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Editorial Coverage: A January report from Zion Market Research
projects the global lithium-ion battery market, worth around $31
billion in 2016 and dominated by Asia-Pacific producers such as
China, is on track to grow at a CAGR of 13.7 percent through 2022,
ballooning to over $67.6 billion (http://nnw.fm/9gEz3). Australia, Chile, Argentina and
China are responsible for the lion’s share of global lithium
production (around 93 percent) — about half of which is currently
consumed by battery production. Prices per ton for the two main
types of lithium (hydroxide and carbonate) have jumped from around
$6,500 in 2015 to recent highs of more than $20,000. UBS Securities
also recently projected that lithium demand will continue to stay
high through 2024 (http://nnw.fm/GCfv9), citing primary drivers such as
the burgeoning EV (electric vehicle) market, which is projected to
grow at a whopping 28.3 percent through 2026 (http://nnw.fm/T80kH). All of this is extremely bullish
news for lithium producers, whether we are talking relatively small
up-and-comers such as British Columbia-based QMC Quantum
Minerals Corp. (TSX.V: QMC) (FSE: 3LQ) (OTC: QMCQF)
(QMC
profile) and Nemaska Lithium,
Inc. (TSX: NMX) (OTC: NMKEF), or sector heavyweights such
as Chile’s Sociedad Química y Minera de Chile S.A.
(NYSE: SQM), Albemarle Corporation (NYSE:
ALB) and FMC Corporation (NYSE: FMC).
Cleaner Cars Require Much More Lithium
Bloomberg New Energy Finance analysis of the EV market shows
production will increase more than thirtyfold by 2030 and relays
Deutsche Bank estimates that there are enough lithium reserves in
the ground to last us another 185 years (http://nnw.fm/rm7qC). With developments on the horizon
such as lithium-ion batteries that could store a third more energy
using a lithium metal electrode instead of graphite, the race to
develop lithium resources is officially on for a world increasingly
concerned about the cleanliness of the energy it consumes.
Recent flap from Morgan Stanley about a potential oversupply of
lithium fails to accurately account for both the insatiable demand
and the rate of supply throughput to end markets (http://nnw.fm/alG3C). SQM cited a 17 percent jump last
year in demand and estimated a 20 percent uptick this year in its
annual report. More importantly, not all lithium projects with a
suitable grade are necessarily economical, and an oversupply of
mined product is not the same thing as having an abundance of
high-quality processed lithium that is ready to be used in
batteries. Producers that can systematically increase output are in
a prime position to make the most of this historic opportunity,
especially as increasingly cheap-to-produce batteries eat up more
and more of the market, eventually representing some 90 percent of
all lithium consumption by the mid 2020s. That trend has put
internal combustion engine vehicles on notice, with estimates that
by 2022 EVs will actually become cheaper than gas guzzlers
(http://nnw.fm/v8Ndw) and even outsell them by
2040 (http://nnw.fm/hfYA2).
Unprecedented Lithium Demand Drives
Expansion
Underlying demand fundamentals are an important factor for
QMC
Quantum Minerals (QMC), which recently expanded its
100 percent-owned Irgon Lithium Mine Project in Manitoba by nearly
fourfold to some 6,538 acres in the heart of this mining-friendly
province (http://nnw.fm/otSf2). Manitoba is currently well on
its way to becoming Canada’s most improved province and was ranked
the second most attractive global jurisdiction for mining
investment in 2016 by Fraser Institute (http://nnw.fm/qfQz4). The Irgon Lithium Mine Project
site benefits from superb access and the well-developed mining
infrastructure that Manitoba has to offer.
Quantum Minerals subsequently followed up on its channel
sampling program of late last year (http://nnw.fm/yU7Gb) and the considerable acreage
expansion at Irgon with some impressive exploration finds. These
finds included a number of newly identified pegmatite dikes that
kicked up some tantalizing trends via initial field evaluation by
onsite geological teams, including one trend running approximately
410 feet along strike, with an exposed surface width ranging from
6.5 to 16.4 feet (http://nnw.fm/WHp6y; http://nnw.fm/M5H8w). Subsequent grab sample assay
results confirmed that the dikes, located south of the main Irgon
dike, do, indeed, bear considerable lithium mineralization, with
one return coming back at an impressive 2.6 percent Li2O (lithium
oxide).
