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COLUMN-Cornish lithium dreams may die in South America's salt lakes: Andy Home
(The opinions expressed here are those of the author, a columnist for Reuters.)
By Andy Home
LONDON, Jan 3 (Reuters) - There's lithium in them there Cornish hills!
News that a start-up, Cornish Lithium, is going to explore for the "metal of the future" in Britain's historic tin-mining region has been greeted with predictable national euphoria.
"Cornwall's mining industry set for 50bn pound revolution," proclaimed a headline in The Sun newspaper.
Which may be just a little bit premature.
The company, led by Jeremy Wrathall, a graduate of Cornwall's famous Camborne School of Mines and now a banker with Investec (LSE: INVP.L - news) , is currently trying to raise 5 million pounds to start an exploration programme. Any production of lithium is at least five years away.
Finding the lithium is not going to be that difficult.
As early as the 19th century Cornish tin miners knew about the lithium-rich spring waters underneath what, thanks to the massively popular television series, is now known as "Poldark Country".
That's the thing with lithium. There's a lot of it around and it's not just in Cornwall that lithium prospectors are going back down disused mines to find a mineral that had little mainstream commercial use until the invention of the lithium-ion battery.
Rather, the real challenge is to be able to extract lithium in a form that is actually useful to anyone and to do so at a price that is competitive.
Lithium has to be extensively refined until it is turned into a form suitable for use in battery manufacture, either lithium carbonate or lithium hydroxide.
Cornish Lithium is putting its faith in new technology to make what tin miners used to call "lithia" into something that meets the exacting specifications required by battery makers.
It will be competing with an existing well-established supply chain, controlled by a small handful of players who have no interest in seeing their market grip loosened.
This oligopoly's ability to meet expected demand growth for lithium batteries from electric vehicles and grid storage will be the real decider of whether Cornish mining dreams become reality.
Graphic on lithium carbonate spot price in China:
Graphic on lithium carbonate price major contracts delivered U.S.:
LATE STARTERS
The established producers, most of them with operations in the "Lithium Triangle" of salt lakes in Chile (Stuttgart: 704599.SG - news) , Argentina and Bolivia, were slow to wake up to the surge in battery demand.
That's why spot prices went supernova over the back end of 2015 and early 2016.
According to "Industrial Minerals", part of Metal Bulletin Group, the spot lithium carbonate price within China rocketed from an average $7.7 per kilogram (kg) in June 2015 to $26.6 per kg in April 2016.
Which is when the world sat up and took notice of what was happening in the small lithium market.
Most lithium is traded not on the spot market but rather through quarterly or annual contracts between producers and customers.
Pricing along these existing supplier networks is only now starting to play catch-up with that Chinese spot price explosion.
Annual contracts for lithium carbonate have settled in a $10-16 per kg range this year, which is roughly double the price for 2016 deliveries, according to Industrial Minerals' December "Battery Price Report".
The price of lithium hydroxide has also doubled to $14-20 per kg for annual contracts this year.
Back in China, however, a good deal of heat has come off the market with spot prices for carbonate now back in a $18-21 range.
That's in part down to a tightening of the subsidies offered by the Chinese government on electric vehicles.
But it's also in part due to increasing supply from the first wave of new lithium supply.
FIRST WAVE
In Argentina Orocobre is ramping up output from its Olaroz brine operations and is already looking at a second-phase expansion and the construction of a battery-grade hydroxide plant.
In Australia, Galaxy Resources has just announced the dispatch of its first shipment of spodumene, the hard-rock alternative to brine lithium, from its Mt Cattlin mine.
Another Australian mine, Mt Marion, owned by Neometals (Frankfurt: 25932507.F - news) , has also just entered production.
Spodumene also needs specialist treatment to be converted into something usable by battery manufacturers and this part of the supply chain is controlled by Chinese entities such as Tianqi Lithium (Shenzhen: 002466.SZ - news) , which holds a stake in Australia's existing Greenbushes mine, and Jiangxi Ganfeng, which is an indirect owner of Mt Marion.
SECOND WAVE
And both Chinese companies are actively investing in preparation for the next wave of lithium demand.
Tianqi has announced both a hydroxide plant in Australia, implying a lift in production at Greenbushes, and the purchase of a small stake in Chilean brine producer SQM.
Ganfeng has similarly been wasting no time ensuring it remains central to the existing supply chain.
It will buy a 19.9-percent stake in Lithium Americas (Berlin: CA53680Q108.BE - news) in return for a $174 mln investment which will finance the development of a new Argentine brine operation, Cauchar-Olaroz.
SQM also has a stake in the project as does now too Thailand's Bangchak Petroleum (Stuttgart: 1723805.SG - news) , which announced a similar deal to Ganfeng's just days after the Chinese company's move.
This represents the second wave of lithium production investment, bringing together an existing brine operator (SQM), an existing lithium processor (Ganfeng) and two off-take partners (Ganfeng and Banghcak).
First (Other OTC: FSTC - news) production at Cauchar is slated for 2019 with first-stage capacity of 25,000 tonnes of lithium carbonate doubling at a second phase.
Lithium Americas, by the way, is also sitting on the former Kings Valley lithium prospect in Nevada, another potential lithium hot spot, already home to a brine facility operated by Albemarle Corp.
And Albemarle is itself a core member of the lithium establishment. It has just got a sign-off from the Chilean government to lift its production quota to 80,000 tonnes per year as it too prepares to keep its grip on the fast-moving lithium market.
TAKING ON THE ESTABLISHMENT
The lithium establishment got caught off guard by the 2015 price shock but it is showing every sign of having learnt its collective lesson.
Albemarle, SQM, Tianqi and Ganfeng are already planning for the next stage of this market's development. Among the oligopoly only FMC Corp (NYSE: FMC - news) has yet to show its hand.
These companies, it's worth repeating, already have extensive knowledge of how to mine and process lithium and also benefit from existing long-standing commercial relationships with battery manufacturers.
If Cornish Lithium and the host of other lithium wannabe's stand a chance, this is what they will be taking on.
Finding the lithium is the easy part.
(Editing by Elaine Hardcastle)
