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Lithium - Demand, Pricing, Supply

Case Study: First Lithium Resources Inc., formerly Mountain Capital Inc., (TSX-V: MCI) - Rare Earth Elements and Lithium; Exceptional Risk-Reward Scenario Presented in MCI.V as Lithium Contained Oilfield Brines Deemed 'Producible'

 Abridged Report - By James O'Rourke - Updated June 2, 2009 for rare earth element content on case study

 
 

 

 

Total Global Resources & Reserves of Lithium - At present noted Geologist Kieth Evans estimates total global resources and reserves of Li at 30,120,000 tonnes (160,000,000 tonnes Li carbonate equivalent). The following chart shows the estimated break down according to source types:

 

This break down will change over time as new entrants develop hectorite clay and oilfield brines

Figure 1: Source; Notes taken by attendee to Jan./09 talk by Geologist Keith Evans

Throughout noted Geologist Keith Evans’ 40+ year career in the lithium industry he has made it his responsibility to monitor industry developments particularly in respect of new resources and he has continued as a consultant in a number of industrial minerals.

Recent Lithium News Updated - as of May 5, 2009

The problem with predicting the demand for the future use of lithium in transportation as a preferred medium of energy storage is that no one actually knows just how enthusiastic the trend will be. A growing number of people are theorizing demand for lithium in the next decade has earmarks of going 'viral'.

 

A review of salient news items to hit the wires in the last few weeks provides insight into how the foundation for a viral demand picture is shaping up:

 

1) Investing in Energy Storage - Reuters
Synopsis: Energy storage is a can't-fail sector. It's critical for the rapid expansion of renewable energy. And Congress is guaranteeing its success.

 

2) Billions on the Line as States Battle for Battery Makers
Synopsis:
At least four battery companies are going with Michigan, which has the obvious benefit of proximity to the Big Three — all of which have lined up battery suppliers for electric vehicles." ... "Kentucky, meanwhile, has attracted the NAATBatt consortium — the group of 50 U.S. companies that plan to invest more than $600 million in a battery R&D center — if DOE funds come through. The state also has a second development center in the works set to have an annual budget of $7 million, initially for lithium-ion batteries and eventually for lithium-air and zinc-air batteries for vehicles and grid storage.

 

Related article: Johnson Controls, others plan U.S. battery plants
Synopsis:
LG Chem, Dow Chemical, A123 also plan Michigan plants

 

3) Nissan Sees Higher Oil Prices Spurring Demand for Electric Cars
Synopsis:
Japan’s third- largest carmaker, expects a global economic recovery to push oil prices higher, creating demand for battery-powered cars the company intends to introduce next year

 
4) What the Chrysler-Fiat Deal Means for Green Car & Battery Startups
Synopsis:
Fiat and Chrysler partnership could alter the landscape for green car and battery startups.

 

5) LG Chem unit says on track on GM's Volt plug-in

 

 
6) Toshiba has quick-charge hybrid car battery-Nikkei
Synopsis:
Toshiba Corp is ready to mass-produce a quick-charging lithium ion battery for hybrid vehicles with the highest electrical output for a battery of this kind

 

7) M'bishi Motors to double electric car output-Nikkei
Synopsis:
Mitsubishi Motors Corp  will double its production capacity target for its iMiEV electric car to an annual 20,000 units in three years and lift output of lithium ion batteries

 

8) Hyundai to go ahead with eco cars
Synopsis:
Hyundai has unveiled the Elantra LPI, a hybrid version of the popular compact car, which will be powered by liquid petroleum gas (LPG) and lithium polymer batteries

 

9) Honda GS Yuasa to make batteries for hybrids in 2010

 

The above stories are just a fraction of the myriad of developments that are going on that we believe are setting the foundation for a viral demand for lithium as a preferred medium of energy storage. New producers of lithium are needed to meet expected supply short falls and investors in strategic lithium sources are likely to fair well over time. One such recent development is Bolivian mining officials opening talks with French conglomerate the Bollore Group, which is vying for a contract to mine lithium at the Uyuni salt flat (See related news: "France's Bollore opens talks over Bolivia's lithium") ( See Upside Valuation/Summary investment opinion on Mountain Capital Inc. TSX-V: MCI).

