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Tesla factor: Recharging Nevada’s lithium industry

April 11, 2014

RENO, Nev. (AP) — Take away the remnants of more than 200 exploratory drill holes and you’re left with a rural landscape that looks just like any other in Humboldt County.

Beneath all that sagebrush and dry dirt, however, lies a metal that could potentially charge the Silver State in more ways than one.

It’s a project that represents a $40 million gamble so far for Western Lithium. That’s how much the company has spent to prove the existence of a resource that’s seeing increased demand in a technology-hungry world: lithium.

Western Lithium plans to spend even more. If it gets government approval, the company says it will invest up to $300 million on lithium mining and plant operations.

With the advent of smartphones and other portable devices, lithium saw its value skyrocket tenfold from 2000 to 2010 before stabilizing to $6,000 per ton in recent years, according to U.S.-based development company Lithium Exploration Group.

What’s truly energizing interest in domestic lithium production, however, is the prospect of Tesla Motors’ ascendance, along with a massive $5 billion Gigafactory that is being pushed by its chief executive officer, Elon Musk.

Designed to reduce battery costs by 30 percent, the Gigafactory is Tesla’s not-so-secret weapon in producing a more affordable, mass-market electric car. For industry watchers, however, the move also translates to a lot more demand for lithium.

In a note sent to shareholders in late March, Lithium Exploration Group CEO Alex Walsh said Tesla is expected to consume up to 15,000 additional tons of lithium carbonate once its Gigafactory operations are in full swing in 2017. To put the amount in perspective, total global demand for lithium carbonate in 2012 was around 160,000 tons, according to international metals and minerals research and consulting firm Roskill.

“It’s just a matter of time before electric vehicles take over the market,” said Dennis Bryan, senior vice president of Western Lithium. “Given the continued growth factor in lithium, we expect demand to increase substantially.”

Meanwhile, the only commercially active lithium mine in the United States is in Silver Peak, Nev., according to the U.S. Geological Survey. The site is operated by Rockwood Lithium, a major producer that also has operations in Latin America.

Although the bulk of the world’s lithium supply comes from countries such as Chile and Argentina, proponents of a domestic industry say Nevada is no slouch. Western Lithium claims the Humboldt County site’s deposits represent the fifth-largest lithium resource in the world. The Nevada Governor’s Office of Economic Development says the state’s overall lithium portfolio is even bigger.

“Nevada is lithium rich — second only to the size of deposits found in Chile,” said Steve Hill, executive director of the Governor’s Office of Economic Development.

With Nevada also on the short list of states that could land Tesla’s Gigafactory, the state could be looking at a potential lithium boom should everything fall into place. Some experts, however, express skepticism about the prospects of building a strong lithium industry in Nevada, even if a Gigafactory deal goes through.

“Yes, there’s nothing else in the U.S. besides Nevada (for lithium production),” said Edward Anderson, president and CEO of international technology and consulting firm TRU Group Inc. “But a Nevada operation would be more costly to run than one in Atacama (Chile). It’s a question of cost-competitiveness.”

Leading the charge

First discovered in 1817, lithium is the lightest metal on the periodic table. It also has high energy density, allowing it to generate the same amount of power at a fraction of a lead-acid battery’s weight.

Although prized within the battery industry, nearly a third of the world’s lithium supply is used for ceramics and glass, according to the U.S. Geological Survey. Battery use is second at 22 percent.

Historically, low demand and poor economics made lithium production less attractive. This was especially true in the United States, which has to compete against lower-cost operations overseas.

As talk heats up about cars with electric drives, however, lithium proponents are starting to adopt a more bullish tone.

In 2010, for example, hybrid cars accounted for 274,210 of the 11.6 million vehicles sold in the United States, according to the Electric Drive Transportation Association. Pure electric cars barely registered at just 19 sales.

Fast forward to last year and hybrid sales jumped to 495,530 units, outpacing the growth of the overall auto market’s 15.5 million in total sales. The biggest percentage increase, however, was posted by plug-in cars. Total sales of plug-in vehicles in 2013, including full electrics and extended-range cars, was 96,702 units.

Further fueling interest among lithium proponents is Tesla’s Gigafactory, which many see as the spark to finally getting electric cars into the mainstream. Add Tesla’s “vertical integration” approach to business — which emphasizes a more consolidated supply chain and sourcing as many components as possible domestically — and the prospects of local lithium production are looking up, according to CEO Walsh of Lithium Exploration Group.

“I expect that (lithium demand) will change rapidly, perhaps more rapidly than people can quantify, because the amount of lithium needed in a car battery is 100 times the amount needed for a laptop computer or tablet,” Walsh said in a statement. “I believe that Tesla will begin to acquire as much lithium supply as it can get its hands on in North America to further the vertical integration of . electrical vehicle production and insulate it from price volatility.”

A local boon?

Despite its challenges, improving lithium production in Nevada is a shot worth taking, according to proponents.

For rural areas, the benefits could especially be significant, said Di An Putnam, mayor and lifelong resident of Winnemucca.

Besides bringing jobs and adding much-needed diversification amid the area’s gold and silver mining operations, lithium also adds a green component to an industry that normally is not associated with environmental friendliness.

“It gives us added visibility and helps shed a positive light on our community, given the push for green energy,” Putnam said. “By being associated with a product that can be used to create a clean-air atmosphere, this would hopefully be a win-win for us.”

The competition for Tesla’s Gigafactory is another good case for a strong lithium industry in the state, Bryan said. Even if Nevada does not succeed in getting Tesla’s high-profile battery factory, it could find itself in the running for related industries as the electric car market takes off.

“Battery manufacturers still like to be close to the source,” Bryan said. “The lithium battery is still one of the heavier components of an electric vehicle, so if you build it closer to the source, it’s more economical because you can keep costs down.”

Increased lithium demand from the Gigafactory — regardless of where it ends up — could also benefit Nevada. Still, Tesla’s 2017 target means it will have to procure materials from international sources. Nevada does not have the critical mass in lithium production necessary to supply all of Tesla’s needs or attract other industries, for that matter.

“The majority of lithium is still coming from overseas,” Hill said. “Having lithium in the state provides benefit, but, in and of itself, not enough to cause companies to choose Nevada.”

Despite his skepticism about a robust lithium industry in the United States, Anderson understands the attraction. Besides lithium, electric car batteries also need other base materials such as cobalt oxide and graphite. One of the leading suppliers of cobalt oxide is Russia, which Anderson identified as a risky nondomestic source for materials.

“One thing Tesla has to be sure about is the quality and reliability of its materials, and there’s no place better than America for reliability,” Anderson said.

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Information from: Reno Gazette-Journal, http://www.rgj.com

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