Global lithium reserves and resources have increased 83% since the first quarter of 2018 as investors poured money into exploration for the metal, according to S&P Global Market Intelligence data.

Junior explorers have jumped on the lithium bandwagon, leading global lithium reserves and resources to reach 255 million metric tons by the end of the first quarter of 2023, Market Intelligence data shows.

"Strong demand growth and prices for lithium are spurring exploration, which will result in additional resources being [discovered] and technical studies being commissioned to [convert] them to reserves," Allan Pedersen, research director of lithium at Wood Mackenzie, told S&P Global Commodity Insights.

As the world works to decarbonize and meet the goals set out in the Paris Agreement on climate change, lithium has taken center stage as a key ingredient in batteries for electric vehicles and renewable-generated energy storage.

About one in four new vehicles sold in mainland China and Germany are EVs, according to data from S&P Global Mobility. While EV sales in the US have historically lagged, new policies such as the Inflation Reduction Act are kickstarting domestic sales and accelerating a global movement to localize the mine-to-market EV value chain.

The global manufacturing capacity of lithium-ion batteries is expected to more than double to 6.5 TWh in 2030 from just 2.8 TWh in 2023, driving lithium to a deficit by 2025, according to Commodity Insights.

Explorers step up

Meeting the growing lithium demand will likely lead explorers in search of new horizons, industry participants told Commodity Insights.

The growth in global lithium resources and reserves has accelerated since the first quarter of 2022, just a year after junior miners with lithium projects saw a spike in investments in 2021. Junior explorers in Asia-Pacific alone raised $1.02 billion in 2021, an increase of 659% year over year, data from Market Intelligence shows. Resources and reserves as of the first quarter of 2023 rose by 39 million metric tons, or 18% year over year.

Flush with cash, junior explorers raced across the globe to explore land that would be the cheapest to develop with the lowest amount of risk. Those areas are often near existing projects with geological studies.

"What we are seeing, particularly in Canada — places like Ontario and Quebec, where there are known lithium deposits in production or going into production — you will notice there is a bit of bias that they tend to be in regions that have historically been explored for precious metals and base metals, and that's because those are the areas that we have the best data," Cameron Tymstra, CEO at Targa Exploration Corp., told Commodity Insights. Targa owns several lithium projects and one gold-silver project in Canada.

Companies are also hunting for lithium in resources within their existing projects. For resources to become reserves, they must be considered profitable to extract and commercialize.

"A lot of companies will have resources that surround their reserves. And therefore, if you do more work, you can expand that reserve," Richard Shaw, an economic geologist at the British Geological Survey, told Commodity Insights.

Risks and rewards

Lithium is globally abundant, and explorers will likely search beyond known deposits for new resources, industry participants told Commodity Insights.

"The industry is only in its infancy, and the tenements around existing mines and deposits would be the first place to look but by no means the last," said Wood Mackenzie's Pederson.

But moving away from well-explored areas will increase the probability that a project will fail. "The more you move away from those known areas, you're increasing risk, and you're certainly increasing the possibility that you're going to have to spend more to find what you're looking for. And I think that's also true for less conventional lithium deposits like thermal brines," Shaw said.

Price volatility may make several projects go bust. The lithium mining industry was on a bull run in 2022 when the lithium carbonate battery price, ex works, in China steadily rose to $79,650/t on November 30, 2022, up 154% from a year earlier. The balloon burst at the start of 2023 after Chinese demand softened, leaving prices at $40,675/t as of July 26 but still far above the $6,100/t of November 2020, according to Market Intelligence data.

"With the higher lithium prices, even the lower-grade projects are going to be economical. When the price comes down, you scrap the majority of them," Pablo Cortegoso, a civil engineer specializing in lithium brine projects and former consultant at SRK Consulting, told Commodity Insights.

The hype around lithium should keep investors on their toes when it comes to a project's planned expenses, said Todd Fayram, senior vice president of metallurgy at Century Lithium Corp., a junior explorer developing the Clayton Valley lithium clay project in Nevada. "Everybody's finding lithium, and everybody thinks they've got the motherlode, and it's the same with gold. We see lots of gold projects out there, and lots of them die every year," Fayram said.

"A project doesn't mean anything. It can die tomorrow," Cortegoso said.

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