| The global transition to electric vehicles is expected to drive demand for lithium aggressively over the next decade and beyond. This will require lithium mine supply to increase substantially, and by 2027 Roskill forecasts that the industry will need to be adding nearly 100kt of new lithium carbonate equivalent (LCE) production per year. So where is this lithium going to come from? Utilising analysis within Roskill’s Lithium Cost Model Service, a unique service providing an in-depth analysis of the lithium supply chain, we can assess some of the challenges the industry needs to overcome to meet this requirement. |
| Global lithium resources |
| Global lithium resources have increased significantly over recent years, driven by a marked pickup in exploration activity since 2015. The collective lithium resource (including reserves) of assets tracked within our Lithium Cost Model Service has risen by some 75% since end-2014. In large part, this has been driven by investment in exploration within the mineral sector, and the hunt for lithium-bearing pegmatites in Australia, Canada and Europe, and lithium-bearing clay deposits in the US and Mexico. Brine resources have also grown, the result of significant investment in Argentina, the nation that has seen the greatest exploration activity of the three countries covering the lithium triangle in South America. As a result, global resources currently exceed 200Mt of contained lithium carbonate equivalent (LCE); to put this scale into perspective, we forecast that lithium demand in 2027 will fall just short of 1.0Mt LCE. However, given the general low grade of these lithium deposits, the greater challenge lies in the economic extraction of these resources. |
| The source of future lithium supply |
| Over the past two decades, brine deposits (as opposed to mineral ones) have been the predominant source of lithium supply globally. However, this dynamic has shifted significantly in recent years as a new wave of Australian mineral projects has come online. As a result, in 2018 some two-thirds of lithium mine supply is expected to come from the mineral sector. Going forward this predominance of mineral production is expected to continue, with potential new mineral production capacity within the project pipeline currently notably greater that of brine. Although, given the nature of the mining sector, the cost structure of the industry, and the significant volume of capacity currently being commissioned and ramped-up, it is very unlikely that all this potential greenfield mineral production capacity will be realised. The shift to greater mineral production has been driven by several factors. Most significantly, higher lithium prices have made a wider population of mineral projects economically viable. As highlighted by the historic cost curves within the service, prior to 2015 (the point at which lithium carbonate prices rallied above $5,000/t) Talison Lithium’s Greenbushes mine, with its favorable grade and strip ratio, was the only major hard-rock operation able to compete with the lower-cost brine operations in the production of refined lithium product. Secondly, given their relatively simpler (more conventional) development pathway, lower capital cost and concentration in mining-friendly Western Australia, companies have been able to bring this new mineral capacity online quicker than their peers with brine projects. |
| The play-off between capex, opex and rates of return |
| When analysing of the cost structure of the lithium industry, with brine producers dominating the lower quartiles of the cost curve, it would seem a no-brainer that brine projects would be developed preferentially over mineral ones. However, operating costs are only part of the story. The significant upfront capital costs associated with many brine projects, along with the technical challenges of processing brine into battery-grade chemicals means that investment in the sector has to-date lagged that of spodumene projects and their associated downstream mineral conversion facilities. Furthermore, when looking at the investment case, at current prices (with third-party spodumene forecast to average $950/t in 2018) the average internal rate of return against spodumene hard-rock projects are markedly greater than those of brine projects and mineral projects looking to recover lithium from clays and other non-pegmatitic deposits. That said, brine and integrated-mineral projects, in general, have a significantly longer operating lives and as a result, do still represent strong longer-term investments. |
| Project development rates continue to increase |
| Finally, the rate of progress within the lithium project pipeline, as indicated by the release of new and updated technical reports incorporated into the service, continues to increase significantly in 2018. Over the first six months of the year, the number of published scoping and feasibility studies has doubled from that in the same period of 2017. To some extent, this is a consequence of the natural lag following the marked increase that was seen in exploration in recent years. |
Roskill: Fuelling the electric car revolution
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