It seems that the increase in demand for lithium has Chinese manufacturers of electric vehicles (EVs) digging deep to secure the future supply of the metal. Apparently they are so concerned about producers' abilities to fill downline supply that Chinese EV companies are now willing to buy lithium that's yet to be mined.
Companies that could be in line to produce or simply sell the in-ground resources include QMC Quantum Minerals Corp. (TSX-V: QMC) (OTC: QMCQF), Galaxy Resources (OTC: GALXF), Sociedad Quimica y Minera de Chile (NYSE: SQM), Lithium X Energy Corp. (TSX-V:LIX) (OTC: LIXXF).
This new move by Chinese automakers is understandable, since all major automakers, including several major Chinese manufacturers, are planning to increase their electric vehicle (EV) quotas dramatically. That fact, combined with greater use of lithium in power grid storage, is creating a serious projected lithium supply deficit that could hit as early as 2020.
Companies with lithium production are expanding their production, while a forward looking group of junior companies are working feverishly to bring on new lithium sources.
A new lithium player that could be a winner as a result of the Chinese approach is QMC Quantum Minerals Corp. (TSX-V: QMC) (OTC: QMCQF), which is looking to open up lithium reserves in Canada's hard-rock lithium category. The company is developing a large historical resource in Manitoba-a region with very favorable mining logistics.
Larger companies that are working to expand their lithium reserves may use selling in-ground assets as a way to bolster development. These include Galaxy Resources (OTC: GALXF), Sociedad Quimica y Minera de Chile(NYSE: SQM), and Lithium X Energy Corp. (TSX-V: LIX.V) (OTCQX: LIXXF), all of which are in major expansion of their respective lithium resources.
CHINA'S MASSIVE HUNGER FOR LITHIUM
China is poised to become a monster consumer of lithium. And while the country holds its own significant reserves of the word's lithium resources estimated at about 7 million tons, they realize that they will need much more supply to handle all of their future needs.
China's concerns for securing future lithium reserves is highlighted in a recent agreement by Australian lithium company Pilbara Minerals.
In September, Pilbara announced its agreement with China's Great Wall Motors Company to back Pilbara's Pilgangoora Stage 2 expansion. The agreement is a true landmark for producing one of the very first off-take funding and equity investment agreements by a Chinese EV Manufacturer for lithium.
The deal gives Pilbara an upfront Australian $28 million for 75,000 tpa of stage 2 production from Pilgangoora and up to 225,000 tpa over the following 10 years via a debt or off-take pre-payment facility.
What's most important to note is that this marks a new stage where the car manufacturers are starting to realize the need to lock in their EV metals supply well in advance.
OFF-TAKE IS A SIMPLE WAY FOR CHINA TO GAIN GROUND
An off-take agreement, such as the one modelled by Pilbara working with Great Walls Motors, is one way that China, and other major consumers of lithium, could help to secure their future with supplies not yet mined or produced.
An offtake agreement is an agreement between a producer of a resource and a buyer of a resource to purchase or sell portions of the producer's future production. These are normally negotiated prior to the construction of a mine in order to secure a market for the future output of the facility.
Off-take agreements can benefit the miners greatly too, since if lenders can see the company has a purchaser of its production, it makes it easier to obtain financing to construct a facility.
If, as lithium consultant Sam Jaffe of Cairn ERA predicts, lithium-ion battery demand rises from 80 GWh this year to 750 GWh in 2026, it's likely that the off-take model may become commonplace with lithium companies. Fully realized, we are talking about a whopping 10-fold increase in demand within 10 years.
QMC QUANTUM MINERALS FITS THE MOLD
In the category of production in the ground ready to be bought, QMC Quantum Minerals presents a potentially very attractive lithium target.
QMC is a Canadian mining company focused in Manitoba's mineral region, which just ranked in as 2nd among all global mining districts in a global survey. Manitoba it seems has competitive tax regimes and efficient permitting procedures surrounding environmental regulations and land-claims.
QMC Quantum Minerals must have considered this when they located their current project. In 2016, the company acquired a known lithium property, the Cat Lake Lithium Property, formerly known as the Irgon Mine.
QMC is right in the hot spot; their Cat lake property is just 20km from the world class Tanco Mine Property, which was previously North America'slargest and sole producer of spodumene (Lithium).
Their predecessor on the Cat Lake discovery drilled 25 holes into the property's Irgon Dike between 1953 and 1954. The result was a reported historical resource estimate of 1.2 million tonnes grading 1.51% Li20 over a strike length of 365 meters and to a depth of 213 meters.
In other words, the Cat Lake Property is believed to hold a very significant amount of lithium that would make sense to bring to production, by off-take or conventional means.
QMC Quantum's geological team says they have no reason to disagree with the accuracy of those historical drill results. They are already drilling and stripping away the overburden to prove up the lithium, which is also expected to extend the known strike length of this dike.
The massive demand for Li-ion batteries continues to swell as EV makers up their forecasts. The Chinese have taken the leap to move into the supply chain and secure lithium still in the ground.
According to miner Galaxy Resources, during October, 99.5% lithium carbonate China spot prices were up 1.5%, and are up 23% over the past year. At the same time, lithium cobalt oxide China spot prices were up 0.33% for the month, and 16.91% over the past year.
The Chinese EV makers have good reason to position themselves in future lithium now. Lithium prices don't appear to be abating any time soon and quick-to-turnaround lithium sources like QMC Quantum Mineral's Cat Lake Project will not remain undeveloped forever.
Galaxy Resources (OTC: GALXF)
Galaxy Resources Limited is a lithium-focused resources company, with assets spanning Australia, Canada and Argentina. Galaxy is currently advancing plans to develop the Sal de Vida Lithium and Potash Brine Project ("Sal de Vida") in Argentina, which is situated in the Lithium Triangle, a region where Chile, Argentina and Bolivia meet. Sal de Vida is a proven high quality resource has excellent promise as a future low cost production facility. Galaxy also owns the Mt Cattlin Spodumene Mine near Ravensthorpe in Western Australia and the James Bay Lithium Pegmatite Project in Quebec, Canada.
Sociedad Quimica y Minera de Chile (NYSE: SQM)
Sociedad Quimica y Minera de Chile S.A., is a producer of potassium nitrate and iodine. The Company produces specialty plant nutrients, iodine derivatives, lithium and its derivatives, potassium chloride, potassium sulfate and certain industrial chemicals. Its segments include specialty plant nutrients, industrial chemicals, iodine and derivatives, lithium and derivatives, potassium, and other products and services Lithium and its derivatives are used in batteries, greases and frits for production of ceramics. Potassium chloride is a commodity fertilizer that is produced and sold by the Company across the world.
Lithium X Energy Corp. (TSX-V: LIX.V) (OTCQX: LIXXF)
Lithium X Energy Corp. is a lithium exploration and development company with a goal of becoming a low-cost supplier for the burgeoning lithium battery industry. On July 11th, the company announced that further to its news release of June 29th, 2017, the Company has closed the definitive agreement with Aberdeen International Inc. for the purchase of Aberdeen'sremaining 50% interest in Potasio y Litio de Argentina S.A., which controls 100% of the Sal de los Angeles Project. The project consists of 8,154 hectares covering 95% of Salar de Diablillos, and has an NI 43-101 mineral resource estimate of 1.037 million tonnes of lithium carbonate equivalent in the indicated category and 1.007 million tonnes of lithium carbonate equivalent in the inferred category.
For a more in-depth look into QMC you can view the in-depth report at USANews Group: http://usanewsgroup.com/2017/11/12/lithium_is_positioned_perfectly-2-2-2/