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Roskill: predominance of lithium production shifting to mineral vs brine, driven by volume requirements of EVs

Roskill Information Services forecasts that the lithium industry will need to add nearly 100kt of new lithium carbonate equivalent (LCE) production per year by 2027 to keep up with demand driven by the global transition to electric vehicles.

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 Roskill’s 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 200 Mt of contained lithium carbonate equivalent (LCE); to put this scale into perspective, Roskill forecasts that lithium demand in 2027 will fall just short of 1.0 Mt LCE. However, given the general low grade of these lithium deposits, the greater challenge lies in the economic extraction of these resources.

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 realized, Roskill cautions.

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, 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.

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, Roskill notes.

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.

Finally, the rate of progress within the lithium project pipeline 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 said.

Roskill launched its Lithium Cost Model Service in June 2018. It provides crucial analysis in the appraisal of new projects, brownfield expansions and existing mines. The service currently includes cost analysis on 42 operating assets and development projects, in addition, resource data on 20 exploration projects where further technical details have yet to be published. It also includes cost analysis on the key mineral conversion plants.

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