For a long time, most of the world’s lithium was produced by an oligopoly of producers often referred to as the “Big 3.” Prior to being acquired by Albemarle (NYSE:ALB), Rockwood Lithium, part of Rockwood Holdings was on that list. The other members of the club were Chile’s Sociedad Quimica y Minera de Chile (NYSE:SQM) and FMC (NYSE:FMC), which operates in Argentina.
However, the list of the world's top lithium producers has changed in recent years. Those companies still produce the majority of the world’s lithium, but China continues to take a huge chunk out as well. China was the fourth-largest lithium-producing country last year in terms of mined production, according to the US Geological Survey, following Australia, Chile and Argentina.
More importantly, however, Australia does not currently produce lithium chemicals, and China is producing more and more of them.
Even though Australia narrowly beat out Chile last year in terms of mined production, its largest mine, the Greenbushes lithium project, is majority controlled by China’s Tianqi Group. Tianqi owns a 51-percent interest in Talison Lithium, which runs the mine, while Albemarle now owns a 49-percent stake in the company via its acquisition of Rockwood.
Certainly, securing a steady supply of lithium is becoming mroe and more important for end users. According to Bloomberg, Sichuan Tianqi Lithium Industries (SZSE:002466) and Jiangxi Ganfeng Lithium (SZSE:002460) have seen their stocks nearly double in the past year. At the same time, China based electric car and bus maker BYD is under pressure to “get hold of lithium resources,” to bring down battery costs.
Lithium expert Joe Lowry has written extensively about China’s rising share of the lithium market. The graphic below, put out in 2015 using results from 2014, outlines how the global lithium space has changed over the past decade or so:
[caption id="attachment_127655" align="aligncenter" width="600"] Source: Global Lithium LLC[/caption]
The market share for the “Big 3” lithium producers has dropped from about 85 percent to 53 percent, while China now has about 40 percent of the world’s market share.
In other words, lithium investors need to be keeping an eye on lithium producers China, as well as on the New York-listed chemical companies among the ranks of lithium producers. Here’s a look at some of the world’s largest lithium producers.
When Albemarle closed its acquisition of Rockwood Holdings and Rockwood Lithium in early 2015, it became the heavyweight in the lithium space. The company’s net sales for lithium were approximately $508.8 million for 2015, well above what was reported by SQM and FMC. Lowry calls Albemarle the lithium superpower.
The lithium producer owns lithium brine operations in the US and Chile, and, as mentioned above, it owns a 49-percent stake in the massive hard-rock Greenbushes mine Australia.
On February 1 2016, Albemarle was granted a long-awaited permit to increase its lithium brine extraction rate at its operations in Chile. The lithium producer also signed a memorandum of understanding (MOU) with the Chilean government to define a partnership for the increased lithium quota. However, SQM has stated that it will seek to challenge the granting of this permit. In August 2016, the company signed a definitive agreement to acquire lithium hydroxide and lithium carbonate conversion assets form Asia.
The company also produces bromine and other performance chemicals, and has refining solutions and Chemetall surface treatment business segments as well.
Revenues from lithium and derivatives for 2015 came in at US$223 million for SQM, an increase of 7.8 percent compared to 2014. The company stated that its lithium business accounted for approximately 21 percent of its gross profit margin for the year.
The lithium producer faced some challenges in 2015. It spent plenty of time butting heads with Chile’s Corfo over its leases in the Salar de Atacama, where the company’s brine operations are located. Earlier in 2015, the company got some unwanted attention as part of a broader probe into into bribery and tax evasion in Chile, leading the company’s CEO to resign and to three directors representing Potash Corp of Saskatchewan (TSX:POT) leaving the company as well.
On March 28 2016, SQM announced a joint venture with Lithium Americas (TSX:WLC) to develop the Cauchari-Olaroz lithium project in Jujuy, Argentina, marking SQM’s first investment in lithium production outside of Chile.
In September 2016, SQM announced its plans to increase lithium hydroxide capacity in Chile from 6,000 metric tons per year to 13,500 metric tons per year.
Beyond its lithium business, SQM is also a significant potash producer and the world’s largest producer of iodine.
FMC, which operates its lithium business in the Salar del Hombre Muerto in Argentina, reported lithium segment revenues of $238 million for 2015, seven percent lower than in 2014. Full year earnings from FMC’s lithium business came in at $23 million, $4.2 million lower than in 2014.
The lithium producer reported that higher prices for lithium hydroxide and lithium carbonate, as well as cost savings projects, helped to offset inflation and currency impacts in Argentina for 2015.
FMC, like most others following the lithium sector, sees strong lithium demand with prices continuing to rise. However, though the lithium producer plans to increase its lithium hydroxide throughput by another 10 percent in 2015, Lowry noted in an overview of the company’s annual report that the company will still be producing less than they were a few years ago.
