Soaring Demand for Lithium Fuels Exploration and Production Race
NEW YORK, April 17, 2018 /PRNewswire via COMTEX/ — NEW YORK, April 17, 2018 /PRNewswire/
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A January report from Zion Market Research projects the global lithium-ion battery market, worth around $31 billion in 2016 and dominated by Asia-Pacific producers such as China, is on track to grow at a CAGR of 13.7 percent through 2022, ballooning to over $67.6 billion (http://nnw.fm/9gEz3). Australia, Chile, Argentina and China are responsible for the lion’s share of global lithium production (around 93 percent) – about half of which is currently consumed by battery production. Prices per ton for the two main types of lithium (hydroxide and carbonate) have jumped from around $6,500 in 2015 to recent highs of more than $20,000. UBS Securities also recently projected that lithium demand will continue to stay high through 2024 (http://nnw.fm/GCfv9), citing primary drivers such as the burgeoning EV (electric vehicle) market, which is projected to grow at a whopping 28.3 percent through 2026 (http://nnw.fm/T80kH). All of this is extremely bullish news for lithium producers, whether we are talking relatively small up-and-comers such as British Columbia-based QMC Quantum Minerals Corp.(QMC)(3LQ) QMCQF, -3.16% (QMC profile) and Nemaska Lithium, Inc.(NMX) NMKEF, -1.67% or sector heavyweights such as Chile’s Sociedad Química y Minera de Chile S.A. SQM, -0.69% Albemarle Corporation ALB, -1.21% and FMC Corporation FMC, +0.12%
Cleaner Cars Require Much More Lithium
Bloomberg New Energy Finance analysis of the EV market shows production will increase more than thirtyfold by 2030 and relays Deutsche Bank estimates that there are enough lithium reserves in the ground to last us another 185 years (http://nnw.fm/rm7qC). With developments on the horizon such as lithium-ion batteries that could store a third more energy using a lithium metal electrode instead of graphite, the race to develop lithium resources is officially on for a world increasingly concerned about the cleanliness of the energy it consumes.
Recent flap from Morgan Stanley about a potential oversupply of lithium fails to accurately account for both the insatiable demand and the rate of supply throughput to end markets (http://nnw.fm/alG3C). SQM cited a 17 percent jump last year in demand and estimated a 20 percent uptick this year in its annual report. More importantly, not all lithium projects with a suitable grade are necessarily economical, and an oversupply of mined product is not the same thing as having an abundance of high-quality processed lithium that is ready to be used in batteries. Producers that can systematically increase output are in a prime position to make the most of this historic opportunity, especially as increasingly cheap-to-produce batteries eat up more and more of the market, eventually representing some 90 percent of all lithium consumption by the mid 2020s. That trend has put internal combustion engine vehicles on notice, with estimates that by 2022 EVs will actually become cheaper than gas guzzlers (http://nnw.fm/v8Ndw) and even outsell them by 2040 (http://nnw.fm/hfYA2).
Unprecedented Lithium Demand Drives Expansion
Underlying demand fundamentals are an important factor for QMC Quantum Minerals Corp. (QMC)(3LQ) QMCQF, -1.62% which recently expanded its 100 percent-owned Irgon Lithium Mine Project in Manitoba by nearly fourfold to some 6,538 acres in the heart of this mining-friendly province (http://nnw.fm/otSf2). Manitoba is currently well on its way to becoming Canada’s most improved province and was ranked the second most attractive global jurisdiction for mining investment in 2016 by Fraser Institute (http://nnw.fm/qfQz4). The Irgon Lithium Mine Project site benefits from superb access and the well-developed mining infrastructure that Manitoba has to offer.