Quantum a Near-Term Producer with ‘Good
Dirt’
Having been cleared by Manitoba’s Sustainable Development Office
with a drill permit in March, Quantum Minerals may be well-situated
for its 2018 field season. Plans are in the offing for a 6,561-foot
drilling program designed to validate the historic resource
estimate from the 1950s, which showed 1.2 million tons of Li2O at
1.51 percent over 1,198 feet to a depth of 700 feet. The 2018 field
program will also test for extension(s) to the main dike below 700
feet.
Quantum Minerals will be bucking hard this year to update
markets with a thorough, NI 43-101-compliant resource estimate for
the project, which historically yielded an 87 percent recovery rate
averaging 5.9 percent Li2O concentrate during the historical
1950s-era work program. That same work program also saw
installation of a complete 500 tons per day mining plant and the
sinking of a 243-foot, three-compartment shaft, including 1,200
feet of lateral extensions from which six crosscuts transected the
main dike.
Full results of the late 2017 program that yielded 144 channel
samples across the width of the main dike comfortably exceed
historic estimates. One interval even showed 1.43 percent Li2O over
59 feet, including a sweet spot of 1.73 percent over 46 feet.
Numerous grades from 3.05 to 4.31 percent Li2O over 3.28-foot
intervals were also reported, and 41.1 percent of pegmatite assays
exhibited returned over 1 percent Li2O. There were also significant
grades identified of tantalum (310 ppm), niobium (275 ppm),
rubidium (2,961 ppm), cesium (567 ppm) and beryllium (325 ppm),
further enhancing the Irgon project’s overall economics.
Big Aces Up Quantum’s Sleeve
Previous lithogeochemical survey work at Irgon
— looking for tantalum and tin that was done on
the dikes south of Cat Lake by Tantalum Mining Corporation of
Canada (“TANCO”) in the late 1970s — has given
Quantum Minerals one particularly choice data point to follow up on
during the company’s 2018 field program. A 3,609-foot anomaly,
which is 328 feet wide on the east end and nearly 1,150 feet wide
on the west end, was never assayed by TANCO for lithium due to a
lack of demand for the metal at that time, even though the
exploration report indicated it was a good idea to check it out
(http://nnw.fm/Zu94n). This massive anomaly
could be a big win for QMC Quantum Minerals, adding considerable
value to an already impressive project, and the company looks eager
to sink its teeth into what may be a heavily mineralized
region.
In addition to the extremely promising Irgon Lithium Mine
Project, Quantum Minerals has roughly 57,000 acres, known as the
Namew Lake District property, up in northwestern Manitoba’s
world-class Flin Flon/Snow Lake VMS (volcanic massive sulfide)
district. A 43-101 report released in 2013 — after the company’s
2012 drilling program and VTEM (versatile time domain
electromagnetic) survey, which yielded 41 targets — recommended a
work and exploration program to further delineate the 100
percent-owned project’s properties as an economic mineral resource.
This project is proximal to Hudbay’s (NYSE: HBM) currently
producing copper, zinc, gold and silver bearing 777 Mine and is
only 6.8 miles southwest of the Namew Lake mine that previously
produced 2.57 million tonnes of copper, nickel, gold, silver,
palladium and platinum. The Namew Lake District property has the
potential to host several distinct VMS bodies and represents a
potential ace in the hole for Quantum Minerals that investors
should be aware of.
Proposed Tariffs Could Be a Boon for North American
Producers
Recently proposed tariffs on lithium primary cells and batteries
from China will most likely not impact the EV supply chain
(http://nnw.fm/gT5NM). However, this turn of
events will no doubt significantly boost the overall North American
lithium market, lighting a fire under companies throughout the
industry. Companies that either import or manufacture lithium-ion
batteries, such as Johnson Controls (NYSE: JCI), Exide Technologies
(NASDAQ: XIDE) and A123Systems (NASDAQ: AONE), will have to start
thinking about solutions closer to home. This is good news for
North American lithium producers, who already have trouble
maintaining production rates that keep up with skyrocketing
demand.
