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The sweetest spot in the Lithium rush is now definitively Chile: It’s the
world’s biggest venue, and it’s about to explode as Tesla flips the switch on
its battery gigafactory, Chinese-Korean investors prepare to drop $2 billion on a new Chilean gigafactory, and the
government has a change of heart that has lithium at its core.
Against this backdrop, we’re not just looking at the new ‘Who’s Who’ of
lithium. We’re beyond that. Now we’re looking at who’s going to advance to
new production first, with the highest grades of low-cost lithium.
Bearing
Resources Ltd. (TSX.V:BRZ), acquired a world-class resource in Chile that
gives it the second-most advanced lithium project in the world, is a
front-line contender.
While 2017 was ushered in with the euphoric fanfare of Tesla’s new
gigafactory, which is now operational, the coming years will be all about
lithium; and all about finding and developing new supply.
Tesla already has some 330,000 orders for its Model 3 electric
vehicle—100,000 of which it has promised to deliver by the end of the
year—and securing lithium supplies has never been more critical.
According to Macquarie Bank (ASX:MQG), the share of
lithium demand from electric and hybrid vehicles is due to surge from 10
percent in 2015 to 33 percent by 2021.
Lithium expert Joe
Lowry says demand should double between now and 2020, driven by the
massive battery market, producers are in no position to keep up with this in
the medium or long term.
Today’s global lithium-ion cell production is only enough to supply around
900,000 to 1 million electric vehicles—or, in other words, a meagre 1 percent
of the demand considering 100 million light EV sales, according to Evercore
ISI analyst George Galliers.
PriceWaterhouseCooper (PwC) also agrees that “supply will continue to
trail until new projects come online in the next five years.”
Lithium prices tripled even before the battery gigafactories got off the
ground. Tesla’s has already opened in Nevada, and 11 more are in play. The
battery supply chain is exploding, and the math is brilliant.
As Lowry puts it: “No matter what certain “experts” say – supply and
demand are NOT in balance. If the market is adequately supplied, why are we
having the current price run-up?”
Everyone is preparing for a bull market that will be one of the longest
bull runs of the century. But this time around, there’s a new ‘cartel’ in
town, and it’s full of small-caps like Bearing Resources. Though 90 percent
of global lithium production is now controlled by four players—Albermarle
Corporation (22 percent), FMC Corp (10 percent), Chile’s SQM (21 percent) and
Chinese Sichuan Tianqui Lithium Industries (21 percent)—it’s time to move
over for new players.
Now it’s time to take a closer look at who’s going to make it to the
finish line first.
Here are 5 reasons to keep a close eye on Bearing Resources (TSX.V:BRZ):
#1 Prime Time Play in World’s #1 Lithium Venue
The biggest share of the world’s lithium comes from Chile, whose Atacama
area produces 40 percent of our global supply right now.
And while it hasn’t always been easy to get around the government to mine
lithium in Chile, that’s suddenly changing. Chile has enough lithium to
supply the world for decades, according to the Financial Times, but the country has
been painfully slow in exploiting its lithium.
Now, there is a new urgency. The lithium boom has forced the Chilean
government into a major turnaround. The precious metal is now the new Chilean
gold.
As a testament to this, Chilean President Michelle Bachelet has even
ordered state-run Codelco to move ahead with lithium projects in Maricunga
and Pedermales to promote new production. She also just signed a bill into
law to inject US$975 million into the company to help it along.
The Chinese are all over Chile’s lithium as well. Chinese and Korean
investors are in advanced talks with the Chilean government to open up a $2-billion lithium battery mega-plant that would feed on
the country’s lithium riches—and may start Chinese hoarding of supplies as
EVs hit the mainstream and everyone scrambles for the precious metal behind
the batteries.
U.S. mining giant Albermarle Corporation (NYSE:ABL)—the company with the
only existing lithium mine in the U.S.—is also banking big on Chile, striking a deal to increase its lithium production from
an existing facility there. On 4 January, the government approved its expansion plans.
But the small-cap that leads the day here is Bearing Resources, which has
just moved to acquire a 17.67 percent interest in Li3 Energy Inc.’s Maricunga Lithium Project—the 4th top lithium
brine project in the world.
Not only does it have world-class resources, with higher grades of lithium
than almost anything else out there, but it also has significant potential
for resource growth.