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Current Lithium Production and Use

Well over 95,000 tonnes of lithium carbonate equivalent was produced in 2008, more than double the amount from a decade earlier. The USGS estimates the current global end-use markets for lithium as follows: batteries, 25%; ceramics and glass, 18%; lubricating greases, 12%; pharmaceuticals and polymers, 7%; air conditioning, 6%; primary aluminum production, 4%; continuous casting, 3%; chemical processing 3%; and other uses, 22%. Lithium use in batteries expanded significantly in recent years because rechargeable lithium batteries were being used increasingly in portable electronic devices and electrical tools. At a conference on lithium on January 26, 2009 Patricio de Solminihac, Executive Vice President and COO of Chemical & Mining Co. of Chile Inc. A.K.A. Sociedad Química y Minera de Chile S.A (SQM) (NYSE: SQM), the world's largest lithium carbonate producer, said there has been compounded annual growth of 5-7% over the past five years and 2008 demand for lithium carbonate equivalent is estimated to have been in the range of 115,000 to 118,000 tonnes (~2% above 2007 levels).

 

Forward Looking Demand for Lithium

Li-ion in automotive use to surge

All Electric, Zero Emission Vehicles New lithium technology allows rapid acceleration and long life.

Figure 2.  Zero S Motorcycle Using a lithium-ion battery array the S model does 0-60 mph in 4 seconds and has a top speed of 70 miles per hour.

Figure 3.  Tesla Model S Using a lithium-ion battery array the 7 passenger Tesla Model S does 0-60 mph in 5.6 seconds, ~300 miles per charge, 45 min. quick charge, top speed 120 mph (electronically limited) [related article].

Interest and demand in lithium minerals has increased significantly, driven by the increased importance and production of lithium-ion batteries as the next generation power source. The aforementioned VP & COO of SQM also made the following predictions: Lithium chemicals, excluding automotive battery potential, is estimated to maintain continued 3-5% annual growth over the next ten years. On the potential demand for plug-in hybrid (PHEV), electric (EV) and hybrid (HEV) vehicles, he offered various scenarios with assumption ranges, we offer his upper predictions; the upper range for penetration of all types of electric vehicles into the market in 2020 was at 20%, Li-ion penetration in 2020 was 80%, annual demand in 2020 for lithium carbonate equivalent was thus 55K-65K tonnes, and 135,000-145,000 tonnes in 2030 - this number was corroborated at the same conference in a different presentation by Steffen Haber, the President of Chemetall (a division of Rockwood Holdings Inc. (NYSE: ROC)), however Haber derived Li carbonate demand in the range of 90,160 tonnes to 145,480 tonnes for 2020, a decade earlier.

 

The problem with predicting the demand for the future use of lithium in transportation as a preferred medium of energy storage is that no one actually knows just how enthusiastic the trend will be. It could be, and should be, argued that miners, geologists, suppliers, and technologists should not make such predictions; their assumptions are guesses that are limited in understanding of the fact that this is a cultural phenomena. What is not necessarily factored into the assumptions is that there will not only be a "demand" but rather a "cultural push" that will for ever change the future of transportation as we know it. A look at the new US economic stimulus plan offers insight into just how big governments want to make it so; $2.4 billion has been set aside in the federal economic stimulus law to be granted by the U.S. Department of Energy to speed development of technology for plug-in hybrid electric vehicles. And lets not forget the new 'smart grid' that we are told is going to be built between all states to supply the juice. Once yet-to-be-seen incentives and coercion to buy (or penalties for not buying) these cars are factored into the equation, the aforementioned assumptions and predictions are likely to be thrown out the window. 

 

The Price of Lithium

Healthy demand is being met with increased pricing. The economics of Li commodity as a percentage of battery cost today allows for large upside commodity price increase with little negative effect.

 

 
There is no international lithium spot price. On March 24, 2009, as part of our research process to determine pricing, Madison Avenue Research Group contacted George Sandor, Sales and Marketing Director – Energy, Industrial, Consumer, & Construction Markets of FMC Corporation (NYSE: FMC). Mr. Sandor said there are ninety different varieties of lithium that FMC sells and pricing is not simplified enough to give a generic quote as there are different volumes and purities according to the clients needs, however technical grade carbonate would typically be what battery makers would be interested in. A client coming in for a quote would go through a long checklist of specifications including purity, particle size, shipping, packaging, and so on. Madison Avenue Research has been able to ascertain from various sources that lithium prices  rose  nearly 100% in many situations in 2008. Here is a sampling of recent lithium price transactions that were shared with us, the first being what a large battery makers would typically source: Lithium Carbonate large contracts in March 09 $2.80/lb to $3.00/lb. (or $6,613/tonne), other reported figures in varying grades and purity were Petalite 4.2% Li20 big bags F.O.B. Durban $165-260, Spodumene concentrate >7.25% Li20 F.O.B. W. Virginia short ton bulk $620-680, Glass grade spodumene 5% Li2O F.O.B. W. Virginia short ton bulk $340 - $390.

