The future of the electric-car market is at the bottom of saltwater pools in some of the world’s most remote locales.
At least, that’s the story Patrick Highsmith would tell.
He’s president and CEO of Lithium One Inc. (TSX-V:LI), one of a growing population of junior mining companies scouring the earth for lithium, which is used to create the lithium-ion batteries that power many electric vehicles.
Yet Highsmith said many lithium explorers still have a tough time attracting investment because the market is young and extraction methods are, well, unconventional.
Lithium mining takes more than a pickaxe and a shovel, he said; in fact it’s more like drilling for oil in that much of the commodity is derived from saltwater reservoirs found in remote salars or salt flats.
“We’re very singularly focused on low-cost lithium production that will be amenable to producing battery-grade lithium products for the hybrid and electric vehicle industry,” Highsmith said of his Vancouver-based company.
“The reason we are is because we saw brine production from South America as the best way to create low-cost lithium that can survive the price cycles.”
Extraction process
Here’s how lithium production from a salar works: a company will drill into the salt flat to tap the brine reservoir. The brine is then pumped out and transferred to an evaporation pond where the sun does its work.
The leftovers undergo a chemical process that separates the lithium from other elements such as magnesium and potassium chloride before it’s sold.
But there are other ways to mine lithium.
One is traditional hard-rock mining, and even though Lithium One has a hard-rock deposit in Quebec, Highsmith said it would never be as economically viable as a salar.
“The reason is you’re drilling, blasting and milling to get it,” he said.
“Yes, we rely on solar energy to evaporate the water once it’s in the evaporation pond, but you design those ponds to maximize their efficiency.”
Aside from the mining process, what makes a junior lithium company viable?
Highsmith said it all has to do with the end user.
“Some of the junior companies forget this,” he said. “In the lithium business we realized very early on you don’t have a mine if you don’t have a customer.”
He likened it to other strategic industrial metals that meet a niche demand for a much larger industry.
That’s why the company signed a joint-venture agreement with state-owned Korea Resources Corp. in June that will not only fund the development of its Argentine Sal de Vida project, but also secures a customer for up to 50% of the lithium produced from the project.
Vancouver-based Salares Lithium Inc. (TSX-V:LIT) recently cut a similar deal of its own.
Australia’s Talison Minerals Pty Ltd., the world’s largest producer of lithium, agreed to merge with Salares and raise $40 million to support the junior’s brine project in Chile.
Salares president and CEO Todd Hilditch said the demand for lithium dropped off during the recession, but has increased lately as more auto-manufacturers design and build new electric vehicles.
And even the capital markets have begun to take note of a sector that up until now has been virtually unknown.
In July, New York-based Global X Funds launched the first lithium exchange-traded fund (ETF) that investors can trade like a stock.
“The Global X Lithium ETF is an efficient way to invest in what we refer to as a ‘green’ commodity because of its direct correlation to the renewable energy market such as electric cars and energy storage,” Bruno del Ama, CEO of Global X Funds, said in a recent release.
Lithium One’s Highsmith said it’s good news for an industry that’s had trouble attracting investors.
“I see it as attracting liquidity and a normalcy of volume of trading based on a commodity that has a bright future,” Highsmith said.
But some investors remain speculative about whether or not there’s enough lithium in the world to support growing demand.
John Hykawy, a lithium analyst with Byron Capital Markets, said demand for the commodity has increased exponentially over the last decade.
“Battery demand for lithium is about 25,000 tonnes out of about 100,000 tonnes of total demand, and that battery use is up from essentially nothing in 2000,” Hykawy said.
He expects demand for lithium-ion batteries to continue, but lithium is also used in glass and ceramics making, which currently accounts for 31% of global lithium use, according to the U.S. Geological Survey.
Despite the good news for lithium explorers, Hykawy said the lithium market remains small, and a handful of producers could meet demand.
“This is a real market,” he said. “But it isn’t one that needs 100 players; another one or two really big ones would probably do it.”