In an era where hydroxide is in a global period of undersupply and prices are triple last year in some markets –it would be wonderful if FMC could state they had record production,” he stated, “but unfortunately they do not and prefer to highlight incremental year over year increases.”
On that note, in October FMC signed a long-term carbonate supply with Nemaska Lithium (TSX:NMX) wherein Nemaska would supply FMC with 8,000 metric tones of lithium carbonate per year, beginning in 2018.
Sichuan Tianqi Lithium
Lithium producer Tianqi Lithium is a subsidiary of Chengdu Tianqi Group, headquartered in Chengdu, China. The company states that it has been focused on advancing its entire lithium processing chain in regards to securing a large share of the lithium battery market. It is the world’s largest hard-rock-based lithium producer.
Tianqi beat out Rockwood Holdings to take control of Talison Lithium, which owns the Greenbushes mine in Australia, in 2012. However, it subsequently sold a 49-percent interest in the company to Rockwood, which is now owned by Albemarle.
Ganfeng Lithium is another important Chinese lithium producer that investors should be keeping an eye on. Headquartered in Xinyu, China, the company is China’s second-largest lithium producer.
Like Tianqi, Ganfeng is also buying up interests in lithium companies outside of China. It owns a 14.7-percent stake in junior lithium company International Lithium (TSXV:ILC), and signed an MOU for an offtake agreement with Australia’s Reed Industrial Minerals, owned by Neometals (ASX:NMT) and Mineral Resources (ASX:MIN), in July 2015.
Furthermore, Lowry has said that Chinese lithium producers are becoming much more significant as suppliers to the global lithium ion-battery market. China now produces more cathode for lithium-ion batteries than Japan and Korea combined.
Aside from the world’s top lithium producers, a number of other lithium companies are getting into production as well.
Orocobre (TSX:ORL,ASX:ORE) continues to ramp up lithium carbonate production at its Olaroz lithium facility in Argentina. In the third quarter of 2016, the company produced 3,013 tons of lithium, with a fourth quarter forecast between 3,500-4,000 metric tons.
Beyond that, there are plenty of lithium juniors looking to develop projects and become lithium producers as well. Two have signed conditional supply agreements with Tesla Motors’ (NASDAQ:TSLA) (Bacanora Minerals (TSXV:BCN,LSE:BCN)/Rare Earth Minerals (LSE:REM), and Pure Energy Minerals (TSXV:PE)), while many more are converging on the prolific Clayton Valley.
However, analysts and market watchers have cautioned that only those who can reach low costs of production will be able to compete with the world’s current top lithium producers.
Tesla's supply chain has gotten plenty of focus from the press, but it’s worth remembering that, at least for now, the cathode for Tesla’s batteries is made in Japan. Companies in the country make nickel-cobalt-aluminum (NCA) cathodes for Panasonic (TSE:6752), the maker of battery cells for Tesla.
While Tesla is certainly a major demand driver for the lithium space, Lowry believes that Tesla tends to obscure demand growth in China.
Certainly, China is not only a heavyweight in terms of lithium producers, but is also big for demand as well. The country has had significant growth in cathode going to all segments of the battery market, including consumer electronics, grid storage and transportation applications such as e-bikes and buses.
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Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Joe Lowry was employed by FMC from 1989 to 2012. His most recent title was Global Sales and Business Development Director — Lithium.
Nemaska Lithium and Galaxy Resources are clients of the Investing News Network. This article is not paid for content.
This post was originally published by the Investing News Network on May 5 2016.
By Jocelyn Aspa
Bacanora Minerals received an unsolicited non-binding indicative proposal from Rare Earth Minerals, which it rejected.
Bacanora Minerals (TSXV:BCN) has provided an update on activities being undertaken as part of its definitive feasibility study for the Sonora lithium project.
As quoted in the press release:
The FS is focussed on at delivering the most economically robust development strategy for an initial 17,500 tonne per annum (“tpa”) of lithium
On Monday, French oil and gas producer Total announced that it had signed an agreement to acquire Saft, a leading lithium-ion battery maker, for 950 million euros. This marks Total’s second foray into the clean energy space, as the company acquired a controlling share of SunPower, a leading US solar
Two of Tesla Motors’ key executives are leaving the company ahead of the release of Tesla’s Model 3. The company saw its share price drop four percent on the news on Tuesday, and was trading around $222.75 as of 2:42 p.m. EST.
Highlights include an after-tax NPV of US$542 million at an 8-percent discount rate, and an after-tax IRR of 25 percent.
In its interim results for the six months ended December 31 2015, Bacanora Minerals (TSXV:BCN,LSE:BCN) stated that it is planning to move directly to a definitive feasibility study once its prefeasibility study is complete for its Sonora lithium project in Mexico.
