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Anticipated Lithium Deficits Boost Outlook for Miners

NetworkNewsWire Editorial Coverage: Lithium stocks have soared over the last couple years, driven by global demand for lithium-ion batteries and anticipated subsequent supply chain deficits. The supply-demand imbalance is highlighted by reports that Li-ion battery consumption grew 73 percent from 2010 to 2014, whereas lithium production only increased 28 percent. Moreover, between 2014 and 2017 the cost of a lithium-ion battery was cut in half, increasing demand and further exacerbating lithium feedstock shortages. Portending the enormity of coming shortfalls, Roskill, a leader in international metals and minerals research, tripled its lithium demand forecast last year, and now expects demand to exceed a million tons annually within the next eight years. Under these market factors, acquisitions and joint ventures are becoming almost commonplace among manufacturers and miners. Institutional investors are also entering the fray and attention is turning to junior miners since the majors will be hard pressed to alleviate feedstock deficits. Prospective junior miner Lithium Chile (TSX.V: LITH) (OTC: LTMCF) (LTMCF Profile) aims to capitalize on these deficits. With vast resources directly in the heart of South America’s famed lithium triangle, the company recently announced a joint venture MOU and is initiating a new high-priority drilling program. In attempts to keep pace with global deficits, other lithium producers such as Albemarle Corp. (NYSE: ALB), Sociedad Quimica y Minera S.A. (NYSE: SQM), Lithium Americas Corp. (NYSE: LAC) and FMC Corporation (NYSE: FMC) have all taken measures to increase production.

Drill Baby Drill

Site preparations are under way and Lithium Chile (TSX.V: LITH) (OTC: LTMCF) earlier this week said it will soon begin drilling at its Salar de Ollague project. The area displays many geophysical characteristics identical to those found in the lithium-rich aquifers at Salar de Atacama, home of the world’s largest and highest-grade lithium brine producers. Initial testing showed good chemistry, imperative for cost-effective lithium production, and the company has received formal consent from the community of Ollague to begin an exploration drilling program.

In previously announced results of a transient electromagnetic survey (TEM) covering 25 square kilometers of the Ollague project, Lithium Chile identified multiple large high-priority targets and a comprehensive sampling program revealed near-surface lithium brines assaying up to 1,140mg/L of lithium.  In comparison, lithium concentration between 190 to 200 mg/L of lithium is needed for production in the United States.

Geophysical analysis indicated several continuous conductive units over much of the property. The survey indicated these conductive units are several open-ended horizontal zones ranging from 20 to over 200 meters thick and within 20 to 120 meters of the surface. Lithium Chile believes these open-ended horizontal zones are saline aquifers and indicative of a high content of lithium brine.

“With a range of high-grade, near-surface lithium samples, excellent TEM survey results and no competition in the region, Ollague is one of our most exciting projects. We are delighted to have received final approval and look forward to commencing drilling next week,” Lithium Chile president and CEO Steve Cochrane stated.

Lithium Chile will immediately seek permits for additional exploration and development programs at Ollague based on the drilling and sampling results of the first program. As soon as the initial Ollague drilling program is complete, Lithium Chile intends to begin drilling each of its other four high-priority salars in continuous succession.

Amazing Assets

About half the world’s lithium reserves are in Chile, predominantly in the arid Atacama Plateau, and it is here that Lithium Chile has strategically amassed 152,900 hectares (nearly 600 square miles). The company’s Ollague project is just one of its 15 wholly owned properties in Chile. Lithium Chile’s assets include 66 square kilometers directly on the Salar de Atacama, Chile’s largest mineral salt flat and home to about 30 percent of the world’s lithium production.

Lithium Chile acquired its assets for just $3 per hectare. Prospective lithium parcels in Chile currently change hands around $1,500 per hectare, and proven tracts command more than $10,000 per hectare.  Lithium Chile relied on the vast in-country experience and skills of Terry Walker, the company’s chief geologist and VP of exploration, to acquire large tracts of prime lithium-bearing properties. Using a 1970s French technical report overlaid on a national database of water well hydrology and water chemistry, Walker meticulously matched that information with an extensive lands claim database. Lithium Chile subsequently secured the best salars in proximity to the highest lithium concentrations and the closest to needed infrastructure.  The result could turn out to be among the most promising and lucrative lithium-rich land packages in recent history.

