Lots of Lithium; not Enough Mines

PALM BEACH, Florida, June 5, 2018 /PRNewswire/ --

Marketnewsupdates.com News Commentary 

Since the mid-2000's, the debates have raged as to whether there is enough lithium on the planet to handle the surge in lithium demand. Back then it was the demand for lithium to power mobile devices- laptops, phones and power tools. But now, electric vehicles have taken centre stage. Both Tesla and China have made a bid to acquire or get a deal with the same company-lithium giant, Sociedad Química y Minera de Chile S.A (NYSE: SQM). So far SQM's management has managed to stave off a takeover- but the trend is obvious- there is a very real scramble for assets. General Motors Company (NYSE: GM) has pledged twenty EV models within the next five years so demand is only expected to intensify. A look at some key market fundamentals reveals that smaller companies such asMGX Minerals (CSE: XMG) (OTC: MGXMF), Millennial Lithium (TSX.V: ML) (OTC: MLNLF) and Lithium Chile (TSX.V: LITH) (OTC: LTMCF), could potentially be the next producing lithium miner.

Chile Takes Center Stage 

It would be really quite difficult, even at the most optimistic end of analyst forecasts, to consume even 1% of the world's in-ground lithium reserves over the next decade. Nevertheless, massive new supplies are required to feed the growing number of gigafactories worldwide.

Tesla's Nevada plant may dominate the headlines, but the majority of battery production capacity unsurprisingly remains with China. The fact that China will have to import the lion's share of its lithium was a major factor in the global hunt for new resources, and the lithium triangle of South America hosts 80% of the world's reserves and offers the lowest production costs.

MGX Minerals is trialling a program in North America to extract petrolithium from wastewater brines, but Chinese lithium giant Ganfeng, as well as many others, have been focused on negotiating both ownership of and offtake from mostly Australian and South American projects over the last few years.

The case is clear-cut: Chile had the largest reserves by a huge margin in 2017 with an estimated 7.5 million metric tons contained in lithium-rich brines underneath the expansive salt flats that form the lithium triangle. The nation has more lithium than any other. Period.

The Cost Factor 

Brines only require enough space for evaporation to occur, which is taken care of by the sun and the expansive solid surface that is a salt flat. Australia's hard-rock sources are therefore more expensive to process than the brines of the lithium triangle. If the price of lithium were ever to go down, hard-rock mines would be the first to close doors; assets such as the 148,000 hectares of Chilean salar acquired by Lithium Chile (TSX-V: LITH) (OTC: LTMCF) stand the greatest chance of long-term economical extraction. The exploration property portfolio represents the largest privately held land mass by any private exploration company.

For years, the world's largest lithium producer SQM had monopolised Chilean output, but in response to the urgent need for additional mines a government policy overhaul in 2016 allowed private investors to obtain exploitation and export rights. Due to the aforementioned cost benefits of favouring brine production, global output is shifting from grinding and milling to evaporation processes. This is yet another tick in Chile's box.

In terms of the smaller players, explorer Millennial Lithium has so far acquired two Argentinian projects spanning 20,000 hectares. At the beginning of 2016, Millennial Lithium's share price was less than a penny, but only two years later stood at over C$4. Lithium Chile now has a staggering fifteen properties, with some immediately adjacent to former big-boss SQM. Currently, however, Lithium Chile (TSX-V: LITH) (OTC: LTMCF) stock is trading at only C$0.87.

This is suggestive of an undervalued share because Chile is known to be the highest-grade lithium district with the largest volume of ore, and considering the new state mining policy. The size and location of the company's portfolio translates to vastly reduced risk, and selecting the highest-grade of the 15 sites will naturally produce the most competitive initial returns.

Lithium Price is Viable 

Lithium is free to grow in value for longer because it comprises such a tiny portion of the end product. While the price has rocketed to levels that would normally prompt substitution, the cost of battery manufacturing is only negligibly affected by the lithium index. In this case, end-users are not impacted by rising raw material prices, but in the case of cobalt, the spiralling value has already prompted some manufacturers to switch cathode chemistries.