 

It is important to note that the market could easily absorb a significant increase in lithium price, many multiples its current pricing, without negatively impacting the cost of batteries as the actual raw cost of the lithium in vehicle batteries is currently less than 3% as a proportion of cost. Lithium prices could increase ten fold and it would have a nominal impact on the actual price of the end battery. Additionally, with a relatively small number of producers controlling a large percentage of global production an effective oligopoly will make lithium a strategic commodity in decades to come (see split of the pie by producers below).

 

FMC gets their Lithium from their Sala de Hombre Muerto bines in Argentina, however lithium is a small part of their company so a large increase in lithium prices only has a nominal impact on earnings. Similarly with the largest lithium producer in the world, SQM, their Li business represented ~11% of total revenues for the last fiscal year. A more pure play lithium junior miner with resources or highly prospective quality project may be a way to expose a portfolio to the solid future demand for lithium (see case study on Mountain Capital Inc. (TSX-V: MCI) below).

   

Small Number of Miners and Split of the Pie - Eric Norris, Global Commercial Director for FMC's Lithium Division, offered a synopsis of the split for Li suppliers. In his presentation Norris put market demand of 93K tonnes for lithium carbonate equivalents in 2007 and offered the following split for market supply:

 

Figure 4: Source; Notes taken by attendee to Jan./09 talk

Forward Supply for Lithium - A Highly Strategic Metal in Years to Come

Healthy supply to meet healthy demand - new entrants are needed

The pie chart in the top right corner of this web page shows the break down of total global resources and reserves of Li according to source types as estimated by Geologist Keith Evans on January 26, 2009. In his presentation Evans estimates total global resources and reserves of Li at 30,120,000 tonnes (160,000,000 tonnes Li carbonate equivalent).  In a different presentation on the same day by the VP & COO of SQM, Solminihac estimated total world lithium resources exceed 300,000,000 tonnes lithium carbonate equivalent (56,400,000 tonnes of lithium) with reserves in excess of 100,000,000 tonnes (18,800,000 tonnes of lithium). The analysis given in his presentation puts 40% of total world reserves in the Salar de Atacama, a 280K hectare salt encrusted depression, fed by an underground inflow of water from the surrounding Andes Mountains, described as the world's largest known commercially exploitable reserves of lithium at 40,000,000 tonnes lithium carbonate equivalent (7,520,000 tonnes of lithium). The total Salar de Atacama lithium resource was estimated to be in >190,000,000 tonnes lithium carbonate equivalent (35,700,000 tonnes lithium).

 

World reserves numbers are fluid, the term ‘reserves’ apply only to material that can be economically produced at the time of determination. The term also implies that the material can be extracted with existing technology at a specific price-usually the prevailing market price.

 

Currently lithium production supply and demand are relatively in balance, however there is a lithium supply deficit looming and new entrants to the market place will be needed. TRU Group's President, Edward Anderson, made a presentation on January 26, 2009 to delegates at a lithium conference and showed a demand curve where existing supply was increased by only one new entrant (Rincon Lithium - Argentina Project) in 2011-2012 and a resulting undersupply position was in store for 2020. Mr. Anderson demonstrated to attendees that another large chemical grade lithium supplier would need to enter the market in time to eradicate the undersupply forecast.

 

New entrants to the lithium supply side will come as demand increases and source logistics and economics fall into place. Strategic investors are already positioning themselves in lithium source types that are not yet being exploited, such as hectorite clay and oilfield brines - two source types that would rank ahead of hard rock pegmatite/spodumene for rapid development.  Hard rock pegmatite/spodumene, although now being mined in some places like China, is generally cost prohibitive or at least disadvantaged when compared to brines. Strategic investors would do well to look at the shares of companies that have highly prospective hectorite clay or oilfield brines as lithium sources.
 

