• Peter Gadsdon

Lithium Outlook with Benchmark Mineral Intelligence

Mining Network: “We saw in lithium, back in 2017 one of the most impressive rallies in the metal sector around that time period. Prices ended up at the end of 2017, around the $18,000 USD mark per ton. We then saw a pretty brutal contraction in the market and that lingered for a while. We saw COVID lows around $5,000 US dollars per ton and we're now finally starting to see, since the pandemic, some revitalization in the lithium price, with September floating around the $13,500 mark. To start things off, we had quite a lot of investors which bought into the big demand hype back in 2017, who potentially didn't sell out in time and would have been burned the year or two after. What’s the likelihood of this current rally having a similar story and anyone buying in now ultimately in a year or two-time are going to get burned again?”

Benchmark: “Good question, I would argue that investors in the lithium sector should always stay wary, prices can be quite volatile but the difference between this rising price environment and the last is the dramatic increase we've seen in demand and consumer acceptance for EVs. Originally, in the last price cycle, prices spiked because initial demand from the lithium-ion battery industry was enough to shock an otherwise relatively small and specialty chemical market. On the flip side this meant that when some initial large-scale hard rock lithium supply came online in Australia, it was sufficient to satisfy demand and more in 2017 and 2018. Which brought prices down to the levels we saw in late 2020. I feel this time around the market has grown considerably bigger and EV and lithium demand is accelerating at incredible growth rates. So, really the demand is truly there which we didn't see during the last lithium price cycle. The supply fix to meet lithium demand can no longer be met by the development of a few spodumene mines and instead there needs to be a considerable international effort to develop a significant range of producing lithium assets in the near term, in order for the supply side of the industry to keep up with demand.”

Mining Network: “What is Benchmark’s supply and demand forecasts looking like over the next five years and where is the price heading?”

Benchmark: “Sure, touching on the last question, I suppose the low prices we saw over the past three years really hampered the ability of lithium producers to invest in their own expansion efforts, throughout 2020 which was a really difficult year for the industry. We saw mines being put in care and maintenance and delayed expansion plans, from even lithium majors. This has meant that there's really not enough capacity within the supply pipeline to meet the demand we're anticipating over the next decade for EVs. Ultimately, we see only really incremental growth in supply over the next couple of years. This is in the face of a 20%-25% growth rate per annum, in demand, year on year for lithium. While some may kind of bulk at these huge growth rates, I think you only really have to take a look at EV sales so far this year, compared to 2020 or even 2019, to realize that there's been a step change or a tipping point in demand and that's really begun to arrive. Given the lead times to bring a greenfield lithium asset through to battery grade production, there is really significant and imminent investment needed on the supply side of the industry, if raw material supply is to keep going with the projected growth in demand. This actually sees our forecast develop a minor market deficit by the end of this year, at approximately 10 000 tons LCE or lithium carbonate equivalent. Which is projected to grow throughout the decade as we see demand outpace supply. Unless further plans are made on the supply side that is. We anticipate things to grow to a deficit of about 50 000 times LCE by 2025. So, certainly more investment needs to be put into the supply side of the industry to balance that out.”

Mining Network: “In terms of pricing at the moment. I think we were talking earlier around the $13,500 mark. I assume, with this supply deficit, we might be expecting that to increase in the near term?”

Benchmark: “We could do. You know that that $13,000 number is our current kind of global weighted average for lithium carbonate. At the peak of the last price cycle, we saw prices for lithium carbonate reach close to, or even sometimes above the $20,000 per ton mark. We could begin to see those prices again in the lithium market. I would say the good side to that, is it really incentivizes producers to begin to expand and balance out the market again, which is what we really need to see and starting to see those incentive prices now is very beneficial for the supply side of the market.”

Mining Network: “One of the other areas I definitely wanted to touch on is, I guess, the sources of lithium. Obviously, we have brine deposits which are usually then converted into the carbonate and then you have your hard rock. Which can now be produced straight into a hydroxide with a much higher selling price. Could you potentially talk to us a little bit about the differences in cost of mining the hard rock and the brines? Does the overall selling price of the finalized product that the miners are producing outweigh the differences in cost, in terms of how profitable these mining companies might be? Is there a is there a clear favourite potentially for an investor, brine or hard rock?”

Benchmark: “Sure, really the difference in price between the two products does balance that out. Historically, hydroxide has held a market premium of about $1,500 per ton over lithium carbonate. Which accounts for the conversion cost from one to the other. So, a carbonate producer in that sense can feasibly be successful in the hydroxide market also. Typically, hard rock does have the competitive advantage on cost to produce hydroxide, as you say. Brine producers have a lower cost base for producing lithium carbonate. So, each respective production method does lead the market share in its advantageous chemical. Essentially, I'd say that there are successful and unsuccessful market participants in both markets, using any production method. Generally, it comes down to whether each producer can get the right mix of volume and sales price or whichever product they produce.”

