The frenzied search for more lithium, a key ingredient in batteries to store solar power and to drive electric cars, has reignited the entrepreneurial spirit of an Australian mining industry bashed hard by falling global commodity prices.
The rise of Tesla, with its electric cars and powerwalls to store solar power for night time use, combined with emerging plans by the big vehicle makers to launch their own green cars, has seen global demand for lithium soar.
Many a junior miner, left in the wake of falling commodity prices without a reason for existence, has its eye on lithium.
Tim Richards, Deloitte’s clients and markets partner in Western Australia, each year creates an index of ASX-listed companies in the state.
Last year they shed 11.6%, driven by the general slowdown in the mining sector and the drop in ore prices.
However, the market value of Western Australian–based listed companies grew by 1.8% in the 2016 financial year, closing at $134.5 billion, driven at least partly by lithium.
“Lithium was clearly the surprise package for 2016,” Richards says.
“We have seen a price increase of more than 200% as excitement continues to build around the potential for lithium batteries within electric vehicles and general power storage devices.”
This month a large lithium player in Australia emerged with the close of the merger between Galaxy Resources and General Mining Corporation, creating a market capitalisation company of almost $800 million.
Galaxy has acquired 90.31% in General Mining, past the threshold needed for compulsory acquisition of the rest of the company. Galaxy’s shares are trading at 39 cents each, well ahead of the 12 month low of 2.4 cents.
The fund managers see the potential. UBS has investments in Galaxy plus two other lithium miners, Orocobre and Pilbara, across its Small Cap, SIV and Microcap funds.
“They are exposed to what is likely to be the largest structural change we will witness in the next decade,” says Stephen Wood, portfolio manager at UBS.
“Electric vehicles have great advantages. Power is instant, no clutches, no transmission, no radiators, no noise and no emissions.
“The disadvantages are the weight of batteries, the amount of energy needed for reasonable range and (in Australia) principally coal-fired sourced recharging.
“Lithium batteries appear to offer a weight/storage solution, at least for urban driving. Lithium batteries also offer a solution to the problem of intermittent power generation by renewable generation such as solar and wind.”
Injection of capital
For Western Australia, the rise in lithium has seen an injection of capital into the small to mid-end of the market.
And it’s almost a moot point whether the potential is fact or fiction, says Richards at Deloitte.
“What it has done has re-ignited the entrepreneurial spirit that the commodities sector has been missing over the past few years,” he says.
“The optimism is not just confined to the small to mid-end of the market.
“While some of the major global mining companies still consider the lithium market too small to arouse their interest, Rio Tinto has bucked that trend and recently said that its Jadar Lithium-Borate project in Serbia will be a strategically important project for its mineral business.”
The future of lithium is all about the economics of supply and demand.
In 2015, the lithium market was estimated to be 170,000 tonnes. Of this, 35% to 40% was used in lithium ion-batteries, with the balance for ceramic, glass and other industrial applications.
Richards cites research forecasting demand to be between 270,000 to 340,000 tonnes by 2020 with more than half being used in lithium-ion batteries. The research indicates this increasing to between 500,000 and 600,000 tonnes by 2025 with lithium-ion batteries accounting for 65% to 70%.
In 2015, world supply was dominated by four major producers with more than 90% of the market.
Tianqi Lithium, the 51% majority owner of the Talison Lithium mine at Greenbushes in Western Australia, currently produces about a quarter of the world’s lithium supply.
The other three are Albermarle, which has the other 49% of the Talison Lithium mine at Greenbushes, SQM (Sociedad Quimica y Minera) in Chile and FMC Lithium in the US.
There is a lot of lithium about in the world but rich veins are needed because profitable extraction is difficult. However, technology is said to be about to catch up with the potential to make the process easier and cheaper.
In Australia, there are a number of emerging producers.
Presentations at the annual Diggers and Dealers conference in Kalgoorlie this week have been thick with the mention of lithium.
The Australian projects
The newly merged Galaxy/General Mining company has its Mt Cattlin project. Neometals and Mineral Resources have the Mt Marion project. Both are in Western Australia and started mining this year.
Here’s a slide Neometals presented at Diggers and Dealers, hammering home the view that demand will rise as the cost of batteries falls:
Among the other lithium projects are the Pilangoora project in north Western Australia by Pilbara Minerals which presented at the Diggers and Dealers this outlook on lithium demand:
The share price of Pilbara Minerals is running at 54 cents, up from a 12 month low of 10 cents.
And there are others trying to get into the game by prospecting for lithium bearing ores.
“If the forecasts for the increase in the use of electric vehicles are correct, then it is quite realistic to expect a significant increase in the demand for lithium,” says Richards.
“The fiction or unknown side of this equation remains in the reality that only a very small percentage of those companies now claiming to be ‘in lithium’ will actually ever get to the stage of having something that represents a potential commercial lithium resource.
“That is not to say that most of them don’t have an important part to play in the lithium market because, as we know, without exploration, the next commercial resource will not be found.”