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Lithium Demand Driving New Procurement Strategies

NetworkNewsWire Editorial Coverage: The key component in making the indispensable lithium-ion battery is in exceedingly short supply, and competition to obtain the mineral has heated up. The race to acquire reliable, long-term lithium feedstocks has sparked a worldwide shift in procurement strategy. EV makers, battery producers, and strategic investment companies are now joint venturing, buying in or looking to acquire lithium miners. At least 12 lithium transactions have been closed between downstream manufacturers and mining companies since 2016, and in the years to come ever more supply agreements between manufacturers and miners are expected (http://nnw.fm/3ZUgR). Lithium mining stocks, especially junior miners, are liable to become outsized beneficiaries of the investment and acquisition spree that’s underway. Prospective junior miner, Lithium Chile (TSX-V: LITH) (OTCQB: LTMCF) (LTMCF Profile), which owns vast tracks of indicated lithium assets, is positioned to potentially be one of the largest beneficiaries in the space. Some look to the Global X Lithium & Battery Tech ETF (NYSE: LIT), but direct exposure junior miners is limited. Other lithium miners in the mix include American Lithium (TSX-V: LI) (OTCQB: LIACF), Nemaska Lithium, Inc. (TSX: NMX) and Orocobre Ltd. (ASX: ORE) (TSX: ORL).

Epicenter Chile

Holding the world’s largest lithium reserves, Chile has become a hotbed of acquisition activity (http://nnw.fm/oPB9K). High-quality proven reserves, established infrastructure, a mining-friendly government, and the lowest production costs on the planet have lured lithium seekers from around the globe (http://nnw.fm/Ee1mV) and massive deals are underway.

Chilean development agency Corfo recently increased lithium production quotas to meet Tesla’s current needs and is discussing further quota increases and potential investments in Chile by the automaker (http://nnw.fm/LHg7t). China’s unprecedented push into EVs has them bidding for a stake in the world’s second-largest lithium producer. Chile asked its antitrust regulators to block the sale claiming it would give China an unfair advantage in the global race to secure critical lithium resources. However, sources say a deal is near for a $4.3 billion transaction, a 22 percent premium to market (http://nnw.fm/y9ViY).

There’s such a significant wave of raw material supply insecurity, mainly from Asia, that it should easily spur even more lithium miner/manufacturer deals well into the next decade. The lithium quest isn’t happening in the future – it is happening now – and more money keeps pouring into lithium miners to lock in future feedstocks.

Just the Beginning  

On the cusp of unearthing what may become a bonanza of lithium riches, Lithium Chile (TSX-V: LITH) (OTC: LTMCF) just announced a Memorandum of Understanding to enter a memorandum of understanding (http://nnw.fm/2iHK6) with Hong Kong-based investment company, Prosper One International Holdings Company Limited. Over the last few years, Lithium Chile has quietly and strategically amassed 152,900 hectares (over 590 square miles) of lithium-rich indicated properties, and suitors are starting to line up. The proposed transaction with Prosper One requires them to spend C$3 million to earn a 55% interest in just one of Lithium Chile’s 15 properties, namely its Norte project. Prosper One will invest the C$3 million in staged exploration expenditures on the Norte project on or before December 31, 2021, and will make a C$1 million equity investment in Lithium Chile at a minimum of $1 CAD per share.

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% of the funds expended on the Norte exploration programs. In testament to the seriousness of intent, Prosper One must pay Lithium Chile a C$250,000 break fee if a definitive agreement isn’t signed.

Steve Cochrane, president and CEO, of Lithium Chile, 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 in Chile.  Essentially, we are combining our technical expertise and Chilean experience with Prosper One’s financial acumen and support to explore our highly prospective Pintadas Norte project in the coastal region of Chile. We look forward to a mutually rewarding working relationship.”

This is likely just the beginning for Lithium Chile. Located smack in the middle of the world’s foremost lithium reserves, the company’s holdings represent the largest wholly owned lithium land package of any private operating company in all of Chile. The portfolio includes projects with high-grade lithium brines and excellent chemistry, at shallow depths – all of which have good access to infrastructure. Lithium Chile also owns (and plans to spin out to shareholders) a significant copper, gold and silver property portfolio consisting of 28,184 hectares over six different properties (http://nnw.fm/j2kpG).