Rare Earth Minerals Plc (LSE:REM) has raised gross proceeds of GBP3.55 million, or US$4.93 million in a placement to US institutional investors. Proceeds will be used to fund additional acquisitions in the lithium sector.
Antioquia Gold was the top-gaining stock for the week, followed by Goldsource Mines, Bacanora Minerals, Terraco Gold and Pacific Booker Minerals.
Alix Resources (TSXV:AIX) has discovered a lithium-bearing, clay-rich showing at its Electra project in Mexico. Electra is located adjacent to the Sonora lithium project, owned by Bacanora Minerals (TSXV:BCN) and Rare Earth Minerals Plc (LSE:REM).
Representatives from Nemaska Lithium, Western Lithium, Avalon Rare Metals and Lithium X comment on the lithium outlook for 2016.
Branson Hamilton is chief investment officer and managing director of Calyx Capital Advisors, a full-service wealth management firm that provides comprehensive financial advice and investment management.
Branson’s 30-plus-year career spans from operations, to product invention, to marketing, to business strategy, to company leadership at some of the largest companies in the world, as well as at middle-market and entrepreneurial businesses. He has always been recognized for his knack of discovering opportunities that have produced growth and profits.
During the heyday of mining investment a few years ago, industry analysts projected that lithium production would far outpace demand for the product. That was then, this is now.
Mining investment has cratered in the past several years, limiting supply growth to only those projects that have shown very real potential. Meanwhile, battery production is ramping up, raising demand above past expectations.
Here's a sample of analyst comments from an article reviewing the lithium market in 2015:
Consolidation of suppliers — as well as long-term supply agreements and strategic investments by battery producers, automobile companies and other large users, primarily from China, Korea and Japan — is restructuring the market. In some cases, these changes are clearly making future supply from specific producers unavailable to Tesla.
Some recent examples of industry changes:
Recent articles have reported Tesla’s pursuit of exploration partners and supply agreements with sponsors of yet-to-be proven supply sources. While that displays a view toward the future, history has shown that the success rate of new mine proposals at the stage of these ventures is similar to Silicon Valley ventures — most don’t succeed.
Clearly, access to the basic building block of lithium-ion batteries is critical to Tesla’s vision of success for the gigafactory. These exploration and prefeasibility plays bet on a possible future that depends on many things going right. Chris Berry of the Disruptive Discoveries Journal has called these deals an “out of the money call option.”
What these projects lack is a strategy to create supply security. Even if one of these exploration ventures were to become a viable supplier, the process of getting from a concept to a producing mining facility will take many years.
So, why would Tesla pursue these long-term, low-probability bets for possible future supply of the core material for its flagship factory when what it needs is access to near-term supply? The thought is echoed by industry advisor Joe Lowry in an article from November 4 — he states, “[t]he REAL risk they are taking by not aligning with major suppliers is that they could find themselves without adequate lithium at a critical time in their growth (late 2017 or 2018).”
Perhaps the answer is that Tesla can’t negotiate reasonable terms with the major suppliers.
To begin, Tesla doesn’t buy lithium; it isn't even in the market today. Tesla buys batteries from Panasonic (OTCMKTS:PCRFY) for the automobiles it produces. And while the gigafactory has been hyped for a couple of years now, it won’t be in production until 2017 ... or later. Only at that point will Tesla begin to be a customer for lithium.
And then, even though the factory is “giga,” the amount of lithium required will not make it a 500-pound gorilla in the lithium market. Lowry comments in a November 8 article, “[e]ven if Tesla produces 300,000 vehicles by 2020, the total amount of lithium required for their batteries will still be under 8% of the growing world market. Tesla is significant but not of a size where they can dictate terms to the limited world of lithium suppliers.”
Given the state of the lithium market and the proliferation of electric vehicles, why would any large supplier limit its options by signing an agreement with a company that is not yet in business in a supply marketplace where the future customer set is so unknown? Porsche (ETR:PAH3) has said that it will invest a billion euros to bring its first all-electric car to the market. Who’s next?
Tesla will need access to lithium to fulfill its vision for the gigafactory. Its current actions of aligning with exploration ventures will not provide it with secure supply soon. It does not have the clout in the lithium market to negotiate strong deals with major suppliers.
So what is Tesla to do?
It needs to find tangible sources of supply that fit with its location and needs. One suggestion is to look at smaller suppliers or new supply sites that are potentially within two to three years of production.
Interestingly, there is a source of lithium right in Tesla’s backyard that could be brought online closer to the same timeframe as the gigafactory. It also has more lithium than it will require given the current ramp up of car sales.
Apparently little attention has been paid to a project that is much further along in development than the speculative bets described above, is less than 500 miles from Tesla’s Nevada facility and whose process captures significant amounts of lithium in high concentrations.
