Jon Hykawy: High on Lithium

The Energy Report: Jon, tell us why lithium is generating a lot of excitement right now.

Jon Hykawy: It's a case of the general public starting to understand what the electric car might be able to do. As electric cars start to penetrate global markets, that will save the consumer a considerable amount of money, and help develop power infrastructure in the United States, a country now spending $300 billion a year on foreign oil. The electric car will also have a significantly positive effect on the environment—no matter how the electricity is generated. Obviously, lithium batteries will play a critical role because you need a fair bit of lithium per vehicle that is going to be built. I think people are starting to understand that there's going to be a tremendous pull on lithium. That's really what's driving the excitement.

TER: Lithium is not like gold or copper, two of the most commonly mined metals. If someone is investing in lithium companies, what are some lithium basics that investors should know?

JH: Lithium mining is largely dependent on chemistry. The costs really scale with the individual deposit and with the individual chemistry of the brine, if it's a brine deposit.

The first rule of thumb is that lithium is an industrial chemical. There is a defined demand for it. Nobody makes jewelry out of lithium. There's not an insatiable demand for the stuff. You want to find the companies that can produce lithium inexpensively. Frankly, that tends to limit you to looking at brine deposits. You can look at hard rock deposits to the extent that you can look at a company like Talison Lithium Ltd. (TSX:TLH), based in Australia. Talison's ore grade is very, very high. It's really a bit of a mutant in the hard rock space. As a result, there are very few other hard rock projects that we think have any hope of doing anything in the market over the longer term. We tend to tell people to look either at brine deposits or possibly at the clay deposits because some of the clay projects out there, especially Western Lithium USA Corp.'s (TSX.V:WLC;PK:WLCDF) King's Valley lithium project in Nevada, have a shot at coming in at a relatively low cost. And cost is key; on the brine side, you really want what you want in every deposit—high grade. You want a high level of lithium in the brine. In Chile, off of the Atacama Desert, you're going to see grades of 2,000 parts per million (ppm) of lithium. That's at the top of the range. Anything over 800 ppm is a very, very strong deposit. But you also need low levels of contaminants like magnesium and sulfates. If you find all of those things, then you have a reasonable deposit. You just need to couple that with great management and good financing and you have yourself a mine. (more)