Maricunga is located in the 2nd largest lithium brine project
in Chile with exceptional grades. This play is second only to the Salar de
Atacama, which accounts for 100 percent of Chile’s lithium production, and
about 40 percent of global production.
The project covers 4,463 hectares—some of which fall under an
earlier mining code that allows for immediate exploitation. Li3 has already
put over $30 million into the project, and a major exploration and
development project is already underway to de-risk. Another $22 million will
be spent ahead of the Definitive Feasibility Study next year.
The near-term catalysts are more exciting than anything else on the new
lithium scene right now. They include exploration results from 16 wells, pump
tests from two production wells and an updated resource estimate, as well as
construction and operation of evaporation ponds and a pilot plant.
That’s why Chilean lithium giant SQM is here, and it’s why Bearing
Resources is right next to them. In Chile, if you want to get in on lithium
before anyone else, look for the small-cap that’s positioned itself right
next to the biggest player on the scene.
#2 World-Class Resource, Highest Grade of Lithium Yet
For high-grade lithium, the ‘Lithium Triangle’ of Argentina, Bolivia and
Chile is the place to be—it’s also where all the best ‘brine’ projects are,
which have significantly lower operational costs than hard rock.
And while Argentina is another sweet spot, Chile’s lithium is of a
significantly higher grade, 2 to 4 times that of Argentina’s. So far, Bearing
Resources has seen some of its results come back at over 2000 PPM, with other
holes average up to 1500 PPM.
#3 Second-Most Advanced New Lithium Project in the World
Bearing Resources (TSX.V:BRZ) is sitting on prime lithium territory that got
started in 2009 during the original lithium run. With US$30 million already
into it, it is poised to be one of the first across the new supply finish
line.
Aside from LAC, there is nothing more advanced out there that is not in
production yet, and the US$400-million-market-cap company just closed some
deals that ensure funding for construction. It’s even more attractive when
you consider that giant SQM is right next to Bearing in the Salar—and it’s
fully committed to developing this lithium.
The first phase of Bearing’s project will cost US$8 million and see the
drilling of 18 wells. It’s already funded and paid for and is expected to
double or triple the resource. This would put the project on the same timeline
as Lithium Americas Corp. (TSE:LAC).
The next three months will see flow results and pumping tests. While
Bearing isn’t pinging the investor radar right now, getting in on the ground
floor of this will be more expensive around April or May, when the company
announces an update on its resources, which they expect to double or triple.
As one of the few projects that’s already got tens of millions of dollars of
investment into it and work done, the resource update will be a very big
deal.
The resource is already proved-up, so once the results come in in
April/May, it’s just about de-risking and moving into phase two in the third
quarter of this year.
#4 The Deal of the Century: No Shareholder Dilution
The deal Bearing made with Li3 for this lithium gem in the heart of Chile
has a free carry all, which means their shareholders do not have to be
diluted. Even better, they have enough capital in the bank to complete the
transaction and to fund so they won’t have to go back to the markets. This is
what investors want to hear.
When the results come out in April/May, Bearing will be looking for ways
to expand its stake in the project.
#5 World Class Lithium Team, World Class Partners
From a management standpoint, this is a world class lithium team—and
that’s what the new lithium game is all about right now: The right people who
can bring new plays into production.
But beyond that, look to the big investors. Posco, one of the world’s
largest steel companies, just invested US$18 million in the project, and it’s
bringing proprietary lithium technology with it. This is a US$70-billion/year
company with a brilliant balance sheet for building up this lithium project.
Posco’s lithium tech has already successfully tested at an 88 percent
recovery rate in under 8 hours. Bearing says the current resource on the
project is 600,000 tonnes, measured and indicated.
There’s also a clear pathway to other major partners, including Codelco,
which recently announced with the government that it’s going to develop the
Maracunga project. In terms of production partners, it doesn’t get any better
than this.
The lithium rush is in full force now that Tesla has turned on its
gigafactory, and that’s only the beginning. At least five gigafactories are
planned for Europe, with Tesla eyeing one of them to make batteries and build
cars.
German BMZ has launched the first phase of its German
battery factory, and LG Chem is planning one in Poland, which is slated to
open next year. Samsung also hopes to start making batteries in Hungary
beginning in 2018.
This is set to be a bull run based on one of the most voracious commodity
appetites we’ve seen in decades, and the new barons will be the first lithium
deal-makers—in other words, the first to bring new supply into production.
By. Charles Kennedy of Oilprice.com
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