Mining Network: “Okay, looking more into brines; something that I have heard from many people over the last year, (it seems to be a bit of a talking point in the industry) is the chemical composite within the brines themselves. So, apparently some fluids might be a bit more impure. There might be some chemicals in there which are very costly to extract. First, I was wondering if you might be able to tell us and investors out there, looking to move into the lithium industry if they haven't already. What sort of chemicals they need to watch out for, that could really sting them down the line?”

Benchmark: “Yeah, I mean firstly I'd like to explain why it's hard to find answers out there. You know, it's hard to give a clear answer to this question with such a range of resources and production techniques in the lithium market. Which is why even the most experienced lithium producers can face quality troubles, when it comes to producing consistent battery grade chemicals from any resource. To give you some further detail though, for brines, the magnesium to lithium ratio is the most important. Lithium and magnesium have very similar chemistries and are very difficult to separate from each other, so the higher the magnesium lithium ratio the more expensive it is to separate the two. As a rule of thumb, maybe for investors, anything above 10 is getting too high and it's going to be quite costly to separate those. This has really been an obstacle for producers in areas like Qinghai province in China and also Bolivia, which is yet to really develop a commercial scale asset, because the magnesium evaporates after the lithium. Besides that, sometimes overlooked to the sulfate lithium and boron lithium ratios as well. Increased ratios of these will lower lithium recovery rates and increase the use of reagents and the generation of waste from the production process. Speaking to producers I've also heard that generally large proportions of magnetic or radioactive elements, are also considered quite problematic as they're difficult to handle. There are also a different set of elements that you need to consider in the end product for brine, what can be particularly detrimental there is the sodium content in the end chemical.”

Mining Network: “Interesting, thank you. That's something I haven't had an answer on so appreciate that. I wanted to talk about something in terms of new technologies and techniques. It is quite an exciting time in the mining industry. I think we have (in other metals for example) the kill process coming through. Which has been developed by Pallinghurst, which could revolutionize the palladium market. We've got Jetti Resources, who are potentially going to be changing the way that low-grade copper is being produced in future, which could really revolutionize that market. There have been some studies out of Saudi Arabia, in terms of being able to transfer sea water into lithium at a very, very high purity level, I think it was 99.93% around that sort of mark. I’ll put a link to the study in the description below for anyone interested and that was actually proven to be economic, when mixed with other industries. Then, we've also having this direct lithium extraction that's also being piloted around the world. I guess one of the senses is that there is an abundance of lithium out there it's just obviously extracting it is the hard part at the moment. How long do you think it might be until some of these new techniques really have a meaningful impact on the market and do affect the supply chain?”

Benchmark: “Yeah absolutely. There are so many exciting developments on the supply side of the market you know our benchmark, we certainly hope to see these new production technologies flourish in the lithium market eventually. It's really great for competition and ultimately may provide a wider base of supply for an industry that's desperately in need of that. That said, we kind of believe it will be late 2020s before we see meaningful production volumes from direct lithium extraction technology, or any new kind of sea water extraction technology that you're mentioning. New technologies really take time to develop from a bench scale, up to a commercially viable production solution. This is even more true when trying to reach a battery grade chemical. Which is really a fine art, or you know fine science I suppose. Very difficult thing to do.”

Mining Network: “To finish off on, there's been this ongoing narrative within mining, or in general with global emissions and the climate crisis, is that the amount of carbon required to actually mine all the lithium, nickel and cobalt and whatever else. To actually get the UV revolution, this electrification of the world and renewable energy source is up and going. We'll probably be emitting more carbon than what's beneficial. I think we have had a chat on this before. I found your answer interesting. it'd be really good to hear what Benchmark's view of this is this. Could this be causing more harm in the in the long term?”

Benchmark: “Yeah, I mean these kinds of arguments we do hear repeated time and time again. Fortunately, from our perspective, these are entirely false. I think the growth of electrification as a concept has been so rapidly adopted by governments, exactly because it is less harmful than internal combustion engine vehicles. The investment into upstream raw material production is a necessary consequence of this. Of course, we understand that mining doesn't have a great reputation for being environmentally friendly in many cases, but the alternative is the continued use of fossil fuels and internal combustion engines. Which from cradle to cradle or in other words, throughout their life cycle, are far more emissive and harmful than the lithium-ion equivalent. In that sense we believe even the most diehard environmentalists should be convinced, that mining might be a necessary evil to reduce our great negative impact on the natural world. As a side note, Benchmark have developed an ESG division which we developed last year, which is seeking to carry out life cycle analysis on the lithium-ion supply chain and also release some environmentally focused reporting as well. So, keep an eye on us for more detailed quantitative analysis on this. In the meantime, viewers should feel free to take a look at Tesla's impact report. Which is a good thing to point them to, or environmental reporting, by any major lithium producer, to get an idea of how false this is.”