Power Play

From your iPhone to — very soon — your car, lithium has become integral to the way we live now. As a watershed moment approaches for the world’s lightest metal, with automakers lining up behind electrification and vast amounts of capacity soon to come online, we spoke with an industry executive about how to find opportunity.

Lithium

Lithium is everywhere. It powers the tech-saturated life we all lead. And the future of innovation across a whole swathe of industries depends on it.

This alkali metal -- the lightest metal and the lightest solid element -- has become crucial to the current power micro-infrastructure. It’s what in the form of lithium carbonate (LCE) allows the nifty, shrunk-down battery in your iPhone to deliver charge; it is what will, in theory, power the coming wave of electric car engines. It’s a metal, in other words, that is about to become a very public issue. To understand the shape of that issue, we spoke with Myron Manternach of Lithium Americas. Manternach is not only a mining executive -- he’s also an electrical engineer. So he knows whereof he speaks when it comes to mines, battery chemistry, and power infrastrcutrue. (Full disclosure: Manternach was also a director of Octavian Advisors, the hedge fund manager formerly owned and operated by our parent company.)

“I think technology is driving new demands for materials and minerals,” says Manternach. “And I think the most dramatic case is clean energy driving demand for certain metals, in particular lithium. The laws of physics dictate it will always be the best metal for storing electrical energy in a battery. Over the past several years billions of dollars have been poured into building a better lithium battery -- one that can store energy with the highest round-trip efficiency and the lowest cost.”

Betting against the laws of physics is usually a mistake. All the more so when the demand picture looks the way it does over the past near-decade. Since 2008, yearly lithium consumption globally has increased almost 76 percent, from approximately 121,000 tonnes per annum to about 213,000. Those numbers, according to analysts, are set to increase dramatically over the medium term. By 2025, current demand is predicted to more than double, heading just north of 500,000 tonnes per year. These numbers should not surprise anyone, says Manternach: “Tesla has emerged with an electric car which basically takes advantage of higher-performing, lower-cost lithium batteries. Now, the whole auto sector is doing that. The need for cleaner energy also extends into buses, power tools, lawn mowers, bicycles, electric bikes, and home storage. A lot of these small applications are adding up. It has the potential to re-design the power grid over time. Today it's a highly centralized grid that's synchronous -- everything's precisely at 60 hertz, at least in the U.S. A cosmic ray or a solar flare or lightning strike can disrupt the grid. It's very fragile. Lithium batteries have the potential to placed atend users' homes and commercial buildings to provide a store of energy. The grid could then be as simple as leaking charge to these batteries over the course of a day or a week. Ever see the movie Fletch, where the main character says: ‘Everything's ball bearings these days’? I like to say everything is lithium these days.” He sees a steady annual growth rate from here on out of 10 percent in lithium demand.

The fuel that will be powering this steady increase in the short term comes from the electric vehicle sector. Tesla is currently the biggest player in that space, but that looks set to change very soon. “In 2019,” says Manternach, “most of the major automotive companies are going to introduce an all-electric vehicle. And between now and then we are going to see also, as Volvo has promised, that drive trains in traditional cars will be going all-electric. That’s a migration path for the auto companies to then go all the way to full electric. Some analysts think that by early 2020's we will see the vast majority of vehicles being produced become electric. You may still see some internal combustion engine vehicles, but they will be strictly for long-range applications.”

What about the supply side of the question? 2015 saw global production of 175,000 tonnes, which increased to roughly 200,000 in 2016. By 2020, the year after the first big wave of all-electric vehicles from the dominant players in the auto market hits the streets, production is projected to rise to 360,000; by 2025, to 650,000 tonnes. Until there is a significant comedown in the cost of recycling lithium from batteries, new lithium demand will be met with unrecycled lithium. Manternach cites a current per-tonne cost of $15,000 to recycle, which will require lithium to hit $20,000 (that’s an increase of about $8,000 per tonne from today’s prices, or roughly 66 percent) per tonne before the process becomes commercially viable. The world’s biggest producer of the metal, currently, is Australia -- it contributes about 40 percent to global annual production. Indeed, the world’s largest lithium mine, Greenbushes, can be found in the country’s southwest. The two next-largest producers are in Latin America: Chile and Argentina. Together they are responsible for about one-third of total global production. They form two elements of the the so-called lithium triangle, the name for a trans-national region that overlays northwestern Argentina, northern Chile, and southern Bolivia and is estimated to represent about 66 percent of the world’s total reserves. China is next on the list as the fourth-largest global producer.

The types of mines employed across the various locales can be broken down into two: hard rock and brine. Australian and Chinese lithium comes from hard-rock mines and South American lithium from brines. Hard-rock lithium is taken out of the ground as pretty much any other mineral might be, with the difference that freestanding lithium does not occur in nature: it needs to be refined from pegmatites of three primary types -- spodumene, lithiophilite, and lepidolite. Brine lithium is extracted by evaporation from water containing high concentrations of the mineral -- instead of a rock face, think huge open pits of greenish water baking away in the Atacama Desert. As you might imagine, there are significant differences in the per-tonne costs associated with these two extraction types. Brine lithium comes in between $2,500 and $3,000 per tonne, with hard rock lithium notching up costs between $5,000 and $6,000 per tonne. Manternach points out that this is a “a very steep cost curve. And what's really interesting,” he adds, ”is that the vast majority of the growth in production to accommodate that 10 percent annual growth in demand is all going to come from hard rock. So you could argue that about 60 percent of the cost curve is only going to go higher, and that the marginal price and cost are going to intersect at a higher point in the future.”