And while Morgan Stanley recently cited massive Chilean
production expansions as potentially driving the price of lithium
down 45 percent by 2021, the Trump administration’s move toward
protectionism could substantially change market conditions,
especially for companies such as Tesla (NASDAQ: TSLA), which uses
10,000 times more lithium for one Model S than there is in the
average smartphone battery and which is currently in talks with
Chile’s SQM to secure a steady supply of the white metal. China
alone has set massive goals for plug-in hybrids and EVs, with
quotas to this end coming online next year and plans to have such
green vehicles make up one-fifth of all the country’s auto sales by
2025.
Top Players Expanding Production Footprints
Nemaska Lithium, Inc. (TSX: NMX) (OTC: NMKEF)
is a good example of a company just north of the border with solid
production capability on the table and plans for increased
production. A recent feasibility study for Nemaska’s
development-stage Whabouchi hard-rock lithium deposit in Quebec
targets a 20 percent increase in capacity to 16,000 tonnes
annually. The hybrid open-pit and underground mine will have a
33-year mine life based on proven and probable reserves of 24
million tonnes at 1.53 percent Li2O. Nemaska President and CEO Guy
Bourassa seemed extremely bullish during a January conference call,
during which he indicated the production expansion plans were a
response to the company’s understanding of both the underlying
demand fundamentals and extensive discussions with lithium-hungry
customers around the globe (http://nnw.fm/b0e0V).
Sociedad Química y Minera de Chile S.A (NYSE:
SQM), a fertilizer giant, a veritable Chilean institution,
and one of the world’s biggest producers of lithium, recently
announced a key agreement with the Chilean Economic Development
Agency (Corfo) (http://nnw.fm/UQth3). The agreement ends a yearslong
fight over SQM royalties and sets up the company, which is the
lowest-cost producer of lithium from Chile’s sprawling Salar de
Atacama salt flat, to more than double its lithium production by
next year (http://nnw.fm/8Exb5). While SQM has said it will gauge
further production expansion based on prevailing market conditions
— likely due to the company’s share price drop after the Morgan
Stanley report — 100,000 tonnes is less than half of what the world
consumed annually two years ago. Furthermore, lithium demand is
projected to grow substantially well into the 2020s, and the
company’s share price has rebounded nicely since the Morgan Stanley
selloff that impacted lithium producers earlier this year,
retracing to well above SQM’s 52-week median.
Albemarle Corporation (NYSE: ALB), a U.S.-based
specialty chemicals company, is the world’s other top producer of
lithium, after the company’s acquisition of Rockwood Holdings in
2014. The company amended its lithium production rights agreement
with Corfo last year to expand production in Chile to 80,000 metric
tons per year. Albemarle subsequently announced the development of
a new technology that will allow the company to increase that
figure to 125,000 metric tons per year without the need for
additional brine pumping at the Salar de Atacama, triggering a new
demand to Corfo for an additional lithium quota increase.
FMC Corporation (NYSE: FMC) is the
third-largest lithium producer behind SQM and ALB. The company
announced earlier this year that it will expand production in
Argentina over the next few years to more than 40,000 metric tons
via a $300 million investment — a deal that further illustrates the
current land race taking place among producers to lock in the best
production sites around the globe.
North and South America Are Development
Hotspots
North American lithium production represents some of the lowest
jurisdictional risk to be found anywhere on earth and typically has
well-developed infrastructure and site access. Nevertheless, an
increasingly insatiable global demand for the so-called “white
petroleum” has sent producers scrambling for acreage in Chile,
Argentina and Bolivia, where there is an abundance of salt flat
mineralization. Chile even recently announced plans to
substantially revise mining codes and make the country even more
competitive as an investment target. North or south, the story is
the same: Smart producers can read the handwriting on the wall as
the trend is to shift away from hydrocarbons toward lithium and
other energy sources; these same producers are planting their flags
on key acreage and ramping up production volume.
For more information about Quantum Minerals, please visit
QMC
Quantum Minerals (QMC).
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