General Motors has promised an EV production business that is profitable by 2021, and a key point in its plan is to slash the cobalt content of its batteries. In addition, battery output is expected to grow by over 100 Gigawatts by 2021, and growth in this area will only accelerate. The one substitution concern is that, at some point, recycling will overtake extraction in the supply chain. However, this is unlikely to occur for at least two decades and so the material must come from somewhere, and soon.

The evidence for this forecasted explosion is in the reworking of national policy to accommodate the extraction of additional lithium supplies, the surge in acquisitions of lithium-bearing lands, and the billions and billions of dollars ploughed into development. By 2018, a number of new and growing producers had already emerged on the back of supply deals with Chinese firms, but the next big wave of producers will almost certainly come from Chile.

All things considered, the demand-side pressure will be sufficient to keep the price of lithium elevated for a number of years. Given that brine producers offer unbeatable costs, and Chile presents the least risk, emerging explorers such as Lithium Chile (TSX-V: LITH) (OTC: LTMCF) could quite easily become the next generation of mining giants off the back of two decades of 'white gold' extraction.

The New Era of Electrification is Here  

The world has entered a new era of electrification. This was first made evident with the new wave of portable devices developed twenty years ago. Those devices were eventually powered with lithium ion batteries as a matter of standard.

Today, electric vehicles, which require far more lithium to power, are becoming mainstream. SQM and other established players are expanding to meet this demand, but it's highly unlikely that it will be enough. Smaller junior companies are needed to ensure a lithium pipeline, and a junior such as Lithium Chile (TSX.V:LITH) (OTC: LTMCF), with its flagship project in the same brine system as the largest lithium producer, is well positioned to take advantage of the upward lithium momentum that is expected.

Key players in the lithium supply chain include: 

Sociedad Química y Minera de Chile S.A. - SQM (NYSE: SQM): SQM is a global company, headquartered and founded in Chile. Founded in 1968, today the company has a strong presence across a number of chemical based industries. However, SQM became synonymous with lithium production when in 1997, it's process engineering team, led by Pedro Pavlovic, proved that extraction of lithium ion from brines was indeed possible and at half the cost of hard rock lithium production. This entry by SQM into the lithium market, drove down the price of lithium carbonate by 50% causing key hard rock producers to close operations, cementing South American brines as key global lithium carbonate producers.

MGX Minerals (CSE: XMG) (OTCQB: MGXMF): MGX Minerals is developing lithium, magnesium and silicon projects across Canada and North America. With respect to the company's lithium aspirations, MGX is currently extracting lithium from oilfield brines and has developed a proprietary process that is said to be a low energy design process. To date the patent for this process is still pending, but the process has been independently confirmed by the Saskatchewan Research Council.

General Motors Company - GM (NYSE: GM): General Motors is home to eight distinct automotive brands including Chevrolet, GMC, Buick, Cadillac, Holden, Baojun, Wuling and Jiefeng. The company delivers around 9 million vehicles annually and is expected to be one of the leaders in electric vehicle automotive development. The Company has pledged that its electric vehicle division will be profitable by 2021 through its combining of proprietary battery technology and low cost flexible vehicle design and its ability to achieve volumes, mainly in China. A key feature of its strategy is in lowering the cost of their batteries by reducing the amount cobalt in favour of nickel, but its lithium requirement remains stalwart.

Millennial Lithium (TSX.V: ML) (OTC: MLNLF): Millennial Lithium is focused on developing lithium assets in the Pastos Grandes brine deposits of Argentina. The company has released its 43-101 Resource Estimate showing 2.1million tonnes of LCE of Measured and Indicated Resources and 878,000 tonnes of LCE of Inferred Resource. In April 2018, the company received its environmental permit to commence exploration of the properties, triggering a one year, $15.54 million (CAD$19.4million) exploration and development investment.

For more information on Lithium Chile (TSX-V: LITH) (OTC: LTMCF), please visit Microsmallcap.com for a free research report.

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