What follows is an abbreviated version of the most salient points from the recent lithium conference in Montreal. The full and more complete version was sent out to clients earlier this week.
· Attendance has risen by 100% each of the last three years with this year being the most diverse across the lithium supply chain. While upstream players were the most widely represented group, some new names from the automotive and tech sectors were in attendance – a difference from years past. The institutional investment community was more prevalent this year, but still a minority at the conference. This is likely due to the fact that the conference is less focused on investors.
· My thesis of valuing “execution over exploration” seems to have taken hold as the most advanced development stories including Lithium Americas, Orocobre, Nemaska, and Neometals garnered the most attention at their respective presentations. Everyone is watching to see how the Nemaska and Lithium Americas capital raises unfold as an announcement on each is anticipated shortly. There was much more forward thinking at this year’s conference relative to years past.
· Electric vehicle adoption is the single focus behind lithium demand to 2021. This is despite the Chevy Bolt’s lackluster sales so far in 2017. Cost parity between a full EV and a comparable ICE car isn’t expected before 2024 (though this date can move based on technological leaps and continuation of subsidies). A special note was made of the potential growth for electric buses – in particular in China. Energy storage is expected to provide an additional tailwind for lithium demand growth but not for several years and much also depends on the trajectory of cost declines in renewable technologies such as wind and solar. The threat of other battery chemistries (vanadium redox, zinc air, etc) was discussed and dismissed – sort of what you’d expect at a conference focused on lithium.
· Not much was offered in the way of supply and demand forecasts for lithium, but Roskill did discuss their internal model and a pathway to 1M t LCE in demand by 2027. This forecasts 85% of lithium demand coming from the rechargeable battery sector (up from 42% today) and an overall market size of 800,000 t LCE (up from 190,000 t LCE today) by 2025. I think both of these numbers are too high and my own model has lithium demand at 527,000 t LCE in 2025 and rechargeable batteries accounting for 70% of demand in 2025.
· Capital intensity is becoming a new metric to utilize in the brine versus hard rock debate. I don’t think there is a clear answer here, but with the new highs in lithium pricing, the cost curves have shifted. The capital intensity of a hard rock project typically lands between US $10,000 to $15,000/t LCE while brine projects typically run between US $13,000 to $17,000/t LCE. don’t think this is a debate that will ever truly be settled as literally every lithium project is unique, but these cost numbers are a valid rule of thumb when evaluating projects.
· Chilean potential for lithium outside of SQM’s announced expansion is still viewed skeptically while there is still a boatload of hope associated with Argentina. The growing number of companies exploring and developing Argentinean deposits likely spells consolidation in the future.
· Despite the voracious appetite for lithium resources by strategic investors in China, there was a sense of caution around the country given the threat of capital controls and credit constraints. Additionally, the need for extensive due diligence on the creditworthiness of off take partners was mentioned more than once.
· In a rare moment of restraint and clarity, the idea that a lithium company’s production plan should match its balance sheet size and strength was discussed. This was stated in response to a question I asked a panel about the “optimal” size for lithium production – 10,000 tpa or higher? If history is any guide, the “bigger is better” thesis has ended in tears for company stakeholders.
· Outside of the traditional supply and demand debates, the potential for recycling of lithium ion batteries and new lithium extraction technologies garnered the most buzz. Relatively little lithium ion battery recycling takes place today due to poor economics. Umicore reportedly recycled 7,000 t of spent cathode material last year – enough for 35,000 EVs. Several companies are building out recycling supply chains in advance of wider EV adoption, though the move here shouldn’t “kick in” before well into the next decade. Regarding lithium extraction technology, there are several processes that have emerged in recent years and currently it is believed that POSCO, the giant South Korean steel conglomerate, is ahead of the pack. These technologies are making some bold claims (producing lithium carbonate from brines in a matter of hours), but have yet to scale. For the sake of reference, POSCO is producing lithium carbonate at a rate of 2,500 tonnes per year currently and so must continue to scale this process to convince a somewhat skeptical market.
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