Lithium Demand Powering Ahead
Junior miners vie for opportunities in innovating green energy sector
By Scott Simpson
Industrial demand for lithium is hitting the mining sector — and consumers of energy and technology — in a series of huge waves.
The first, powered by compact and efficient rechargeable lithium-ion batteries enabled widespread consumer adoption of smartphones and tablets.
The second consumer wave, which has yet to crest, is the growing adoption of plug-in electric vehicles, or EVs, as practical alternatives to private automobiles powered by internal combustion engines. New manufacturers such as Tesla, as well as traditional ones including Ford, Chevrolet and Mercedes Benz, are in a fierce rush to meet the expectations of a millennial generation of consumers looking to shrink their environmental footprints by opting for lithium-ion battery-powered vehicles.
Tesla CEO Elon Musk appeared to up the ante for home-based green energy systems with an October 2016 announcement that he wants to commercialize the manufacture of solar photovoltaic roof panels that look like conventional roof tiles. Tesla, which recently acquired solar energy company SolarCity (also chaired by Musk), announced an update on its lithium ion household electricity storage battery, Powerwall 2, which offers twice the power of the original — and presents homeowners with an off-grid option for electric car charging.
The third and largest wave, utility-scale energy storage, is still gathering momentum according to a recent report by Deutsche Bank.
Deutsche Bank envisions huge high-capacity storage battery units revolutionizing electricity grids. These units would give utilities the option to store large volumes of power for peak demand cycles — and lower day-to-day costs by deferring expensive new electricity generation projects.
It’s not just an opportunity for utilities. A household equipped with small wind turbines and solar panels on its roof can bank that energy in a battery for later use. For example, you could collect solar power in the daytime, then draw down the battery at night to keep the lights on.
“The emergence of the electric vehicle and energy storage markets is being driven by a global desire to reduce carbon emissions and break away from traditional infrastructure networks,” Deutsche Bank states.
“Consumers are aware of their reliance on carbon fuels and seek to break away from traditional infrastructure networks, while not accepting any impact to quality of living.”
“Deutsche Bank has identified over 25 battery applications within the energy storage sector, and calculates that the top five, including grid management and peak demand support, will account for more than 95 per cent of lithium ion battery use in 2019, up from 56 per cent in 2015. It anticipates a fivefold increase in global battery consumption over the next decade, placing pressure on the battery supply chain.”
As the United States Geological Society noted in a recent brief, “Lithium supply security has become a top priority for technology companies in the United States and Asia. Strategic alliances and joint ventures between technology companies and exploration companies have been, and are continuing to be, established to ensure a reliable, diversified supply of lithium for battery suppliers and vehicle manufacturers.”
A recent report from Swiss Resource Capital AG describes lithium as “the energy storage medium of the future.” It quotes Commodity Capital CEO Tobias Tretter, manager of an internationally focused lithium index fund, as saying that the fundamentals for the metal are strong.
Stetter suggested many new exploration companies that rushed to take advantage of a recent surge of investor interest in lithium wouldn’t survive as the sector consolidates over the next couple of years. “This will ensure that the ‘promotion’ companies disappear and the investors will focus once again on the companies with the best management teams and the best projects.”
One of the companies on his radar screen as a potential future candidate for inclusion in the lithium index fund is Millennial Lithium Corp (TSX.V: ML), headquartered in Vancouver.
“The company has quietly acquired a very prospective lithium brine project in the Puna region (of Argentina) where the projects of Orocobre, Galaxy and Lithium X are located,” Stetter said. He noted the presence of veteran geologist Ian Scarr, responsible for Rio Tinto’s Jadar lithium project in Serbia among other discoveries, on Millennial’s management team.
Millennial’s chairman is Graham Harris, formerly a Senior Vice President and Director at Canaccord Capital. The company, which has traded as high as $2.45 after starting 2016 at $.0.06, is focused on projects in the so-called ‘lithium triangle’ comprised of resources and exploration areas in Bolivia, Chile and Argentina.
The company, in September 2016, filed a NI 43-101-compliant technical report related to its 1,200 hectare Pastos Grandes Salar lithium project, and has budgeted $3 million for initial exploration. Previous work carried out at Pastos Grandes indicates that the property exhibits what the company describes as “significant lithium and potassium brines.”
Also in September, Millennial entered an option agreement to acquire 100 per cent of the 2,990-hectare Cauchari East Lithium Project in Jujuy Province, adjacent to Orocobre’s producing Salar de Olaroz mine. According to the company, its Cauchari property “displays geological characteristics common with the deeper, buried salar-type mineralization that has been proven for Salar de Olaroz and Lithium Americas’ Cauchari-Olaroz (project).” Scarr said Pastos Grandes has the potential to be in production in three years — and the company wants to proceed quickly with Cauchari East as well.
“I see prices staying strong for quite a number of years,” Scarr said, “in contrast to a lithium boom-bust cycle five years ago.”
“This year we saw a dramatic increase in prices, driven by literally panic in the streets, particularly in Asia. That price increase is a simple, direct function of supply and demand. At this point, some eight to twenty thousand tonnes added capacity is required each year, and that demand growth is increasing year-by-year. I don’t see it slowing for the good part of a decade.”
Scarr thinks juniors have the advantage over the majors, which can “almost maintain the growing base load but aren’t quick or flexible enough to take advantage of surging demand.”
“The majors today are mainly operators of cash-cow facilities, not niche designers and innovators. Yes they can hire talent, but they have no real inherent advantage, other than existing customers — assuming they have treated those customers right and while some have, others have not.”
Scarr said Millennial will advance its projects by “focusing on the fastest path to cash flow. This has become our mantra: cash flow first, improvements and expansion later.
“To make sense of it all, we must stay abreast of market trends and technology, while keeping an eye on the traditional cost drivers.”
Millennial Lithium president and CEO Kyle Stevenson thinks the company’s surging share price is a reflection of the interests of millennial investors who grew up with products supported by lithium-ion batteries.
“A lot of investors in this field would be classified as millennials — including the brokers we have involved, and their clients. They get lithium, they get graphite, they get the metals that are going to hit the high tech sector, whereas if you try to sell a copper deal, that’s your father’s mining deal,” Stevenson said.
He said Argentina is “by far” the most mining friendly jurisdiction in the lithium triangle — particularly since the November 2015 election of a new, mining-friendly President, Mauricio Macri.
“All the Vancouver junior companies went to Nevada and there are 20 companies doing deals down there now. But we see the main global production opportunity in Argentina.
“I believe investor interest in Millennial is being driven by the fact we have quality assets in a known lithium-producing corridor. We are not exploring for lithium, we are moving toward production at our Pastos Grandes property.”
Pasto Grandes is in Salta Province, an area known for conventional lithium brine deposits that can lend themselves to large-scale mining.
“You start doing comparisons to other projects in the area, and that’s what drove our valuation,” Stevenson said. “We are commencing drilling very soon. That will give us an understanding of the resource, which leads to raising additional funds, and completing a feasibility study.
It’s definitely an exciting time and we are moving full speed ahead. We are drilling Cauchari probably in December and that will give us a good idea of additional resources there.”
Stevenson echoes Deutsche Bank’s projection that electricity generation sector — the “power wall” — will be the biggest catalyst for growth in lithium demand in the next few years.
“If that starts to take hold, demand for lithium goes through the roof.”