WHERE CAN I BUY SOME LITHIUM ?
Every so often, I hear at a dinner gathering the question: “Is there enough lithium?” I have already covered this question in a previous post. The answer is YES. However, an abundance of a resource in the earth’s crust does not mean that its economics will always be favorable. These depend on several factors, in particular the balance or lack thereof between supply and demand.
We know demand is rising. Batteries in consumer devices, electric vehicles, energy storage….But what about the supply? how is lithium mined? where is it mined? which countries or corporations control this supply chain? …etc. Let’s explore.
Let’s start with some basics. Lithium is a metal. With an atomic number of 3, it sits right below hydrogen in the first column of the periodic table. That means it is a very light metal. Also, it means it is an alkali metal, and as such, it is highly reactive and flammable. Lithium is not found in nature in its purest metal form. Instead, it is found in various types of deposits; the most common lithium ores are spodumene and petalite minerals (mined as pegmatite rocks), as well as lithium brine deposits that are essentially underground saline water enriched with dissolved lithium.
Spodumene is a lithium aluminum silicate, with the chemical formula LiAlSi2O6. In its simplest form, it is a yellow or brownish crystal but spodumene includes two gem varieties that are more precious: the pink Kunzite and the rarer green Hiddenite. Petalite, with the chemical formula LiAlSi4O10, often occurs alongside spodumene, though the latter has a higher Li2O content and is considered the more important ore.
Spodumene is found in low concentrations in pegmatite rock deposits (these are rocks, like granite, that formed millions of years ago in the final stages of the crystallization of magma as it cooled down). Spodumene mines follow traditional drill-and-blast methods that expose unweathered zones of the pegmatite rock ore. The spodumene ores containing about 3 to 5% Li2O are then processed in neighboring plants into high-grade lithium sludge-like concentrates that are then crated for shipment. This is what a refinement or a conversion plant receives for further processing into the final product, either lithium carbonate or lithium hydroxide. The latter is typically used in the manufacture of batteries using NCA or NCM cathodes (like the ones used in the Tesla electric vehicles) whereas lithium carbonate is the preferred material for batteries with LFP cathodes (widely used in China) or LCO cathodes (the typical cathode material in consumer applications). This older post reviews the different types of common cathode materials used in lithium-ion batteries.
Lithium brine deposits are processed in different and far less expensive ways. Much like salt ponds used to make table salt, the brine, often holding a concentration of 200 to 1,400 mg per liter of lithium, is pumped to the surface and stored in a succession of ponds where evaporation results in a higher concentration of lithium salt. This drying process can last 9 to 12 months and yields the required 1 to 2% concentrate of lithium. This is then further refined at chemical plants into the final product, again lithium carbonate or lithium hydroxide. A lithium brine field might require $150-$300 million in capital expenditures, whereas a spodumene mine could easily require 5 to 10 times that amount. But as we will see below, there are advantages to spodumene mines.
The primary mines for spodumene are in Western Australia with the Greenbushes mine being one of the largest. Africa also boasts of additional mines with the Manono-Kitolo mine in the Democratic Republic of Congo being a notable one. There are also known deposits in the US, Canada, Europe (e.g., Austria, Serbia, Russia) either still unmined or in small mining operations. In contrast, brine deposits are largely concentrated in South America, with the Uyuni field in Bolivia and the Atacama field in Chile containing enormous reserves. The provinces of Catamarca, Salta and Jujuy in Argentina also hold significant reserves. The USGS reports that Australian and Chilean mines each produced in 2015 a total of 13,400 and 11,700 metric tons, respectively, accounting for 77% of the world’s production of lithium. An interesting tidbit: The United States government, through its Defense Logistics Agency Strategic Material, held in 2015 a strategic reserve of 150 kg of LCO and 540 kg of NCA battery cathode materials.
Known world’s deposits of spodumene tend to be smaller than those of brine deposits, around 10 million tons of lithium for spodumene vs. over 25 million tons of lithium for brine. However, the diverse geographical distribution of spodumene deposits makes pegmatite mining less susceptible to supply chain disruption and a more reliable source of lithium.
Companies mining for lithium have seen their fortunes rise in the past 10 years. In Chile, anecdotally called the Saudi Arabia of lithium, Sociedad Quimica y Minera (SQM) is the largest lithium mining company in the world. It just formed a new joint venture with Western Lithium and Lithium Americas, two smaller US operations. In the US, FMC Corp. and Abermale Corp. (through its acquisition of Rockwood Lithium) are two large players. In Australia, Talison Lithium is very prominent. These four companies account for about 55% of the world market of lithium, with Chinese chemical companies, such as Ganfeng Lithium and Tianqi, accounting for an additional 45%.
Given the rising demand for lithium, it is not surprising that the four major Western suppliers all announced significant expansions in their production of lithium carbonate and hydroxide. But as supply tries to keep up with demand, spot prices of lithium ore have hit a near high price in excess of $600 per tonne, up from a long term average near $400 per tonne. Goldman Sachs estimates that these prices translate to a spot-market product price of $20 per kg for lithium hydroxide up from the average $9 per kg that Korean and Japanese battery makers were typically paying. As supply and demand balance out in the coming years, lithium hydroxide pricing will return to more normal levels, but these normal levels could easily be above $10 per kg. In other words, lithium is getting more expensive — but one thing is very likely, as lithium gets more expensive, batteries continue to get commoditized placing serious financial pressures on battery manufacturers.
If you are an investor, however, looking for a pure lithium play, you are a little out of luck. That is because many of the mining companies tend to be diversified chemical conglomerates, and lithium, as a commodity, still does not have futures contracts or swaps, leaving equities as the only play.