Lithium chemical processing capabilities are key to capturing higher margins for lithium producers.
Lithium producers capable of developing processing capabilities could be in a position to secure higher margins for their products.
Global demand for lithium is expected to grow steadily over the next decade, with energy storage, particularly as it relates to electric vehicles (EVs), as the main driver of that growth. BloombergNEF has forecast that global sales of EVs will grow from 1.1 million in 2017 to 11 million in 2025, with China accounting for nearly half of those sales in 2025.
Auto manufacturers have announced upwards of “US$300 billion in investments over the next five to 10 years to capture that EV market,” Alex Holmes, CEO of Plateau Energy Metals (TSXV:PLU), told the Investing News Network at the Prospectors & Developers Association of Canada conference. The company’s Falchani project in Peru ranks as the sixth-largest hard rock lithium resource in the world. “So, it is becoming mainstream … Every single car company in the world is moving to electric.”
The global lithium market in 2018 saw increasing signals that EV battery makers are looking to lithium hydroxide as well as lithium carbonate for battery cathode formulations. Based on lithium giant SQM’s (NYSE:SQM) figures for 2018, lithium carbonate dominated the global market, representing 60 percent of lithium product demand, while lithium hydroxide represented less than a quarter of market share.
Bart Vanden Bossche, SQM’s sales director, told the audience at the recent Advanced Automotive Batteries Conference that over the next decade demand for lithium carbonate is likely to grow at a compound annual growth rate (CAGR) of 10 to 14 percent alongside a CAGR of 25 to 29 percent for lithium hydroxide.
Spodumene concentrates vs. lithium chemical products
Today’s global lithium production comes mainly from hard rock deposits such as Tianqi Lithium’s (SZSE:002466) Greenbushes mine in Australia, or brine deposits such as SQM’s Salar de Atacama in Chile. Unlike lithium products derived from brine operations, hard rock spodumene deposits produce a concentrate that must be further processed into either lithium hydroxide or lithium carbonate for use in lithium-ion batteries. The substantial premium these products fetch over concentrate products is leading some hard rock producers to invest in conversion facilities in order to increase their profit margins and capture 100 percent of the value chain.
Most hard rock mining is associated with lithium-bearing spodumene in pegmatite deposits. The ore mined during these operations is processed through conventional milling and flotation methods to produce a spodumene concentrate as the final product. Brine operations, on the other hand, involve pumping lithium-bearing brine to surface level evaporation ponds followed by further processing to produce lithium carbonate, which can then be treated on-site to produce lithium hydroxide.
“Converting spodumene concentrate to either of these lithium chemical products requires most hard rock producers to ship their concentrate to conversion plants in China, which results in a loss of about 60 percent of potential revenue as compared to producing the high-value chemical product,” said Holmes.
The ability to produce lithium chemical products on-site places brine operations at an advantage over hard rock when it comes to profit margins. The high price per tonne for lithium hydroxide or lithium carbonate compared to spodumene concentrate can erode the low production cost advantage of hard rock producers, particularly when considering where the value chain is retained — at the mine or offsite at the conversion facility.
“Average total cash costs in 2019 at hard rock lithium mines are expected to be less than half of those at brine operations,” explained Adam Webb, head of mine economics at S&P Global Market Intelligence. “However, the value of the concentrates produced at hard-rock mines is on average US$6,250 per tonne lithium carbonate equivalent (LCE) lower than that of the lithium chemical products produced at brine operations. The higher-value products from brines outweigh the higher cost and result in a forecast average 2019 margin of US$5,386/t LCE, almost twice that of their hard-rock counterparts.”
This value differential has prompted some hard rock lithium miners to take a more vertically integrated approach to their business model, planning for and constructing nearby facilities designed to convert spodumene concentrate into lithium carbonate or lithium hydroxide. A prime example is Tianqi Lithium’s AU$400 million plant at Kwinana in Western Australia, one of two lithium hydroxide conversion facilities that will convert some of the spodumene produced at Greenbushes into lithium hydroxide.
“The additional cost of converting the spodumene concentrate to lithium hydroxide is expected to be US$2,456/t LCE in 2019,” noted Webb. “However, this is outweighed by the value addition to the product, which will increase from US$4,587/t LCE for spodumene concentrate to US$17,274/t LCE for lithium hydroxide.”
At this time, the majority of the leading hard rock lithium producers are not vertically integrated with their own conversion operations, placing those with conversion capabilities at a high advantage when it comes to gaining market share and maintaining higher profit margins in the lithium-ion battery industry.
Lithium producers exploring processing capability
Plateau Energy’s Falchani high-grade lithium project contains a unique volcanic-hosted hard rock lithium deposit with a 2019 updated resource estimate of 4.7 million tonnes of lithium carbonate equivalent. The company is now working on a preliminary economic assessment for the project, which is slated for release in the second half of 2019. Metallurgical studies to date have yielded a high-value, low-impurity lithium carbonate product, not a concentrate, through commercially used processing routes. The option to produce a lithium hydroxide at site may be a future possibility.
Other companies with the potential to supply the lithium-ion battery market include Critical Elements (TSXV:CRE,OTCQX:CRECF,FWB:F12) and Lithium Americas (TSX:LAC,NYSE:LAC). Critical Elements has successfully produced battery-grade lithium hydroxide in pilot plant testing on spodumene concentrate from its Rose project in Quebec. Nemaska Lithium (TSX:NMX,OTCQX:NMKEF) recently shipped several potential customers lithium hydroxide samples produced from its Shawinigan Phase 1 plant facility using concentrate from its Whabouchi mine in Quebec.
The EV revolution is here, albeit in the early stages. Battery manufacturers are still working on perfecting the right cathode chemistry for balancing power and performance with safety and stability. Lithium producers with scalable projects and the ability to vertically integrate low-cost conversion capabilities or produce the high-value end product at site without a conversion facility could be in the best position to respond to the evolving needs of this emerging market.
This INNSpired article was written according to INN editorial standards to educate investors.