| Some diversified miners do not see a future in lithium, which is typically mined from hard-rock and brine sources. Pictured above is the preproduction-stage Sal de Vida lithium brine project in Argentina. Source: Galaxy Resources Ltd. |
Heavyweight miners such as BHP Group Ltd. and Glencore PLC are still shunning lithium despite fast-paced demand growth, record profits, and a frenzy of mergers and acquisitions in the sector.
At first glance, it may be hard to see why. Lithium revenues and profits surged in 2022 due to skyrocketing lithium prices. The value of global lithium production, comprising 789,400 metric tons of lithium carbonate equivalent, hit $45.44 billion in 2022, jumping by 532.8% compared to 2018 before the energy transition took hold and prices were much lower.
S&P Global Commodity Insights projects rising demand and a supply deficit in 2027. From a metal largely relegated to obscurity in previous decades, lithium has quickly muscled up the metal ranks, hitting a quarter of the 2022 value of the market for copper, a metal that the likes of BHP and Glencore have increasingly coveted for its exposure to the energy transition.
Yet, despite bullish projections on lithium and its important role in the energy transition, two
"I think fundamentally the majors feel that the medium- to long-term supply situation will right-size itself, since there is actually quite a bit of lithium in the Earth's crust," Mark Ferguson, director of metals and mining research at S&P Global Commodity Insights, said in an email.
Profits today not enough
The likes of BHP and Glencore have made it clear that they have little to no appetite to meet near- or long-term demand.
"Yes, currently there's a bit of a crunch, but ... there's actually a lot of lithium supply. Lithium is not nearly as constrained as copper," Johan van Jaarsveld, chief development officer of BHP, said Oct. 5 at the Melbourne Mining Club in Australia. "We respect that there's a lot of capital flowing into lithium, and that there is a lot of money going to be made ... over the next couple of years."
BHP pointed to van Jaarsveld's October commentary in response to an interview request.
Glencore will trade in the silver-white metal, but the company has no intention of building lithium mines, CEO Gary Nagle has said repeatedly in the past year.
"It's unlikely that we would get into lithium," Nagle said on an Aug. 8 earnings call. "It's not something we like very much in terms of the abundance of the material."
Boring market at maturity
BHP Group and Glencore take the view that, beyond near term bottlenecks, there is ample lithium.
BHP wants exposure to metals that stand to gain from big market trends such as the energy transition, BHP CEO Mike Henry said on a Sept. 18 webcast for shareholders.
"We want to be able to invest in large assets where we can create value at scale in commodities that offer us the opportunity to generate high margins — and the assets have to be expandable," Henry added.
Lithium does not meet those criteria, Henry said, pointing to the commodity's relatively small scale and noting that complex lithium processing was outside the company's skillset. And given lithium's abundance, the sector's cost curve will flatten as it matures, Henry said.
"The margin opportunity offered up by lithium is less than it will be for some other commodities that we've chosen to invest in," Henry said.
Global copper output of 22.1 MMt in 2022 was worth $194.94 billion, which is four times the value of lithium production for 2022, at a time when the lithium price had skyrocketed.
The lithium carbonate CIF Asia price fell 51.6% to $30,000 per metric ton from the beginning of the year to Nov. 15 after peaking in early 2023 amid increasing supply and concerns over the pace of Chinese demand growth. In comparison, the spot price for London Metal Exchange copper, which is also exposed to demand in China, declined just 0.7% to $8,306.50/t from the start of the year to Nov. 23.
Lithium looks plentiful, at least for now. There are 969 years of lithium supply, on the basis of projected 2023 demand and assuming miners could tap every last metric ton of known reserves and resources, according to Market Intelligence data. For copper, there are 124 years of supply, using the same assumptions. While this is an imperfect measure of abundance, as not all reserves and resources will be developed, it gives a crude idea of how much of a metal is available.
The gap narrows at the higher usage rates that are expected in the future. But the relative abundance of lithium remains higher, in part showing why some miners like what they see in more supply-constrained commodities such as copper.
Discomfort zone
Lithium's market structure is foreign to big miners, said Simon Moores, managing director of Benchmark Mineral Intelligence, a consultancy and pricing agency that focuses on battery materials.
"Copper might jump through two or three hoops to get to the end market. Lithium can jump through five, six, seven, [and] there's a big chemical processing [component] in there," Moores said.
One exception among big miners is Rio Tinto Group, which has for years dabbled in lithium. The diversified miner had sought to develop its massive Jadar lithium project in Serbia, but the government revoked the Jadar permits in 2022. Given the obstacles in Serbia, Rio Tinto instead focused on the Salar del Rincon lithium brine project in Argentina and partnerships with lithium explorers with assets in countries including Canada.
Rio Tinto discovered the massive Jadar lithium deposit almost two decades ago, long before energy transition demand for the metal started to accelerate.
"That kind of forced their hand in looking at this market early," Moores said.
Rio Tinto did not respond to a request for comment.
Daunting DLE
Clouding the supply outlook even more is innovation in lithium extraction that could erode longer term profits. A new mining method known as direct lithium extraction (DLE) could lower costs dramatically and reduce environmental impacts, driving out higher-cost sources like some spodumene mines, analysts said. In turning their backs on lithium mining, miners such as Glencore and BHP avoid the risks associated with emerging DLE technology that are outside their comfort zone.
"This could lead to a variety of additional sources of lithium coming online, from geothermal through oil and gas wells," Commodity Insights' Ferguson said.
Lithium concentrate is typically produced from hard-rock deposits, such as lithium-rich spodumene ore, and brines that are evaporated at surface.
DLE has not yet been fully tested or widely implemented at commercial scale, and the technology must be modified across brines with myriad chemical profiles. But the overhang is real.
Cash-flush oil companies such as Exxon Mobil Corp. are starting to make a mark in DLE. The oil giant recently outlined plans to test DLE technology on oil brines at US assets in the Smackover formation in Arkansas, a looming threat to lithium producers that may not be able compete with Exxon's wallet.
"Those spodumene mines are at risk if DLE works and it expands beyond salars and it works in oil brines," said Joe Mazumdar, editor and analyst at Exploration Insights. "That's the risk that BHP wants to avoid."
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