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Lithium: The Next Strategic Material

Lithium (Li), the third element on the periodic table is the lightest metal known to man. What makes lithium attractive in the production of batteries is its unusually high storage capacity, making it the obvious choice for laptop computers, hand held electronic devices and of course electric vehicle's.

The reality is that lithium only occurs in economic concentrations in a handful of regions on the planet. Lithium, like copper and other base materials, can be used in a wide variety of applications.

According to the US Geological Survey ("USGS"), "a quarter of all Li produced worldwide is used in batteries; both high-power non-rechargeable cells as well as rechargeable batteries used in cellular phones and laptop computers."



Chevy Volt: 16 kWh battery Uses roughly 10 kg lithium carbonate
Source: General Motors

Global Production & Demand Outlook

Production

The extraction and production of Lithium comes from three primary sources. Mining hard rock --ores such as spodumene (which is the most expensive type of lithium production), hectorite clays in the south western United States and brine solutions located under salt beds. Brines have dominated production as they represent the lowest cost extraction. According to the USGS the global production of Lithium Carbonate Equivalent (LCE) is 128,000 tonnes. Roughly 50% of all production of LCE comes from Chile (63,600 tonnes) and 80% of the global production comes from just four countries (Chile, Argentina, Australia and China).

An important consideration is that supply will grow with new entrants to the market. The difficulty comes from what type of production the exploration companies are presenting. Companies exploring brine type deposits can be fully developed and selling lithium within a 2-3 year timeframe. Conversely, it would take a company with a spodumene type deposit 5-6 years to begin production. Two very commonly cited reports from Meridan Research ("The Trouble with Lithium" and "The Trouble with Lithium Part 2") strongly suggest that lithium will have supply constraints, which of course is a great concern for auto companies converting to electric vehicles. "Only a brine lake or salt pan deposit that contains lithium chloride is economically and energetically viable for Li-ion batteries." (Meridan Research "The trouble with Lithium").

Lithium Demand, by End-Use Segment

Demand

Much of demand increase will be derived from digital cameras, laptop computers, cellular phones and of course electric vehicles. Most experts hold that demand for the lithium-ion ("Li-ion") powered vehicles such as the Chevy Volt and Nissan Leaf will far surpass current demand for hybrid vehicles powered by the Nickel-metal hydride ("NiMH") battery such as the Toyota Prius and Honda Insight. The economics of day to day operation of the Li-ion powered electric vehicle will likely be the key driver in the shift in consumer demand.

Leading industry analyst Jon Hykawy of Byron Capital Markets notes:

"We are projecting 40% Li demand increase by 2014, with batteries accounting for 34% of use, the largest single end-use segment."

Demand Growth Projections (Tonnes LCE)

	2009	2010	2011	2012	2013	2014
Consumption Today						118,000
Ceramics/Glass	32,450	33,099	34,423	35,800	37,232	38,721
Batteries	26,550	27,347	28,987	31,306	33,811	36,516
Greases	13,570	13,841	14,395	14,971	15,570	16,192
Aluminum Production	7,080	7,222	7,510	7,811	8,123	8,448
Air Con	6,490	6,620	6,885	7,160	7,446	7,744
Casting	8,260	8,425	8,762	9,113	9,477	9,856
Other	23,600	24,072	25,035	26,036	27,078	28,161
	118,000	120,626	125,997	132,197	138,737	145,639
Base Increase in Demand						23%
Additional Automotive
Prius-like	-	300,000	400,000	500,000	600,000	700,000
Volt-like	-	-	150,000	200,000	300,000	400,000
Leaf-like	-	-	200,000	350,000	500,000	700,000
Auto Consumption
Prius-like	-	300	400	500	600	700
Volt-like	-	-	1,950	2,600	3,900	5,200
Leaf-like	-	-	4,000	7,000	10,000	14,000
Auto Totals	-	300	6,350	10,100	14,500	19,900
Totals	118,000	120,926	132,347	142,297	153,237	165,539
Total Inc in Demand						40%

Source: Byron Capital Markets Jon Hykawy, Ph.D., MBA

Production from Continental Brines

Essentially brines are dissolved salts. Economic grades of lithium lie within these sub-surface brines. Initially, grades for lithium contained within a brine type deposits range from 200 parts per million ("ppm") to as high as 2,200 ppm. The brine solution from producing wells is pumped into a series of solar evaporation ponds. Concentration ensues from the natural evaporation of the brine solution. The solution is trucked and then treated in the final stages of refining and production of lithium carbonate.

Estimated Production Cost per Tonne Li2CO3 from Brine

Process Step	Chemical/Driver Cost	Cost ($/tonne Li2CO3)
Remove Magnesium	Slaked lime (Ca(OH)2)	180 (per unit Mg:Li)
pH Adjustment	Hydrochloric acid (HCl)	20
Remove B/Sulphates	Calcium chloride (CaCl2)	240
Convert to Carbonate	Soda ash (Na2CO3)	760
Plant Amortization	n/a	1,067
Total	$ 2,267 (at Mg:Li of 1:1)
Variable Cost per tonne	$ 1,200 (at Mg:Li of 1:1)

Source: Byron Capital Markets Jon Hykawy, Ph.D., MBA

Current Lithium Pricing

As a general rule in the production of lithium-ion batteries; 600 grams ("g") of LCE is required for each Kilowatt Hour ("kWh") of battery storage. With production cost for LCE being as high as US$6,600 (spodumene production costs) per tonne US$4 of LCE is required for every 1 kWh of battery (which would exclude the manufacturing costs of the battery). Meaning for a 1kWh battery pack (using the standard 18,650 cells contained in a 1 kWh battery pack) the cost would be US$400. Industry experts suggest that even doubling the cost of lithium would do little to change demand and with auto companies desire to meet performance expectations, most would use more lithium in each battery produced, despite the increased cost.