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Although lithium is
not in short supply now, electric and hybrid vehicles could soak up new production of the versatile light metal for decades to come. In this exclusive interview with The
Energy Report, Economist
Daniela Desormeaux of Santiago, Chile-based signumBOX, elaborates on small exploration
plays that could move up.
Companies Mentioned: FMC Lithium Corporation Galaxy Resources Ltd. Li3 Energy Lithium Americas Corp. Lithium One
Inc. Nemaska Exploration Inc. Orocobre Limited Rockwood
Holdings, Inc. Sociedad Química
y Minera de Chile S.A. Talison Lithium Ltd. Western
Lithium USA Corp.
The Energy
Report: Who are your clientele?
Daniela Desormeaux: Our customers
are very diverse. Investment
banks are looking for new
investments in natural resources, including lithium, which has become important for its use in batteries for electric
vehicles, and has therefore
become very popular. In the last four years,
more than 80 new lithium projects
have been announced. So we
have seen a lot of appetite for investment in
lithium.
Our customers also include battery companies; they are interested in understanding the
future of lithium because they
have to buy it. We also have customers who are lithium producers and involved in
exploration activities. Lithium is
strategic in terms of its use, and that's why we have seen
Toyota, Mitsubishi and other automakers
investing in the industry.
They want to secure their supply of lithium in the future. So, a percentage of our customers are automakers.
TER: Daniela, lithium trades on industrial supply and demand factors in a negotiated market. Without a public market for the
metal or its salts, how do you value producers?
DD: Lithium is not traded
on a formal market like copper and gold. So it is impossible to know, for example, how much lithium is traded in one day and at what
prices. The price is determined by negotiations between producers and customers. So
far, production of lithium chemicals has been concentrated among three main players: Sociedad Química y
Minera de Chile S.A. (NYSE:SQM; SSX:SQM-B, SQM-A) in Chile, Chemetall, a division of Rockwood Holdings, Inc. (NYSE:ROC) in Chile and in
the U.S. and FMC Lithium Corp. (NYSE:FMC) in Argentina. Meanwhile, Talison Lithium Ltd. (TSX:TLH) in Australia
is the largest producer of lithium concentrates.
These are public companies
that have to release information, so we can
value the lithium business to a certain degree, despite the fact that lithium is not traded on an exchange. However, we don't
have a daily track of what is happening in this industry in terms of volumes and prices. On
a monthly basis, we track lithium exports from major
producer countries such
as Chile, Argentina, Australia and China.
TER: Do large market-maker companies enjoy a pricing advantage over smaller companies? Can they get more for lithium because they can supply more?
DD: Absolutely, yes.
SQM and Chemetall sell
more than 50% of the total use of chemical supply nowadays. They are the drivers
of lithium prices. The main advantage
they have is that they are both located in the Salar de Atacama in Chile, which
has the highest quality
lithium resources in the world and is located within
the driest desert in the
world.
TER: I know that electric
vehicles—cars, scooters and bikes—are a
major growth driver for lithium used
to produce lithium-ion batteries. If these lithium-ion batteries can
be charged to five times
the capacity of the same sized nickel-metal hydride battery, that obviously represents a tremendous efficiency. But the
power still has to be generated by nuclear, natural gas, coal, hydro, solar, wind or geothermal means. These batteries don't produce power; they only store it, so what
is the value proposition?
DD: Well, electric
vehicles are an option, but lithium-ion batteries also serve other technologies, such as hybrid-electric vehicles and plug-in hybrid-electric
vehicles. Pure electric vehicle batteries can be plugged into
a home's electricity for charging; batteries for hybrid-electric
vehicles can also be used
while the engine is running. So it is not just an external source of electricity.
We have also to consider that automakers are researching other technologies as well, and
they have made important progress
on the efficiency of internal
combustion engines, for example.
I believe that in the
future we will see a mix of different
technologies coexisting. You have to strike a balance
because there are tradeoffs. Yes, you have to generate the electricity, but if you consider the impact of CO2 emissions,
you will conclude that electric vehicles are the best
option compared with other current-available
technologies.
TER: About two months
ago, you gave a presentation at the Technology and Rare Earth Metals Conference 2011. You concluded that there was enough
lithium in the world to meet future demand and that the price of lithium would remain the same or drop. You also said there
was room for more new producers
to come into the market. Those were your
three takeaways. From what you
said, it doesn't sound like a growth industry.
DD: In the presentation, I said that the lithium industry is a growth industry and it has a real potential because we haven't
yet seen a full implementation of its uses. We are in a transition period and so we have to wait. It's like what
happened in the 1990s: Sony introduced
the first lithium-ion battery, and it was very
successful. In less than five years, almost 90% of the batteries were
based on lithium. So we saw a very fast
penetration break for the lithium battery segment. We still don't know what will happen
in the auto industry, but the future is promising.
