Trends in lithium project transactions

Sn0wdenadminNews, Technical Article

At Snowden we are currently experiencing increased interest in lithium exploration and exploitation.  Research on the subject has brought out some interesting trends that may have important implications for exploitation of this metal which is becoming increasingly important in new and developing industrial innovations.

Current trends in the lithium market indicate that:

  • The electric car and subsequent battery demand has created an unprecedented demand for lithium.
  • Top dollar prices are being paid for lithium exploration tenements, especially in Nevada, where historic and/or marginal mineralisation has been reported.
  • Pioneering technologies being applied to extraction of the metal from lithium mica may materially change hard rock production cost profiles.
  • Brine producers are producing at well below full capacities in a time of high lithium prices.

The lithium market

Currently the main uses for lithium and its derivatives are in ceramics and glass; electronics and electrical components; lubricating greases; metallurgy (continuous casting); silicon nano-welding; air purification; optics; pyrotechnics; and in rocket propellants.

Chemical converter plants in China convert most of the world’s lithium concentrate.

The lithium market is currently experiencing a price surge driven by two key players: China and Tesla. Canaccord Genuity (CanGen) forecasts that the lithium market will grow by 81% to 347 kt lithium carbonate equivalent (LCE) by 2020 and anticipates that Li-ion battery-based electric vehicles will be a primary demand driver over the next decade. Tesla Motors Inc. (Tesla) produced less than 50,000 cars in 2015 but plans to ramp up its Model 3 production, which is currently approaching 400,000 pre-ordered vehicles.

In 2014, Tesla selected Nevada as the site for its Gigafactory lithium plant, which is expected to be operational in 2017, processing some 25,000 t of lithium hydroxide annually. Currently, cathode for Tesla’s batteries is manufactured in Japan.

In September 2015, Tesla entered into an offtake agreement with Pure Energy Minerals Ltd for the supply of lithium hydroxide from the Clayton Valley South project, located approximately 418 km from the Gigafactory. Subsequent to this, lithium exploration activity in Nevada has increased materially.

Sources

Lithium metal is produced by electrolytic separation from lithium bearing minerals (such as spodumene) in igneous pegmatites and lithium salts extracted from saline water in mineral springs, brine pools or brine deposits such as salt flats. The end-product from brine production is typically refined lithium carbonate (Li2CO3), whilst the hard rock/ spodumene end-product is a lithium concentrate grading at about 6% lithium oxide (Li2O).

New technologies have focused on cost-effective extraction from lithium micas; whereby lithium mica is pulverised and then digested in a heated sulphuric acid solution – pilot scale testing is currently being undertaken. These pioneering technologies being applied to extraction of the metal from lithium mica may materially change hard rock production cost profiles.

Brine lithium deposits are found throughout the Andes Mountains, with half of the world’s known lithium resources located in Bolivia’s Salar de Uyuni salt flats. However Chile and Argentina are currently the world’s largest producers of lithium from salars.

CanGen estimates that brine producers account for approximately 51% of global LCE production; and that overall capacity utilisation for brine producers in 2015 was estimated at approximately 55% (down from 63% in 2014). Existing brine producers have not been able to increase production, either through permitting and licencing issues (including unlined evaporation ponds), long ramp ups to full brine utilisation; or major projects behind schedule. Brine producers are also the lowest cost producers of LCE.

CanGen reported that the world’s two largest lithium companies supplied more than 60% of the world’s lithium in 2015; these were:

  • Albemarle (Chile, USA and Australia) (40%)
  • Sociedad Química y Minera de Chile (Chile) (20%).

In 2015, Australia was the world’s largest lithium producer – the Greenbushes mine (a lithium-caesium-tantalum pegmatite) was responsible for more than 40% of world lithium production.

Other major producers include Ganfeng Lithium Co. Ltd, FMC Lithium Corp and Tianqi. CanGen estimates Chinese production at 30% of world lithium production; with its share of the world lithium ion cathode market being estimated at approximately 50%.

Pricing structure

There is no commodity market for lithium products, with the price being set by negotiation between producers and customers, based on the customer’s needs and price expectation.

Prices for lithium carbonate (99% purity) have risen from about US$7,000/t CIF (China) in July 2015 to over US$20,000/t CIF (end-Q1 2016).

Figure 1 shows lithium carbonate prices in US$/t for the period 1 July 2013 to 8 July 2016 (modified from ww.snl.com). A strong increase in the latter half of 2015 and Q1 2016 is noted, based on perceived lithium stock shortages in the short and medium term.

Figure 1     Lithium carbonate prices and tenement transactions, July 2013 to July 2016
Lithium carbonate prices and tenement transactions, July 2013 to July 2016Source: Modified from www.snl.com

Lithium tenement transactions

In 2015, 21 of the reported 49 global lithium tenement transactions were for mineral properties in Nevada (Figure 2). In 2016, this increased to 52 of a reported 168 global lithium tenement transactions (up to and including 8 July 2016). Some tenements have changed ownership up to three times in six months.

Figure 2     Public lithium transactions by tenement region, 2015 and 2016*
Public lithium transactions by tenement region, 2015 and 2016*Note: * Up to and including 8 July 2016
Source: Modified from www.snl.com

Since December 2008, 280 public tenement transactions have been reported; of which more than 73% have occurred between 1 July 2015 and 8 July 2016 (Figure 1).

Tenement valuations

Snowden’s Johannesburg office has assessed 100 tenement transactions covering a three month period from 29 February to 31 May 2016. These have been pared down to 40 principal transactions, based upon a number of criteria, resulting in the implied US$/km2 value range for the 40 transactions/ projects shown in Figure 3 and Table 1.

Figure 3     Implied values for select lithium transactions, in US$/km2
Implied values for select lithium transactions, in US$/km<sup>2</sup>Source: Snowden, 2016

Table 1     Mean, median and range for implied values

ComponentImplied value (in US$/km2)
NevadaCanadaOther
Mean (average of implied values)56,69124,64718,179
Mean (transaction values versus equivalent km2)67,4958,2893,967
Median23,3296,6383,630
Range minimum6,598826156
Range maximum371,870160,566105,167
Average tenement size per transaction (km2)14.830.1201.1

Source: Snowden, 2016

All of these tenement transactions had potential or reported mineralisation, but no Mineral Resource estimated in compliance with the guidelines of a Reporting Code.

The range in implied values is large, with very high implied values (up to US$371,870/km2) for deposits adjacent to current lithium mines or feasibility level projects in the Nevada region (Table 1); and lower values for Canadian tenements; with Other (e.g. Chile, Argentina, Utah in USA) showing the lowest implied values. The smallest tenement size transaction was 0.32 km2 (Clayton Valley, Nevada); with an average tenement size of 15 km2 per transaction for Nevada, 30 km2 for Canada and 201 km2 for Other.

Summary

If you would like more information on Snowden’s offering in terms of its lithium project assessment, exploitation and valuation capabilities, please contact us at snowden@snowdengroup.com.

Snowden contributors
  • Vince Agnello
  • Mark Burnett
Sources
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