As Tesla’s battery business eyes Argentina’s lithium, Canadian lithium juniors, such as Lithium Americas Corp. (TSX: LAC), might see renewed investor interest
Vasudha Sharma | May 31, 2017 | SmallCapPower: American electric carmaker Tesla recently paid a visit to Argentina’s lithium-rich Salta province to talk to government officials about investing in renewable energy in the region and sourcing the white metal to power its ambitious production targets.
Tesla aims to manufacture 500,000 electric vehicles a year by 2018, with its hotly anticipated Model 3 electric sedan accounting for bulk of the production volume. The Palo Alto headquartered company is also expanding its solar-storage business by developing microgrids across cities. Solar technology essentially runs on lithium-ion batteries and Tesla is building huge battery plants called Gigafactories to mass-produce them.
Its Gigafactory 1 in Nevada, United States is already in production with a target to produce 35 GwH/year of lithium-ion battery cells by 2018, which Tesla claims is nearly as much as the rest of the world’s battery production combined. And it is planning 3 to 4 more gigafactories at other locations. Earlier this year, the Company stated that it is “partnering with major mining companies and working with promising juniors to ensure future supply” of lithium.
While Tesla is already in supply arrangements in Chile, the sudden interest in Argentina seems to be largely due to the many business reforms introduced by the new government of President Mauricio Macri. The 5% mineral import tax has been scrapped, currency and capital controls are out and mining infrastructure is set to be revamped. Of course it helps that Argentina is the world’s third-largest producer of lithium and that together with Chile and Bolivia, it makes up the so-called ‘lithium triangle’.
As Tesla attempts to make what it calls, “the biggest possible impact on transitioning the world to sustainable energy,” it has sparked a rush among companies who are turning into lithium explorers overnight. With limited supplies and rising global demand from technology companies and the electric vehicle industry led by Tesla, lithium prices have been climbing up in the past year or so.
Now, the biggies of the global lithium supply chain – Albemarle (NYSE: ALB), FMC (NYSE: FMC) and SQM (NYSE: SQM) are already present in Argentina’s salars or salt flats. But it’s the emerging lithium juniors that’ll go into a frenzy of action now that Tesla is eyeing Argentina. Many have already invested in lithium assets in the country and are trying to find financing for the projects they have launched. The ones who can get to production stage first will perhaps distinguish themselves from the other lithium juniors. Let’s take a look at some of the promising Canadian bets.
Lithium Americas Corp. (TSX: LAC)
Lithium Americas is developing the Cauchari-Olaroz lithium brine deposit in Argentina in a 50/50 joint venture with Chilean giant SQM, which is the world’s largest producer of lithium. SQM’s technical expertise and well-established local network, adds a definite competitive advantage to the JV. The project is well connected to running infrastructure and it has already tied-up funds to the tune of US$286 million. The project is also getting the green light from all corners. In March, it not only received the all clear from the provincial government to start construction and operations but it also released a positive feasibility study for Stage 1 of the Project. It expects to kick-start construction during the first half of 2017 and production is expected to start in 2019.
Lithium X Energy (TSXV: LIX)
Lithium X’s flagship asset is the Sal de Los Angeles, located in Argentina’s Salta Province. It is conducting a feasibility study to check whether the area can successfully produce a commercial product on a profitable basis. And that’s likely to be completed by Q4 2017. Lithium X claims that its large resource of lithium is of high-grade core. The Company has no debt, it has adopted a staged development approach and has roped in strategic partners to minimize its capital requirements and reduce execution risk. The Company is also developing the Arizaro project, which is the world’s largest, least explored salt flat. However it has yet to explore the quantity and quality of the brine. Lithium X was the mining sector’s top performing company in 2016, according to the TSX Venture 50.
Orocobre Limited (TSX: ORL)
Australia’s Orocobre is a pure play lithium miner that operates the Salar de Olaroz project in Argentina in a joint venture (JV) with Japanese trading giant TTC. In 2015, it produced its first commercial batch and has since enjoyed the first-mover advantage and ramped up production significantly. The Company’s recent earnings report showed a strong balance sheet and a 300% jump in production of lithium carbonate. Its Olaroz facility is described as a low-cost, high-quality lithium brine project. And when compared to other players in the market who are still years away from adding to the lithium supply chain, Orocobre surely stands out as an active growing player. Orocobre is also in a JV with Advantage Lithium to develop a project in Cauchari, Argentina.
Neo Lithium Corp. (TSXV: NLC)
A relatively new player that entered the market in 2016, Neo Lithium operates the Tres Quebradas or the 3Q lithium brine project in Argentina’s Catamarca province. According to Neo Lithium, the 3Q is one of the lowest impurity brines in the industry. The Company recently raised some $25 million to invest in the project. And it has just concluded its maiden resource estimate. The positive findings about the size, grade and low impurities of the resource enable it to initiate a Preliminary Economic Assessment soon. And then a feasibility study next year. Actual production, again like several lithium juniors, is still some time away.
Tesla’s entry into Argentina is good news for the many lithium juniors crowding the market there. However after the initial euphoria their stocks could experience, long-term gains will only come in once the juniors start adding new supply. And that is likely in the next two to three years at the earliest.
Vasudha Sharma is a Business Journalist who has extensively reported on real estate, infrastructure and home finance for both Television and Digital platforms. She has interviewed business leaders, policymakers and industry experts about emerging economic trends as part of her experience as a Business News Anchor and Reporter.
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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