The Fuse

Advantage Lithium CEO on the Boom in EVs, Investing in Argentina, and Uncertainties About China   

by Matt Piotrowski | February 01, 2017

David Sidoo is the CEO of Advantage Lithium, a Vancouver-based company that has projects in Argentina, and Nevada. He spoke to The Fuse about his firm’s operations, the state of lithium markets, and what challenges lay ahead for the industry.

How long has Advantage Lithium been around and where have you staked out space in the lithium market?

We took the company public about a year ago and we raised $9 million initially, and purchased an asset in Nevada. We joint ventured with a company called Nevada Sunrise and picked up interest in about 18,000 hectares. There, we received six permits to drill and have already drilled three holes to date. They are some of the best holes drilled in Nevada. To increase our market cap and boost our asset base, we quickly high-graded Argentina as a favorable place to work. It’s a country where the mining sector is currently booming and the country is open to investment, and specifically the lithium sector. We high-graded one producing company called Orocobre, which trades on the Australian and Toronto stock exchanges, at just under a $1 billion market cap. The company’s six assets in Argentina that we acquired in a deal announced in November of last year are all in what is known as the “lithium triangle.” The assets we acquired sit in the middle of actual Salar’s and are some of the best exploration/exploitation assets in the industry. The flagship asset being “Cauchari,” which hosts just under 500,000 tonnes of lithium carbonate equivalent.

Nevada and Argentina are the main areas where you are investing. What makes them special?

Nevada has been producing lithium out of the basin in Clayton Valley for the last 40-50 years. Albemarle has been the only game in town there, until we began our drilling program in 2016. As Tesla built its multibillion dollar giga-factory in Nevada and was rolling out its electric vehicles, it became quite apparent that the supply in the market for lithium, the main component for ion batteries that powers these EVs, was going to be in short supply. Many junior startup companies decided to go into Nevada and pick up acreage. Much of the acreage they picked up was very grassroots. Fortunately for us, Nevada Sunrise had already picked up strategic acreage there about 3-4 years prior to all of this activity by young startup companies. Nevada harbors a climate that is extremely conducive to lithium production. We’re situated right next to producer Albemarle. There we have drilled into the aquifer, and we have very good results stemming from high flow rates. Nevada is important for us, and as we drill the further three holes in early 2017, we’ll increase our resources there.

Argentina sees the lithium industry as an area where it can build value, revenues, and create a real industry that benefits all. The industry creates jobs, infrastructure, and capital for the country.

Elsewhere, Argentina is currently ranked the number three country in the world that produces lithium. The government is very pro-investment. Argentina is a bankrupt country and it sees the lithium industry as an area where it can build value, revenues, and create a real industry that benefits all. The industry creates jobs, infrastructure, and capital for the country, so they are very open to investment. A number of big companies are producing in Argentina. Like Nevada, it provides another arid environment that is very conducive to producing lithium. When you pump the brine to the surface like an oil well, you dump the brine into evaporation ponds at surface. In places like Chile, Australia, Bolivia, Argentina, and Nevada, the sun naturally evaporates most of the water out of the ponds. That leaves behind a concentrate that still has all of the lithium, potassium, boron and whatever else was in the brine water. The concentrate is shipped off to the mill to extract the lithium. At Cauchari, which is our flagship asset, we can pipe this brine to the Olaroz plant that our partner Orocobre has constructed to process the lithium. This significantly reduces our capex.

How does producing lithium compare and contrast with other commodities, and in particular oil?

Lithium is a lot shallower and cheaper to drill than oil, but a little more difficult from a chemical standpoint to get it to the right concentration.

First point is that there is an abundance of lithium around the world, although many people aren’t aware of this fact. Having said that, it’s a very difficult commodity to process. You need to have the right magnesium-to-lithium ratios in a basin to produce it in the concentration that is required for ion batteries. Brine is like an oil well. But when you look at the cost comparison, it’s much smaller. You’re drilling shallower holes with lithium, so it’s approximately 10 percent of the cost of drilling an oil and gas well. For oil, there’s a huge cost in drilling, and extraction, to get to ultimate production. Lithium is a lot shallower and cheaper to drill, but a little more difficult from a chemical standpoint to get it to the right concentration. The ponds are where most of the money is spent.

Why are the fundamentals of the lithium market so strong at this moment? Do you see this current situation lasting for a while?

There are a lot of pundits that have different opinions about this, but when you analyze supply and demand and what has happened over just the past month, you can see what the picture looks like. For instance, Ford says it will bring out an electric vehicle for its signature F-150 truck and in the Mustang in the next 4-5 years. Toyota just announced that it plans to build a $1 billion giga-factory similar to what Tesla has built. Both BMW and Volkswagen are both saying they will have 500,000 electric vehicles out on the market in the next 4-5 years. The Chinese are making claims that they want to be the leaders in electric vehicle production. They announced this in efforts to fight both noise and air pollution, both of which are major issues in China. If EVs can capture just one percent of the market there, it will be a multi-trillion-dollar industry. The Chinese are definitely investing in this industry. At the same time, major countries’ infrastructures are changing. A lot of plug-in stations are being built. Money is being spent in the UK, every one in four vehicles in Norway is electric, and China is changing its infrastructure and has instituted an “industrial policy choice” to move toward being the leader in EV production and production of ion batteries. Big car companies are starting to invest billions of dollars in EVs. What you’re seeing now is a major shift from the combustible engine to electric vehicles. And EVs are just one sector where these batteries can be used.

You’re expecting demand for lithium to remain strong because of this shift toward EVs?

At first, everyone yawned and rolled their eyes at Teslas, saying they didn’t know what they were doing. But look at where Tesla is at now.

In the next decade, I believe you’ll see this industry just explode. We’re right at the infancy. The company that took the biggest leap of faith in it was obviously Tesla. At first, everyone yawned and rolled their eyes at them, saying they didn’t know what they were doing. But look at where Tesla is at now. Now many of the major automotive companies are following suit and trying to catch up. Increased supply is really going to be needed in the next 4-5 years as these companies start rolling out EVs and you see more power grid deals like Tesla just got in California. The prices you’re seeing now—at about $8,000-$10,000 per tonne—are going to stay pretty solid. The costs to produce is about $3,500-$4,000 per tonne, so the margin is pretty healthy.

What’s the biggest threat to the lithium market?

The biggest threat is China. No one knows exactly how much resources it has, or how much hard rock production it has, and why it is interested in acquiring a lot of different companies. Who knows if they will corner the market and end up flooding it. There’s a possibility of oversupply from the Chinese, but that’s a major unknown at this point. We don’t know what’s happening behind the scenes there. They’re definitely investing billions in the industry and acquiring as much supply as they can. Many Chinese battery companies have recently come into Argentina, and invested millions into deals with potential producers, a clear sign that they understand supply will be needed 2-5 years from now.

Besides electric vehicles, what is supporting demand in the lithium market?

As industries evolve, lithium will become a major required resource and demand will continue to rise.

Many cities are powered by traditional methods with regards to electricity, but now there’s this convergence with power grids in different cities in the U.S. and all over the world. A number of portable electronic devices such as cell phones, digital cameras, and smart phones use lithium-ion batteries now as they have a significantly longer lifespan than traditional batteries. There are also fleet markets where companies with trucks are converting their vehicles from being diesel-powered to running as an EV. It’s becoming a lot cheaper, cleaner, quieter, and safer, and there’s less maintenance as technology gets better and better. Bus companies and freight companies are looking at converting to EVs. As industries evolve, lithium will become a major required resource and demand will continue to rise. This is an industry with a great deal of upside.