why I am hugely encouraged by the progress in the energy storage market and in particular in adoption of the lithium-ion battery in larger mass markets. It is no longer a pipe dream, but a reality. The continuing demand for the electrification of cars in 2015 means that the growth from 5% of the energy market to 25% by 2025 is achievable.
For decades we have carried a supply of small batteries to power small gadgets at home, from your children’s toys to electric shavers. But batteries are getting big, literally and figuratively. As Goldman Sachs reported last autumn, lithium rechargeable batteries will be the future drivers for our cars and vehicles and soon they will be helping to keep the lights on, opening up a “massive” and “untapped” opportunity for investors.
The Wall Street firm’s analysts predicted confidently (based on real evidence) that energy storage will change the way the power grid operates, writing that the ability to store renewable energy has long been “a holy grail” for clean energy, and large-scale battery storage is gaining momentum. That means your car and your home appliances driven by lithium batteries.
Ford are committed to a programme of investing 40% of the resources to electric or hybrid cars. The Volkswagen diesel emissions scandal was the catalyst for much of this momentum, with most major car manufacturers worldwide investing hugely in electric battery-powered engines. The United States are looking to eventually stop building diesel engines. To Ford and General Motors, batteries are the future, climbing aboard the well-publicised bandwagon initiated by Tesla Motors and their chief executive Elon Musk.
There’s the Nissan Leaf, the Renault Zoe, BMW’s i3, VW’s e-Golf and e-Up plus other models from Citroen, Peugeot, Kia Mini and Mitsubishi. The cars look distinctive and have ever-improving guaranteed travelling distances before recharging is necessary. They appear to have attracted rather strange names, but that’s a minor issue at this stage.
Li-ion batteries provide lightweight, high energy density power sources for a variety of devices. To power larger devices, such as electric cars, connecting many small batteries in a parallel circuit is more effective and efficient than connecting a single large battery. Lithium energy is commonly used in mobile phones, smartphones, laptops and tablets, cameras, game consoles and even electronic cigarettes. Lithium is the source of energy for ‘Curiosity’, the robotic rover exploring Gale Crater on Mars as part of NASA’s Mars Science Laboratory mission.
Other worldwide analysts concur with Goldman Sachs’ optimism, thanks to costs of production reducing, technology improving year by year, a marked increase in private and venture-capital funding, while governments across the globe are backing new initiatives.
Goldman Sachs went as far as to predict that the energy-storage business has the potential to be a $150 billion market ‘within a few years’. To reinforce the messages from Goldman Sachs, Citi Bank reported last October that “The Future Is Electric”, predicting a healthy rise in the price of lithium carbonate (current long-term contracts are priced at $6,500 per tonne of lithium carbonate), and a “mass adoption” of electric vehicles from all the major manufacturers and continued growth in demand from existing industrial applications, such as ceramics, glass, polymers and alloys
Nonetheless with all this potential, I am concerned with the lack of development of upstream sources of material, in particular the extraction, refinement and supply of the Lithium compounds that are required for lithium ion batteries.
There are some major players already in the market. Albemarle, SQM and FMC are the largest producers in the world, extracting the product in Argentina, Chile & Australia, either via brines (massive salt flats which rely on water evaporation) or hard rock mines. However these incumbent producers of lithium are limited in their ability to bring additional supply to the market to satisfy growing demand. The market will need junior producers.
According to the industry experts, total global production for 2015 was around 200,000 tonnes of lithium carbonate equivalent (LCE) and is expected to jump to 410,000 tonnes per annum by 2025. However, and according to these same market experts, the total current maximum supply rates is around 235,000. The reality is that at this point in time there are very few new producers coming online, which I believe will result in a supply shortfall from 2018 onwards unless new large producers of lithium are funded and developed.
This is where I need to declare an interest. I am chief executive of London-based investment business Rare Earth Minerals. We own both strategic stakes and have joint ventures over very large, scaleable and low cost lithium projects (production costs forecasted to be between $1,000 an $3,000 per tonne of lithium carbonate) which are in either the exploration or development stage.
The most advanced of these is the Sonora Lithium Project in the north-western Mexican state of Sonora, 11km south of Bacadehuachi, 180 km northeast of Hermosillo. The site is approximately just 170km south of the USA-Mexico border. We own a total economic interest of between 17% and 40% in the various mining licenses. The remainder is owned by the operator Bacanora Minerals.
The project, involving the El Sauz, El Sauz 1, Fleur and La Ventana concessions, has some 9 million tonnes of lithium carbonate contained within the deposit. The pre-feasibility study is due for completion by the end of March 2016, after which we would expect to see the definitive study to be completed in late 2016 to early 2017. With construction and commissioning to occur through 2017-2018 and initial production of 17,500 tonnes per annum in 2019 increasing to 35,000 tonnes per annum in 2021. To place this into context this mine at planned full production would be the second producer at a company level, second only to SQM whom have several mines.
A major step was achieved with our announcement last August of a conditional long-term lithium hydroxide supply agreement with a major electrical vehicle manufacturer. The Sonora Lithium Project Partners are working to develop a mineral-rich, lithium-bearing clay deposit into a planned low-cost sustainable and environmentally-conscious open pit mining operation.
We also have an 11% stake in the Cinovec deposit in the Czech Republic, which has some 5 million tonnes of lithium carbonate. It sits on the Czech-German border and is currently in the early exploration stage. Nonetheless it is anticipated to be a very low cost producer, with ample scale and in a very strategic location.
So, while the world economies grapple with a dark picture, there is an alternative, much brighter image to focus on. Lithium is a real resource that will transform our sustainable energy supplies for generations to come.
Senior Executive ● Global Mineral Extraction Industry ● CEO at Cadence Minerals
Cadence Minerals Plc
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