Lithium Supply Chain Trading Opportunity Analysis
Lithium production is concentrated in a few major producing countries, including Australia, China, and Chile.The global lithium supply chain is undergoing significant changes with the discovery of the world’s largest known deposit of lithium in the United States. Previously, it was estimated that there are roughly 80-100 million tons of lithium resources globally, but the new discovery dwarfs even the reserves in Bolivian salt flats. A new study published in the journal of science advances estimates that the McDermitt Caldera, a volcanic crater on the Nevada-Oregon border, harbors a colossal 20 to 50 million metric tons of lithium.
This discovery could have a significant impact on the global lithium market, as it could increase the supply of lithium and potentially reduce the price of lithium. The discovery of the McDermitt Caldera deposit could also change the dynamics of the lithium supply chain, as the United States could become a major lithium producer and reduce its dependence on imports. However, the cost of extracting lithium from the deposit and the environmental impact of mining lithium must be considered. Overall, the discovery of the McDermitt Caldera deposit is a significant development in the lithium supply chain and could have far-reaching implications for the global economy.
Lithium Pricing History
In 2021, lithium prices witnessed an unprecedented surge driven by surging battery demand and the widespread supply chain disruptions caused by the COVID-19 pandemic. By the end of the year, the price of battery-grade Lithium Carbonate EXW China had skyrocketed to $41,925 per tonne, marking an astonishing year-over-year increase of 485.8%. In 2022, lithium prices continued their upward trajectory, surging by 438%. However, 2023 brought an abrupt reversal, with lithium experiencing a sharp decline of over 68%.In May 2023, Citigroup made a noteworthy declaration, suggesting that the decline in lithium prices had likely reached its nadir and projected a potential rebound of up to 40% by year-end. However, subsequent to this announcement, a significant discovery of a new lithium mine emerged, increasing the known global supply of lithium by more than 50%.
Lithium Miners Breakeven Spot Prices
According to S&P Global Market Intelligence, The average total cash cost across 11 operating hard-rock producers in 2019 was expected to be US$5,580/t.LCE.The NPV breakeven for a direct lithium extraction (DLE) project with 80%+ recovery vs. a traditional pond (~50%) is at opex of <US $5,700/t (on GSe lithium prices). Overall, the breakeven spot prices for lithium miners vary depending on several factors, and it is important to consider the cost of production, supply and demand, and the type of operation when assessing the profitability of a lithium mining operation.
Illite Bearing Miocene Lacustrine Sediments
Illite-bearing Miocene lacustrine sediments represent sedimentary rock formations rich in illite clay minerals. These sediments originated during the Miocene epoch, spanning approximately 23 to 5.3 million years ago, and were primarily deposited in lacustrine, or lake-based, environments. Notably, these geological formations are recognized for their substantial lithium content, which can be further concentrated through hydrothermal processes.
The lithium-rich claystones and carbonates associated with these sediments have garnered significant attention due to their potential utility in lithium extraction for a variety of industrial applications. Scheduled to commence in 2026, plans are underway for the mining of these lithium deposits.
Furthermore, for future exploration efforts targeting additional lithium reservoirs resulting from geological activities like volcanic eruptions, the focus should center on calderas that host lake sediments showing signs of hydrothermal alteration, especially within lakes devoid of outflows.
Hydrothermal Enrichment Process
Hydrothermal enrichment of lithium is a process that involves the secondary lithium- and fluorine-bearing hydrothermal alteration of primary neoformed minerals. Hydrothermal enrichment of lithium occurs when lithium-rich fluids interact with rocks and minerals, leading to the formation of lithium-enriched minerals. The unique lithium enrichment of illite at Thacker Pass resulted from secondary lithium- and fluorine-bearing hydrothermal alteration of primary neo formed minerals.
The cost of hydrothermal lithium enrichment compared to traditional methods is not clear. However, the cost of converting mined concentrate to battery-grade forms can cost $2,000–2,500 per metric ton depending on the lithium concentration and bulk chemistry. The dominating costs within the lithium carbonate plant are reagents, labor, and energy costs.