Quantum Minerals subsequently followed up on its channel sampling program of late last year (http://nnw.fm/yU7Gb) and the considerable acreage expansion at Irgon with some impressive exploration finds. These finds included a number of newly identified pegmatite dikes that kicked up some tantalizing trends via initial field evaluation by onsite geological teams, including one trend running approximately 410 feet along strike, with an exposed surface width ranging from 6.5 to 16.4 feet (http://nnw.fm/WHp6y; http://nnw.fm/M5H8w). Subsequent grab sample assay results confirmed that the dikes, located south of the main Irgon dike, do, indeed, bear considerable lithium mineralization, with one return coming back at an impressive 2.6 percent Li2O (lithium oxide).
Quantum a Near- Term Producer with ‘Good Dirt’
Having been cleared by Manitoba’s Sustainable Development Office with a drill permit in March, Quantum Minerals may be well-situated for its 2018 field season. Plans are in the offing for a 6,561-foot drilling program designed to validate the historic resource estimate from the 1950s, which showed 1.2 million tons of Li2O at 1.51 percent over 1,198 feet to a depth of 700 feet. The 2018 field program will also test for extension(s) to the main dike below 700 feet.
Quantum Minerals will be bucking hard this year to update markets with a thorough, NI 43-101-compliant resource estimate for the project, which historically yielded an 87 percent recovery rate averaging 5.9 percent Li2O concentrate during the historical 1950s-era work program. That same work program also saw installation of a complete 500 tons per day mining plant and the sinking of a 243-foot, three-compartment shaft, including 1,200 feet of lateral extensions from which six crosscuts transected the main dike.
Full results of the late 2017 program that yielded 144 channel samples across the width of the main dike comfortably exceed historic estimates. One interval even showed 1.43 percent Li2O over 59 feet, including a sweet spot of 1.73 percent over 46 feet. Numerous grades from 3.05 to 4.31 percent Li2O over 3.28-foot intervals were also reported, and 41.1 percent of pegmatite assays exhibited returned over 1 percent Li2O. There were also significant grades identified of tantalum (310 ppm), niobium (275 ppm), rubidium (2,961 ppm), cesium (567 ppm) and beryllium (325 ppm), further enhancing the Irgon project’s overall economics.
Big Aces Up Quantum ‘ s Sleeve
Previous lithogeochemical survey work at Irgon – looking for tantalum and tin that was done on the dikes south of Cat Lake by Tantalum Mining Corporation of Canada (“TANCO”) in the late 1970s – has given Quantum Minerals one particularly choice data point to follow up on during the company’s 2018 field program. A 3,609-foot anomaly, which is 328 feet wide on the east end and nearly 1,150 feet wide on the west end, was never assayed by TANCO for lithium due to a lack of demand for the metal at that time, even though the exploration report indicated it was a good idea to check it out (http://nnw.fm/Zu94n). This massive anomaly could be a big win for QMC Quantum Minerals, adding considerable value to an already impressive project, and the company looks eager to sink its teeth into what may be a heavily mineralized region.
In addition to the extremely promising Irgon Lithium Mine Project, Quantum Minerals has roughly 57,000 acres, known as the Namew Lake District property, up in northwestern Manitoba’s world-class Flin Flon/Snow Lake VMS (volcanic massive sulfide) district. A 43-101 report released in 2013 – after the company’s 2012 drilling program and VTEM (versatile time domain electromagnetic) survey, which yielded 41 targets – recommended a work and exploration program to further delineate the 100 percent-owned project’s properties as an economic mineral resource. This project is proximal to Hudbay’s currently producing copper, zinc, gold and silver bearing 777 Mine and is only 6.8 miles southwest of the Namew Lake mine that previously produced 2.57 million tonnes of copper, nickel, gold, silver, palladium and platinum. The Namew Lake District property has the potential to host several distinct VMS bodies and represents a potential ace in the hole for Quantum Minerals that investors should be aware of.
Proposed Tariffs Could Be a Boon for North American Producers
Recently proposed tariffs on lithium primary cells and batteries from China will most likely not impact the EV supply chain (http://nnw.fm/gT5NM). However, this turn of events will no doubt significantly boost the overall North American lithium market, lighting a fire under companies throughout the industry. Companies that either import or manufacture lithium-ion batteries, such as Johnson Controls, Exide Technologies and A123Systems, will have to start thinking about solutions closer to home. This is good news for North American lithium producers, who already have trouble maintaining production rates that keep up with skyrocketing demand.