In addition to the Norte project, Lithium Chile’s assets include 66 square kilometers directly on the Salar de Atacama, Chile’s largest mineral salt flat and home to over 30 percent of the world’s lithium production. The Salar de Atacama offers multiple competitive advantages in lithium production including good infrastructure, high concentrations of salar brines, low processing costs, superior evaporation rates, and favorable year-round weather.

Results of field tests announced in April identified multiple high-priority target areas at both Lithium Chile’s Salar De Atacama and Salar Ollague properties. Large, multiple lithium brine targets of 20 to 25 square kilometers were discovered at both properties. The Atacama property contains near-surface lithium brine values up to 1330 mg/L of lithium and the Ollague Property contains near-surface Li brine values up to 1140 mg/L of lithium.

Lithium Chile has also identified a 58+ square kilometer high priority lithium brine target area at its Coipasa project. Results of field tests in May (http://nnw.fm/UPX8j) returned lithium values in near-surface brines ranging from 310 mg/L to 1410 mg/L. Strikingly, this zone displays the same geophysical characteristics as the lithium-rich aquifers at Salar de Atacama, home to the world’s largest and highest-grade lithium brine producers. By comparison, typical lithium concentration needed for production in the United States is between 190 to 200 milligrams of lithium per liter.

Commenting on the recent filed tests Steve Cochrane stated, “These strong survey results at our Coipasa project follow similarly impressive results at our Atacama, Ollague and Helados projects. It’s also important to note that we are the only major landholder in the Salar de Coipasa and we control the bulk of its footprint in Chile. This property will be included in our upcoming, multi-project drill program and we look forward to sharing the results.”

Inexpensive Invaluable Assets

Astonishingly, Lithium Chile acquired all its potentially invaluable assets for only around $3 per hectare. Land prices in lithium-rich Chile are currently pegged around $1,500 per hectare. Over the last three years, Lithium Chile accumulated large tracts of prime lithium bearing properties utilizing the vast in-country experience and skills of Terry Walker, VP of Exploration and chief geologist. Using a 1970’s 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 acquired the best salars in proximity to the highest lithium concentrations and closest to needed infrastructure such as roads and power.  The result may turn out to be the most promising lithium rich land package in all of Chile.

 The Take Away

As drill dates draw nearer, and especially if reserves are proved, Lithium Chile is likely to receive more offers to purchase, option or joint venture key projects at prices far exceeding earlier costs. Once the company shows the surface lithium brine already encountered is contained in subsurface aquifers, deal values will skyrocket, and a bidding war could easily ensue.

Major deals at significant market premiums are underway around the world as downstream global manufacturers scramble to secure reliable, long term sources of lithium feedstocks. Demand isn’t about to dry up anytime soon and it seems to reason that junior miners with significant lithium bearing assets are in position to potentially reap immense rewards.

In the Mix

Other lithium companies having differing degrees of skin in the game. Focused on the Americas, American Lithium (TSX-V: LI) (OTCQB: LIACF) currently holds more than 18,000 acres at its FLV Project in Nevada, located less than four hours from the Tesla Gigafactory and roughly 20 miles from Albemarle Corporation’s Silver Peak project, currently the oldest and largest lithium producer in America.

Based in Quebec, Canada, Nemaska Lithium (TSX: NMX) is an exploration-stage miner looking to supply lithium through exploration and development of hard rock lithium mining and processing lithium compounds using its proprietary process to produce lithium hydroxide and lithium carbonate. Orocobre (ASX: ORE) (TSX: ORL) is a global lithium carbonate supplier and an established producer of boron. Orocobre plans to expand production at its Olaroz Lithium Facility in Northern Argentina. The company also owns Borax Argentina, an established Argentine boron minerals and refined chemicals producer and a 29% interest in Advantage Lithium.

Pure play lithium miners have historically been and should continue to be the best way to profit from burgeoning lithium demand, market imbalances and the new acquisition/investment flurry. However, to cover the full spectrum of the sector from raw resource to battery production, look at Global X Lithium & Battery Tech ETF (NYSE: LIT) which invests in the full lithium cycle.

A tsunami of transactions between lithium miners and manufacturers is underway to lock in long-term supply agreements. The real winners in this global bidding war will more than likely be the lithium miners and their shareholders.

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

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