Case Study: First Lithium Resources Inc. (TSX-V: MCI) - Rare Earth Elements and Lithium

Exceptional Risk-Reward Scenario as Oilfield Brines are Deemed 'Producible' for Contained Lithium

First Lithium Resources Inc.'s (TSX-V: MCI) 1,013,360 acre Alberta Lithium brine project has values which compare favourably to known lithium brine deposits in Nevada, which are currently in production. MCI could conceivably possess such a deposit, with significant size and potential yield. MCI's mining exploration permits cover an area in which an "historical resource estimate" (non NI 43-101 compliant) of 2.4 Billion lbs of Lithium oxide has been provided.

 
Upside Valuation/Summary: First Lithium Poised for Significant Upside Revaluation - The share price of First Lithium Resources Inc. (TSX-V: MCI) (Frankfurt: MHN) (OTC Listing: FLNTF) appears in line for an upward adjustment, as the story of this lithium and rare earth elements venture becomes better understood. MCI provides excellent investment exposure to forward looking, demand side metrics. The new wave of eco-technology is clearly set to go ballistic with the push toward zero emission vehicles and lithium-ion battery technology as the future power storage source of choice. Considering the impressive nature of its core holdings MCI appears undervalued with only ~22M shares outstanding and trading under CDN$0.12.

   

Figure 1.  First Lithium Resources Inc.'s Central and South Basinal Brine Lithium Properties located Near Leduc Alberta (click here for full map PDF) First Lithium Resources Inc.'s three property groups are highly prolific Lithium claims that were specifically assembled to cover the most proven areas deemed 'producible' for Lithium by government studies and having the greatest concentrations of Lithium in formation waters.

First Lithium Resources Inc. is a Canadian junior mining exploration company listed on the TSX Venture Exchange (ticker symbol MCI) (Frankfurt: MHN). On First Lithium's 1,013,000 acre Alberta Lithium project, historical data indicates lithium concentration values which compare favorably to known lithium brine deposits in Nevada, which are currently in production. The world hosts a limited number of readily accessible lithium brine deposits, and it appears MCI could conceivably possess such a deposit, with significant size and potential yield. Equally as important, MCI has highly experienced, talented management team dedicated to maximizing shareholder value.

 

Basinal Brine Lithium Project, Alberta - 100% Owned

       Mountain Capital's 100% owned Alberta Lithium project lies within the Western Canada Sedimentary Basin. Considering that these oilfield brines were deemed 'producible' regarding their contained lithium by Government of Alberta Research Council studies, it is our opinion that investors would do well to consider a long position in shares of MCI.

 

       MCI’s Lithium claims consist of 44 Metallic and Industrial Minerals Permits, covering a number of lithium showings in basinal brines. These permits mostly cover an area outlined by the Alberta Research Council provides an "historical resource estimate" (1995-01-31, page 41) which is not NI 43-101 compliant, of about 0.5 x 106 Mt of Lithium; or about 2.4 Billion lbs Li20. The MCI properties cover a majority of the area described in the report.

 
The projects are within areas considered as having, according to the report:

 
1) Formation waters with anomalous elemental concentrations of Lithium (greater than 50 mg/l);

2) Thicknesses of greater than 10 mm;

3) Porosity of greater than 5%;

4) Permeability of greater than 10-14m2.

 

The properties were acquired to cover those areas deemed 'producible' for Lithium by previous government studies (Bull 62, Hitchon et al.); and which had the greatest concentrations of Lithium in formation waters from the Leduc aquifer. Estimates of potentially economic Li in formation waters for the Leduc Reefs in our Southern Property vary from 10 to 570 g/m2; and for the Beaverhill Lake Formation (a property held by an adjacent company) vary from 11 to 918 g/m2. These values compare favourably to the known lithium brine deposits in Nevada.

 

The above data is historical and not National Instrument 43-101-compliant, as it was completed prior to the implementation of these requirements. In addition, a qualified person has not done sufficient work to classify the historical estimate as a current mineral resource and the issuer is not treating the historical estimate as current. Hence, the historical estimate should not be relied upon.

 

The Alberta Government did a significant amount of research, attempting to identify commodities that show high potential for economical extraction from brines in the Province. The studies covered numerous wells, over 14,000 core analyses and numerous permeability measurements in drill stem tests. First Lithium Resources Inc.’s permitted areas were selected, based on these studies’ results, as having a favourable mix of high lithium concentration and reservoir characteristics. Furthermore, potash (KCl), elemental bromine and boric acid are stated as potential by-products from MCI’s Alberta brine claims.
 