And while Morgan Stanley recently cited massive Chilean production expansions as potentially driving the price of lithium down 45 percent by 2021, the Trump administration’s move toward protectionism could substantially change market conditions, especially for companies such as Tesla, which uses 10,000 times more lithium for one Model S than there is in the average smartphone battery and which is currently in talks with Chile’s SQM to secure a steady supply of the white metal. China alone has set massive goals for plug-in hybrids and EVs, with quotas to this end coming online next year and plans to have such green vehicles make up one-fifth of all the country’s auto sales by 2025.
Top Players Expanding Production Footprints
Nemaska Lithium, Inc.(NMX) (otcqx:NMKEF) is a good example of a company just north of the border with solid production capability on the table and plans for increased production. A recent feasibility study for Nemaska’s development-stage Whabouchi hard-rock lithium deposit in Quebec targets a 20 percent increase in capacity to 16,000 tonnes annually. The hybrid open-pit and underground mine will have a 33-year mine life based on proven and probable reserves of 24 million tonnes at 1.53 percent Li2O. Nemaska President and CEO Guy Bourassa seemed extremely bullish during a January conference call, during which he indicated the production expansion plans were a response to the company’s understanding of both the underlying demand fundamentals and extensive discussions with lithium-hungry customers around the globe (http://nnw.fm/b0e0V).
Sociedad Química y Minera de Chile S.A SQM, -0.53% a fertilizer giant, a veritable Chilean institution, and one of the world’s biggest producers of lithium, recently announced a key agreement with the Chilean Economic Development Agency (Corfo) (http://nnw.fm/UQth3). The agreement ends a yearslong fight over SQM royalties and sets up the company, which is the lowest-cost producer of lithium from Chile’s sprawling Salar de Atacama salt flat, to more than double its lithium production by next year (http://nnw.fm/8Exb5). While SQM has said it will gauge further production expansion based on prevailing market conditions – likely due to the company’s share price drop after the Morgan Stanley report – 100,000 tonnes is less than half of what the world consumed annually two years ago. Furthermore, lithium demand is projected to grow substantially well into the 2020s, and the company’s share price has rebounded nicely since the Morgan Stanley selloff that impacted lithium producers earlier this year, retracing to well above SQM’s 52-week median.
Albemarle Corporation ALB, -1.36% a U.S.-based specialty chemicals company, is the world’s other top producer of lithium, after the company’s acquisition of Rockwood Holdings in 2014. The company amended its lithium production rights agreement with Corfo last year to expand production in Chile to 80,000 metric tons per year. Albemarle subsequently announced the development of a new technology that will allow the company to increase that figure to 125,000 metric tons per year without the need for additional brine pumping at the Salar de Atacama, triggering a new demand to Corfo for an additional lithium quota increase.
FMC Corporation FMC, +0.20% is the third-largest lithium producer behind SQM and ALB. The company announced earlier this year that it will expand production in Argentina over the next few years to more than 40,000 metric tons via a $300 million investment – a deal that further illustrates the current land race taking place among producers to lock in the best production sites around the globe.
North and South America Are Development Hotspots
North American lithium production represents some of the lowest jurisdictional risk to be found anywhere on earth and typically has well-developed infrastructure and site access. Nevertheless, an increasingly insatiable global demand for the so-called “white petroleum” has sent producers scrambling for acreage in Chile, Argentina and Bolivia, where there is an abundance of salt flat mineralization. Chile even recently announced plans to substantially revise mining codes and make the country even more competitive as an investment target. North or south, the story is the same: Smart producers can read the handwriting on the wall as the trend is to shift away from hydrocarbons toward lithium and other energy sources; these same producers are planting their flags on key acreage and ramping up production volume.
For more information about Quantum Minerals, please visit QMC QMC Quantum Minerals Corp. (QMC)(3LQ) QMCQF, -1.62%