Back to Back

Indicative of international investment interest in the sector, Lithium Chile announced last week a Memorandum of Understanding to enter a joint venture transaction with Hong Kong-based investment company Prosper One International Holdings Company Limited.  The proposed transaction with Prosper One requires them to spend $3 million to earn a 55 percent interest in Lithium Chile’s Norte project. Prosper One will invest the $3 million in staged exploration on the Norte project on or before December 31, 2018, and will make a $1 million equity investment in Lithium Chile at a minimum of $1 per share.   With a plethora of lithium-rich indicated properties it seems suitors are starting to line up.

The MOU designates Lithium Chile the operator on the Norte exploration programs and it will receive a management fee from Prosper One equal to 17.5 percent of the funds expended on the Norte exploration programs. As a testament to the seriousness of their intent, Prosper One must pay Lithium Chile a $250,000 break fee if a definitive agreement isn’t signed.

Cochrane commented, “We are pleased to have reached this agreement with Prosper One, which accelerates our ability to unlock the potential of our dominant land package Chile. We are essentially combining our technical expertise and Chilean experience, with Prosper One’s financial acumen and support, to explore our highly prospective Norte project in Chile. We look forward to a mutually rewarding working relationship.”

Drilling Pay Day

Drilling commencement is a big deal. As Lithium Chile continues to prove its reserves, the company could receive more offers to option, joint venture, or even outright purchase key projects at substantial market premiums and immense multiples to original cost.

Trying to Keep Pace

If there are any doubts about the lithium shortage, look at any lithium mining company – every single one is trying to rapidly expand production. The shortage won’t end any time soon and increased production isn’t likely to keep pace with burgeoning demand.

Among major lithium producers, Albemarle (NYSE: ALB) is the largest and derives nearly 39 percent of its total revenue from lithium sales. A global leader in specialty chemicals, Albemarle’s lithium business segment mines and converts lithium into different forms along the value chain. The company controls one of the only operating lithium brines in North America and operates a lithium brine in Chile. ALB also holds a 49 percent share in Talison Lithium in Australia and plans to expand production there in 2019 under a joint venture.

Sociedad Quimica y Minera S.A. (NYSE: SQM) is an intriguing Chile-based player in the global scramble to secure greater supplies of lithium. SQM produces over 45,000 tons of lithium carbonate equivalent per year and plans to expand lithium carbonate capacity to 63,000 metric tons in 2018. In addition to lithium, the company produces specialty plant nutrients, iodine derivatives, potassium chloride, potassium sulfate and industrial chemicals. To prevent China from controlling 70 percent of the world’s lithium supply, the Chilean government rebuffed the $4 billion purchase of 32 percent of SQM by Tianqi Lithium Corporation last year but ultimately reached an agreement allowing the Chinese company to purchase 24 percent of SQM last month.

Lithium Americas (NYSE: LAC) is focused on development of two lithium development projects: the Cauchari-Olaroz project located in Jujuy province of Argentina and the Lithium Nevada project. Company segments include Organoclay, Lithium Nevada, Cauchari-Olaroz and Corporate. The company operates in Canada, the United States, Germany and Argentina. The Cauchari-Olaroz project is a lithium brine mineral project. The Lithium Nevada project is a smectite clay-based lithium project.

FMC Corporation (NYSE: FMC) is estimated to be the fourth- or fifth-largest lithium producer in the world and has announced plans to aggressively expand production. FMC Corporation primarily serves the agricultural industry, providing solutions to enhance crop yield and quality. FMC is planning to sell off around 15 percent of its lithium business in an IPO late this year, giving the business a market value of more than $3 billion.  

Major lithium producers all had big runs in their stocks over the last couple years and some still trade at or near all-time highs. But large upsides in these companies from this point may be difficult to achieve. Going forward, some of the largest potential market gains are likely to be found in select junior miners.

For more information on Lithium Chile visit Lithium Chile (TSX.V: LITH) (OTC: LTMCF)

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