Lithium recovery from brines using evaporation methods is the main technology at the industrial scale, and the evaporation ponds’ costs play an important role. Extracting lithium from ores, calcination, roasting, purity, and other processes consume more resources and energy compared to extracting lithium from brine. The most efficient method of lithium recovery from water resources is electrochemical methods, which are more expensive than passive methods. The hydrothermal method is a soft chemical method that dissolves compounds in aqueous solutions.
How Are We Trading It
I am shorting lithium miners, except for Lithium Americas Corp, due to the changing dynamics in the global lithium supply chain. The recent discovery of the Thacker Pass resource in the United States, which is estimated to be one of the world’s largest lithium deposits, has the potential to significantly impact the market. This deposit, located in the McDermitt Caldera on the Nevada-Oregon border, could help meet the surging demand for lithium and potentially ease concerns over possible shortages for electric vehicle (EV) batteries. The project has already attracted investment from General Motors, which plans to buy all the lithium from Thacker Pass when production begins. This development, coupled with the projected increase in global demand for lithium, makes Lithium Americas Corp a potentially lucrative investment in the short term.
In contrast, other lithium miners may face challenges as the new supply from Thacker Pass could lead to a potential oversupply in the market, putting downward pressure on prices. Additionally, the United States’ focus on developing its domestic lithium resources could impact the market share of other major lithium-producing countries, such as Australia, China, and Chile. Therefore, I believe that shorting lithium miners, except for Lithium Americas Corp, is a prudent investment strategy in light of the changing dynamics in the global lithium supply chain.
Long ($LAC) Lithium of Americas Corp: Lithium Americas Corp is a Canadian-based company that owns a portfolio of mining operations across multiple commodities, including iron ore and lithium. The Thacker Pass Project is one of its key lithium projects located in Humboldt County, Nevada. The project is situated at the southern end of the McDermitt Caldera, approximately 100 km northwest of Winnemucca.
Lithium Americas commenced construction at the Thacker Pass project in March 2023, following the receipt of notice to proceed from the Bureau of Land Management. The proposed mine covers 9 square miles of public land and would operate on one of the largest lithium deposits in the U.S. The mine would consist of open-pit mining and lithium processing operations, producing lithium carbonate, which would be turned into battery-grade lithium products. General Motors is investing in the Thacker Pass Project and will buy all the lithium from Thacker Pass when production begins
Short $LTHM Livent Corp: Livent Corporation, trading under the ticker symbol LTHM, is a prominent player in the global lithium industry, specializing in the production and supply of lithium-based products. With a strategic vision centered around sustainability and innovation, Livent is committed to serving various industries, including electric vehicles (EVs), energy storage, and renewable energy solutions.
Short $SGML Sigma Lithium Corp: is a Canadian-based mining company focused on the exploration and development of lithium assets, with a primary emphasis on projects in Brazil. While Sigma Lithium has garnered attention for its lithium mining ambitions, it is essential to examine key aspects when considering a bet against the company.Sigma Lithium primarily operates in Brazil, where it explores and extracts lithium resources. The company’s flagship project, the Grota do Cirilo lithium project in the state of Minas Gerais, is a notable focus. Understanding the operational, regulatory, and logistical challenges specific to this region is crucial when assessing the company’s prospects.
Short $LIT Global X Lithium & Battery tech ETF: trading under the ticker symbol LIT, is an exchange-traded fund (ETF) designed to provide investors with exposure to the rapidly evolving and dynamic lithium and battery technology sector. This ETF offers a diversified and efficient way to invest in companies involved in the production, development, and use of lithium-ion batteries and related technologies offers investors exposure to a broad range of companies involved in various aspects of the lithium and battery technology supply chain. This includes lithium mining and production, battery manufacturing, electric vehicle (EV) manufacturers, and companies researching and developing innovative battery technologies.
Vincent Haliburton
Chief Investment Officer at Haliburton Capital Group & CEO at Knowit Owlz.
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