Years ago, some news articles questioned
the ability of the world lithium supply to meet future requirements. I think that many people overestimated the growth in the
demand of lithium and underestimated
the amount of lithium resources
in the world. That's why we saw predictions
of near-term high price grow. That's
absolutely not going to happen. My perception is that the future is promising and lithium demand will show interesting growth rates because it has many applications in addition to batteries. On the other hand, lithium is abundant as evidenced by a
total of 80 exploration projects that have been announced globally in the last few years.
TER: Can you address
some players?
DD: These companies
are not producing lithium right now,
but are exploration mining companies
working deposits and projects around the world.
Galaxy Resources Ltd. (ASX:GXY)
is an Australian company that extracts lithium from Mount Cattlin in Western Australia.
The company is building a lithium chemicals plant in China
and has already shipped
lithium concentrate mineral
to the site. SignumBOX ranks
Galaxy as number one of
all of the lithium mineral projects.
Nemaska Exploration Inc. (TSX.V:NMX; OTC:MNKEF) has a
good deposit in Canada. The company
also has an important investor
in China (Chengdu Tianqi), which
holds 10% of the stock. Nemaska's
Whabouchi Lithium Project is
ranked number three at signumBOX.
Companies with projects based on less expensive salar-bearing brines production
include Orocobre Ltd. (TSX:ORL; ASX:ORE), Lithium One
Inc. (TSX.V:LI) and Lithium Americas Corp. (TSX:LAC).
All of these companies
have projects in Argentina with
strategic partner offtake agreements—Orocobre with Toyota; Lithium Americas with Mitsubishi and
Magna, and Lithium One with LG International, Kores and GS Galtex.
In Chile, Li3
Energy (OTX:LIEG) is considering extracting lithium from a deposit in the northern Salar de Maricunga area. However, current mining regulation (which was established after SQM and Chemetall started to produce in the region) lists lithium as a strategic mineral that cannot be
exported. I strongly believe that this situation is going to change in the near
future since it could cost the government its global lithium industry leadership position.
Western
Lithium USA Corp. (TSX:WLC; OTCQX:WLCDF) plans to produce
lithium in the U.S. from a hectorite deposit located within the McDermitt Caldera Complex. The company claims that it would be
competitive in terms of
lithium carbonate's cash cost;
nevertheless, they may not be as competitive as producers from brines.
TER: Do you believe
that Li3 is closer to production than the
hard rock mineral companies
we just talked about?
DD: It's difficult
to say because Li3 doesn't have the permit to extract
lithium. The company has the mining
rights and a strategic partner, but it needs a permit from the government. As I said earlier, I think the government will eventually allow new companies to extract lithium. If Li3 gets
the permit, it could succeed, but it is very difficult
to say when this will happen.
TER: You mentioned Nemaska
Explorations. I understand that
the company is spinning out its non-lithium properties into a new company, Monarques Resources. I'm wondering if you believe this
will make it easier for the company to move its Whabouchi Project into
production by 2013.
DD: At this stage,
it is difficult
to say. As I said before, the Whabouchi Project is very well
ranked by signumBOX because of the geological characteristics of the deposit
and the presence of China as a strategic
investor. But this is a relative ranking, which gives an idea about which project is more likely to eventually become part of the lithium supply.
It doesn't indicate when it will
occur. It is also important to note that the
survival of many of the projects that are under evaluation will depend on the price strategy that current lithium producers decide to deploy.
TER: 2013 sounds near
term compared to some others. Is that something investors can hang their hat
on?
DD: Well, 2013 is
short term and I believe that the biggest potential for lithium demand will be after
2015 when electric cars become more commonplace. So, I don't see much
room for the entry of these projects
in the short term.
TER: Nemaska has formed
a strategic partnership with China's Tianqi Group, which could purchase as much as 50% of the company’s
lithium production. It sounds like
a big advantage.
DD: Tianqi is an
important Chinese operation
that produces lithium chemicals from lithium concentrates, so they have the experience and
the knowledge of the Chinese
market. China is the largest consumer of lithium concentrates,
which are mainly used as raw materials
for lithium chemicals but they
are also used in several industrial
applications. In this context,
it is crucial for a
lithium concentrate producer
to have a strategic partner
or investor in China.
TER: Daniela, I've enjoyed
meeting you very much.
DD: Thank you.
Daniela Desormeaux is an economist and an expert
in industrial chemicals
and natural resources.
Prior to starting with signumBox,
she was strategic marketing manager at
SQM, where she was responsible for market intelligence on lithium, iodine
and other industrial chemicals. Before joining SQM, she was an economic analyst at Cámara
Chilena de la Construcción,
a Chilean trade
association focused on the housing
and construction industries.
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