Tuesday, May 12, 2009

Evidence Points to Few Supply Concerns for Lithium. TNR.v, SQM, BYD, TTM, GOOG, RIMM, AAPL, WLC.v, CLQ.v, CDNX, FXI, HUI, XAU, OIL, OIH, ESLP

It is interesting to see how people are taking the same person: Mr Keith Evans and spin him and data out with different outcomes: either very Bullish on Lithium or still very hesitating on the matter of a short supply. We are in a solid Stage One of our Bull and Next Big Thing is growing with recognition among the industry insiders as an issue worth thinking about and trying to make some conclusions about its future. Lets us not forget about forecast and SQM agenda in that: no supply concerns - no further exploration - no new discoveries - no new deposits developed - no new producers/competitors - Demand exceed estimate if our Next big Thing become Big Fast - Lithium sky rocket - SQM charge whatever they want.

It is stage One - Pure risk:
- if Electric cars will not become a mass product,
- if Oil guys will kill the idea second time,
- if Lithium will not be needed,
- if SQM really could produce enough Lithium for everyone?
Before making any moves from your sofa you have to apply your thinking device. Safe way, as usual, is to wait for Stage Three and jump for a sure thing with taxi drivers and Investment advisers. We will point out to just one observation: 5 million Electric cars produced annually in 2020 is not a Green Mobility Revolution - it is an Oil guys' allowed green noise around the kitchen tables and business as usual. We are talking here about Next Big Thing, when we have a structural shift and revolution means dramatic changes in the market landscape with oil above 100 USD/barrel and 30% of existing by that time fleet consists of Electric Cars. If it will be 1 billion cars by 2020 you do the math.

We are pleased to introduce Keith Evans, a geologist with extensive lithium experience having worked in the industry since the early 1970’s when he was asked to evaluate the future potential of Bikita Minerals which had, until the imposition of UN sanctions against Rhodesia, been the dominant producer of lithium ores of low iron content for the glass and ceramics industries. Subsequently, he jointed Lithium Corporation and later joined Amax Exploration. On behalf of Amax and a Chilean partner he led the negotiations with the Chilean Government to evaluate and later develop the brine resources of that part of the Salar de Atacama that had not been leased to the Foote Mineral Company. He was subsequently responsible for all aspects of the evaluation but when Amax decided not to proceed with the project, ownership passed to Sociedad Quimica y Minera (SQM). It is now the world’s leading source of lithium. Mr. Evans consults on a number of industrial minerals and has written extensively on the subject of lithium reserves.
This is part two of a three part series. You can read part one here. Part two covers demand and future production.
In Santiago, the issue of current chemical production capacity was discussed which is estimated at 115,000 tpa of lithium carbonate equivalents compared with current demand of approximately 95,000 tpa.
Of greatest interest were projections of future demand where the numbers vary greatly because of the varying assumptions regarding total vehicle numbers, the percentage penetration of the total market, the percentage that are lithium-ion powered and the vehicle type. All three producers used the same figure of 0.6 kg carbonate per 1kW/h of battery capacity with the type, battery capacity and carbonate demand tabulated below.
Vehicle Type Battery Capacity LCE Demand
Mild HEV 2 KW/H 1.2 kg
PHEV 12 7.2
EV 25 15
SQM, in its estimate for 2020, looked at two scenarios assuming 9% and 20% electric vehicles in the fleet with 60% and 80% being powered with Li-ion. The annual carbonate demand ranged from 20,000 to 30,000 tonnes in the conservative case 55,000 to 65,000 tonnes in the optimistic case. Unlike others making estimates, SQM also looked at 2030 with 15% and 25% electric vehicles in the fleet and 75% and 90% being Li-ion powered resulting in a demand of 65,000 to 75,000 in the conservative case and 135,000 to 145,000 in the optimistic case.
Chemetall also tabulated a range of scenarios with 2020 demand for vehicles from a low 5,000 to 60,500 tonnes of carbonate demand. FMC estimated the market penetration of HEV’s at 20-30%, PHEV’s at 2-5% and EV’s at 1-3% in 2020 resulting in a carbonate demand of 70,000 tpa. TRU Group presented a study made on behalf of Mitsubishi Corporation. They estimated the production of battery-equipped cars at approximately 5 million/year by 2020. They also estimated that technical issues will be resolved for HEV’s by 2011, for PHEV’s by 2014 and for EV’s by 2016.
Future Production
Current capacity for chemical production approximates to 115,000 tpa lithium carbonate equivalents. At the conference, Chemetall announced that it would stage expansions in response to market demand which could more than double capacity (to 50,000 and 15,000 tpa carbonate and hydroxide respectively) by 2020 and FMC stated that at current production rates they had reserves to last for 70 years.
SQM pumps sufficient brine to recover approximately 800,000 tpa of potash (potassium chloride and potassium sulfate) together with a modest tonnage of boric acid. From this feed they have the lithium capacity to produce 40,000 tpa carbonate but the lithium in the brine greatly exceeds this and the excess is returned to the salar. The expansion potential is very large and the company claims that the returned brine contains in excess of 200,000 tpa carbonate.
–R. Keith Evans"
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