The writer has confirmed a due diligence review of the brine composition as presented in the government study, indicating that there are no apparent technical barriers to the recovery of lithium carbonate using similar processing methods to those used at Clayton Valley, NV and at the world's largest producers in Chile and Argentina. This extraction process involves pumping the brine to the surface and allowing it evaporate to a concentrated Lithium salt, and then converting it to Lithium carbonate. Cold Alberta winters are not a concern, as brines contain a high density of salts (which only increases with evaporation) and thus have a much lower freezing temperature than water. Alberta, in addition, is a fairly dry environment conducive to evaporation, making it well suited to a Lithium brine operation.
*Note: the aforementioned statement is drawn, in part, from the work of Channel Resources Ltd. on their permit areas.

 

Advantageously, many oil wells have been previously drilled into these brines, some of which may be rehabilitated, thereby eliminating the necessity of drilling new ones. This would result in an opportunity for MCI to both hasten, and save money on the extraction process when the time comes.
 

A vast majority of the world-wide production of Lithium comes from brines now. The older method of hard rock mining for Lithium became less attractive when it was discovered several decades ago that it could be extracted from brines more quickly, and at lower cost. If increasing demand for the element indeed leads to a world-wide supply shortfall, as is expected to occur over the next few years, then brine type Lithium deposits will be the first ones chosen for rapid development, in part due to their shorter production lead-in time. Despite Lithium not being a rare element, there are in existence a limited number of brine type sources.

 

First Lithium Resources' President Blair Naughty stated in a recent press release: "We are very excited to have procured a property that compares favourably with the Nevada brine deposits. Trends strongly favour continually increasing demand for lithium, as virtually all major automobile producers currently are, or will soon be involved in production of hybrid vehicles using lithium-ion battery technology.

 

Thompson, Manitoba - Inco Lithium Project - Option to Acquire 100% Interest

First Lithium Resources Inc Reports Godslith Property May Host Rare Earth Elements in Addition to Lithium

 

First Lithium Resources Inc. could well be sitting on a sizeable deposit of rare earth elements; an enzyme leach geological profile was performed by Dr. Mark Fedikow HBSc., M.Sc., Ph.D., P.Eng., P.Geo., C.P.G. on behalf of the provincial government (2001) on the lithium pegmatite present on the Company's Godslith Property (east-central Manitoba). The report states, in its conclusion that "the presence of the elements W, Cs, Ba and Nb as geochemical anomalies over this deposit indicate potential may exist for rare-element mineralization in the dyke" and "...may, in fact, be a resource for rare elements in addition to Li". The services of Dr. Fedikow were procured by the Company to provide a property assessment, and to subsequently determine estimated projected costs of an exploration program based on his recommendations. In conclusion, he has suggested a 6 hole, 4200 foot diamond drill program to assess the strike extent and the continuity of the pegmatite below the limits indicated by previous diamond drilling. In addition, a broad range of drill core geochemical analysis is planned to assess the pegmatite for rare metal contents, and to determine the extent of rare earth metals on the property. The Company is now engaged in the solicitation of quotes from local drilling companies and support.

 

First Lithium Resources Inc. has entered into an option agreement to acquire a 100% interest in the Inco Lithium Property located near Thompson, Manitoba. The property is located near the community of Gods Lake, 155 miles southeast of Thompson, Manitoba. Between 1958 and 1961, Inco Ltd. completed 9421 feet of diamond drilling in 25 holes exploring the lithium potential of the spodumene rich pegmatite dike. In 1986, on the basis of this work, William C. Hood, P.Eng., calculated a potential resource of 4.8 million tons grading 1.27% Li20 over an average width of 36.2 feet. In addition, Mr. Hood estimated an additional probable resource of 4.6 million tons grading 1.14% Li20.
 

In his technical report on the property, Mr. Hood recommended that the pegmatite from the property should be assayed to test for gallium and rubidium mineralization. In addition, Mr. Hood states that the deposit is open to depth, and suggests that a 10,000 foot drill program would likely double the drill indicated resource on this deposit.

 

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Related Research Links:

 - First Lithium Resources Inc. Corporate Website: www.firstlithiumresources.com

 Content found herein is not investment advice see Terms of Use, Disclosure & Disclaimer

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