If you leave Tesla’s facility headed east on US Highway 6 and drive into Utah, you will pass right by the Sevier dry lake, a brine lake that contains a range of minerals, including lithium. Crystal Peak Minerals (TVXV:CPM,OTCQX:CPMMF) is in the development stage with its project. It is targeting production of potassium sulfate, a specialty fertilizer with strong and growing demand, using solar evaporation of the lake brine. The company also intends to produce other minerals, including lithium.
The brine of the Sevier Playa (dry lake) contains lithium, according to Crystal Peak's prefeasibility study. While the report focuses on potassium sulfate production, it indicates that there will be significant amounts of lithium in the highly concentrated solution that remains after extracting the potassium sulfate.
The process used to extract potassium sulfate uses solar evaporation to concentrate the minerals in the brine. When the brine is sufficiently concentrated, potassium sulfate precipitates out of the brine as a crystal. The remaining liquor is pumped to a separate pond. In testing, engineers found 1.92 grams per liter of lithium, a very high concentration, in this liquor. Thus, unlike typical lithium brine projects that require substantial engineering to get brine concentrated enough to begin chemical extraction, this liquor is already concentrated and in a pond ready for further processing.
The report further notes that the lithium can be extracted from the solution by one of several chemical processes. Sociedad Quimica y Minera de Chile (NYSE:SQM) also produces potassium sulfate and lithium from a brine playa in the mountains of Chile. Processes for extracting the lithium are well known, and include ion-exchange resin, solvent extraction and membrane processing, as noted in the prefeasibility study.
Moving forward, Crystal Peak will continue to evaluate its options for lithium extraction from the Sevier Playa to determine whether it can be incorporated into its flow sheet. A feasibility study for the project is expected to be complete in 2016.
The Sevier Playa is 125,000 square miles in size and contains an array of minerals in its dense brine. By comparison, the brine lake that is the basis for Pure Energy’s project noted above is only 8,000 acres in size.
The Crystal Peak prefeasibility study shows strong economics for producing potassium sulfate. This is the intended primary product of the company; it has sufficient equity funding to develop the project, and it expects to be in production in 2019. Thus, the project is fully in the development stage, unlike the exploratory ventures for which Tesla has made agreements.
Crystal Peak is completing its engineering work in preparation for final permitting and initiation of the construction phase of the project. Included in this work will be its plan for processing lithium. As a by-product of the primary product delivered from the Sevier Lake, adding lithium production will be less costly from both a capital and operating perspective than building out a facility from scratch (as is being proposed by those only focused on lithium).
The engineers conducting the study calculated that the amount of lithium in annual production equates to over 6,799 tonnes per year of lithium carbonate equivalent. The amount of lithium present in this concentrated liquor is substantial.
The sellable output quantity of lithium depends on the efficiency of the chemical process used. For example, process testing at other brine sites by Tenova Bateman Technologies indicates the possibility of up to 99-percent capture of lithium from less concentrated brine. The author chooses to use a more conservative 60-percent capture rate for sizing of the output. At a 60-percent capture rate the resulting marketable output would be 4,080 tonnes of lithium carbonate annually.
To put 4,080 tonnes in perspective, the total global production of lithium in 2014 was approximately 37,000 tonnes. Analyst estimates for 2015 are for 9 percent more production, for an estimated total of 40,000 tonnes. Thus, 4,080 tonnes is approximately 10 percent of current global production of lithium. It is also well above the tonnage of lithium used in batteries for Tesla automobiles at a production level of 50,000 vehicles this year.
Lakes, clays and rocks containing lithium are being explored and tested for feasibility on every continent. Perhaps there are other projects that Tesla could consider that are firmly in the development stage and do not currently have a strategic customer as an investment partner.
Maybe Tesla doesn’t know that this possibility exists. It’s true for many of us that we don’t know what our neighbors do for a living. However, this opportunity looks like a “no brainer.” It is in development. It has all equity financing needed (the rest may be financed through debt). It is very close to the Tesla factory, and with the capacity to make a real difference.
I’d suggest that Tesla work with its backyard neighbor in Utah before one of its competitors captures this significant resource.
Securities Disclosure: The author, Branson Hamilton, will not initiate investments in any of the companies mentioned within 72 hours of the article’s publication. He is not paid by any company mentioned in this article, nor does he have any financial relationship with them.
The information in this article came from public sources. The author contacted Crystal Peak Minerals and was informed that agreements and restrictions by regulators prohibit the company from commenting or providing information beyond what is in publicly available documents. This material is for informational purposes only and should not be used as the sole source for investment decisions. The views and conclusions are those of the author and not necessarily of the firm in which he is a principal.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in this article. The opinions expressed in this article do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.