The Saudi Arabia of lithium

Materials World magazine
1 May 2018

Wealth Minerals’ Stefan Schauss talks to Khai Trung Le about mining in Chile, and the country’s significance in securing global lithium supply.

In December 2017, Michelle Bachelet was succeeded by billionaire entrepreneur Sebastián Piñera as President of Chile, a reversal of how she came into power in 2014. Bachelet made strides in social issues and gender equality, but her second term was marked by stagnant economic growth, an increase in the poverty rate, and accusations of corruption within her cabinet. Bachelet’s tenure was also marked by increases in corporate income tax, and continual decreases in the value of copper.

Materials World does not usually trade on political clamouring. However, Chile remains of significant importance to the global mining industry as one of the top producers of copper, and a likely load bearer in lithium supply – it is the world’s second largest lithium producer, after Australia, accounting for around 35% of global production. With the predicted explosion in battery storage technology and electric vehicles, lithium is expected to be one of the most important assets to the country, and its promise has attracted international interest.

Piñera campaigned on a pro-business agenda, with market-friendly policies, including proposals to amend pro-union labour laws introduced by Bachelet’s centre-left government and easing the process to securing mining permits, which some mining interests claim have obstructed growth. It is early days in Piñera’s government, but the recent appointment of Baldo Prokurica, Senator for the Atacama region, a key mining district in Chile, to his cabinet as Minister of Mining is an early sign of his support.

The Chilean mining code establishes lithium as a strategic mineral, only to be exploited by the Chilean government, a state-owned company, or by special concessions or contracts. Wealth Minerals, headquartered in Canada, entered into a strategic alliance with the state-owned National Mining Company of Chile (ENAMI) in March 2018 to commercialise Wealth’s four projects in the region, most immediately in the Salar de Atacama and Laguna Verde in Chile.

At the time of writing, Wealth did not have proof of the magnitude of the brine in its projects, with drilling beginning in April 2018, but so optimistic is the company that Wealth Executive Director Marcelo Awad has described Chile as ‘the Saudi Arabia of lithium’.

Looking for lithium (in all the right places)

Stefan Schauss joined the Wealth Minerals board of directors in February 2018, in part due to his experience in the energy technology and storage sectors. Not only does Chile represent a low-cost production environment, Piñera’s appointment of Prokurica has reinvigorated optimism within the mining community. Schauss told Materials World, ‘The new government and legislation is definitely changing the playing field. There is a drive to make lithium as much of a strategic material for the country as copper is. There is also a well-founded understanding of what the resource means, and how its extraction will benefit the country.’

Much of Wealth’s manoeuvring in Chile stems from predictions around demand from China, according to Henk van Alphen, CEO of Wealth. The Chilean government, through development agency Corfo, which oversees lithium leases in the Salar de Atacama, blocked the purchase of shares in Sociedad Química y Minera (SQM), Chile’s second largest lithium producer, to Tianqi Lithium, a Chinese company, on the grounds that it would ‘gravely distort market competition’. Although Tianqi is meeting with Chilean officials, looking to overturn the decision, Schauss believes this will not impact Wealth’s activities.

He said, ‘If Tianqi becomes a stakeholder in SQM, it would impact resources already in production. It’ll be diverted in the offtake. It does not mean higher demands can be satisfied. Demand will outweigh everything that’s currently in exploitation and production.’

Despite the optimism, analysts from Morgan Stanley predicted a fall in lithium prices as pronounced as 45% between 2018–22, citing fears of production oversupply. SQM has also stated it will only expand production beyond 2019 ‘based on market conditions’.

Schauss has also predicted a decline in the immediate price of lithium, as the sector meanders between near-term supply and demand, but remains optimistic that it will stay at high levels. ‘Definitely multiples of the cost levels,’ he said. ‘There is a drive to lower the cost of batteries – Tesla has set a target of US$100/KWh – but the expense of materials, let alone other factors, will likely prohibit this goal.’

Living up to standards

In August 2010, Chilean mining found itself under heavy scrutiny during the Copiapó mining accident that trapped 33 miners 701m underground for more than two months. The mine was closed, with the San Esteban Mining Company agreeing to pay the miners and reimburse the Chilean government for the cost of the rescue effort. Prosecutors closed the investigation without filing charges in August 2013.

Since the accident, efforts to improve safety conditions have been difficult to measure. In particular, Chile has yet to ratify the International Labour Organization’s Convention 176 on Safety and Health in Mines. However, although Schauss stressed the difference between vein and brine mining, with exploitation of lithium based on the latter, he was bolstered by the demand for change within the supply chain.

‘Previously, I spoke with a buyer from a large energy infrastructure and construction company, who queried whether the cobalt content in lithium cells came from conflict, or was sourced from countries where the conditions were not so clear. His goal was to exclude that content in their cells,’ said Schauss. ‘Similarly, lithium battery suppliers are already asking for standards and codes of conduct, adding stress for companies to follow the rules of international guidance for exploitation and against subpar working conditions.’

Welcome to the world of tomorrow

Schauss’ predictions on the ever-increasing demand on lithium are rooted in expected maturation of the energy storage and electric vehicle sectors. He said, ‘When electric vehicles go mainstream, as the industry moves to a broader rollout of solid state batteries, it will likely necessitate a higher concentration of lithium in each battery cell. Right now, there is no alternative to lithium as a lightweight substance.’ Schauss referred to his work with vanadium flow batteries – providing 50kW to a range of 250km would add around 7.5 tonnes to the car – while zinc air batteries would result in lower performance than lithium, coupled with an air pollution vulnerability.

Stationary energy storage is likely to move beyond lithium, where lightweighting is not a consideration. Schauss added, ‘Current lithium projects are expected to last around 15 years, whereas traditional carbon-based infrastructure has a lifecycle of 25–40 years. When conventional power generation has such a long lifetime, and you want to compete with baseload infrastructure, lithium is too cost prohibitive.’