Reflections on Investing in the Future of Lithium
* Jack Lifton
Published 9/1/2006
resourceinvestor.com
DETROIT (ResourceInvestor.com) -- Lithium was, for a few days during the last week, in the forefront of the news reported about portable electronics that is published in, and broadcast as, both business and entertainment news by the mainstream media. This was due to the reports of fires occurring during the operation of laptop computers while operating on their (rechargeable) batteries or during the recharging cycle.
Neither the entertainment nor the business media apparently employ anyone at all who knows what lithium is or who might inquire how its use (or misuse) triggered the fires. Only the impact of the fires as a reason to have an expensive recall and replacement program for Dell, Hewlett-Packard and Sony were mentioned, before returning to the regular news about Paris Hilton’s adventure in celebrity-land. As far as I know no celebrities or, in fact, any laps were burned, so most of the media has already lost interest not only in the story but also in lithium.
I think that battery makers, portable entertainment product makers, and automakers are breathing a collective sigh of relief that the story has dropped below the radar, so this is a good time for Resource Investor to take a look.
Was this recall, on its own, a reason to review your specific investments in the directly affected above named companies? I don’t think so. Was the recall a good reason to review the sources of and other uses of lithium, especially in batteries, as an investment? I think so. Let’s look first at the information necessary for an informed investment judgment that you’re only going to find on Resource Investor.
Lithium is the lightest metal possible. It is in fact the first metal to appear in the buildup of the natural elements that scientists have organized into the periodic table. The table begins with a nucleus containing one proton, hydrogen, goes to helium by the addition of another proton, and then with the addition of another proton lithium is created. The overwhelming majority of the universe is made up of hydrogen and helium. The remainder of the chemical elements is cooked up in stars made of hydrogen and helium, and when these stars die and explode these remaining elements are scattered into space where they occasionally concentrate into spherical masses such as the planet earth.
Lithium was first discovered (identified) in Sweden in 1813 in a mineral also containing sodium and potassium, the sister metals of lithium in the periodic table. This was shortly after the paradigm of the world being made up from a fixed number of chemical elements that could be ordered by atomic weight was formulated.
This paradigm was incorrect, but it enabled the natural philosophers of the day to identify most of the elements and list enough properties of them, so that a half century later the elements could be ordered into a table that emphasized that their properties were a periodic function of something. Almost exactly a century after the discovery of lithium the British experimental genius, Henry G.J. Moseley discovered that the periodic properties of the chemical elements were a function of the atomic number, i.e., the number of protons (hydrogen nuclei) of their nucleus.
Lithium is not common on or near the earth’s surface. Nor is it easy to separate from its sister metals or to purify. The “modern” method of refining and purifying it was, in fact, developed by the German chemical company, Metallgesellschaft, AG, in 1923. You need
to be aware that metal ores are made into pure metals by first concentrating the ores, then putting the ore into solution and separating the metals out by chemical processes, then putting the separated metal salts into purification processes and then back into metallic form, and then, if required, purifying the metals themselves additionally to whatever degree of purity is required, by both chemical and physical processes, and then making new compound of the metals, if required, by using the purified metals and highly purified reactive chemicals (such as acids) to often produce the exact same form in which the ore was found, except that you have produced a pure form.
The total of the cost of these processes is the cost of obtaining the metal. The earlier in the process you stop the purification the cheaper (and more contaminated) the end product.
In 1998 in the U.S. there were two companies mining lithium in the United States, the defunct ,Cyprus-Foote, and FMC [NYSE:FMC] Their sources were in North Carolina and Nevada. The United States was then and is now the world’s largest user of lithium based materials in the form of its chemical compounds and metallic alloys. But lithium mining is expensive and time consuming and American mining companies by 1998 were at the wrong place in their periodic cycle of boom and bust to be concerned with anything other than how to produce the short term gains that the greed-ocrats of Wall Street required in order to even consider recommending that their clients buy shares in American mining companies.
Metallgesellschaft, AG, (MG), an old line German company best known recently for an oil trading scheme concocted by its American trading unit that badly misfired, in the case of lithium in 1998, wisely, saw and took advantage of an opportunity that was right up its technical alley (Wall Street jargon for this is “within its core competency).
The company bought some of the operations of Cyprus-Foote that were being placed on the market by Phelps Dodge [NYSE:PD] as it was consolidating a position that required PD to sell some assets it had acquired or be faced with a possible monopoly charge. MG’s chemical and metallurgical unit, Chemetall (CHM.L) created Chemetall-Foote to own and operate lithium operations including recovery from a brine well facility in Nevada.
Food machinery Corporation, FMC, decided in that same year, for purely economic reasons of costs, to shut down the mineral mines and brine well lithium sources it had originally purchased in the late 1960s from the original operator, Lithium Corporation of America and to continue in operation solely using concentrates imported mainly from Chile, Argentina, and China to manufacture lithium salts for medicine, chemical synthesis, aluminum production, and batteries.
The USGS will not name the sole remaining producer of lithium in the U.S. in 2006. This is because the USGS has a policy of not giving out proprietary information in its global surveys that could put American companies at a competitive disadvantage. Nonetheless I believe that this sole remaining domestic producer is Chemetall-Foote.
The price of lithium has gone up since 1998, but not so much in inflation adjusted dollars so as to give impetus to the reopening of the closed brine well and mineral sources owned in the U.S. by either FMC or Chemetall-Foote.
Although the U.S. will continue to process the most lithium of any nation, unless there are dramatic new uses or increases in traditional U.S. use of lithium, then it will just be a small producer of lithium materials from domestic ore or brine wells
This week’s announcement of the creation of the world’s largest aluminum producer based on the merger of two Russian based companies with Glencore, will create a single large buyer of lithium for aluminum processing. It won’t surprise me if this new buyer seeks to control its own supply of lithium and thus puts some impetus on lithium mining in central Asia. Being smart and thinking very long term is a specialty of Glencore.
Now, finally, back to batteries and lithium.
Traditionally battery development has been left to battery manufacturers and academic researchers. The makers of portable entertainment electronics, computers, and, in particular, of vehicles have traditionally used battery manufacturer’s catalogs as their sources of the specifications for capacity, size and weight, longevity (in the case of rechargeable batteries), performance, and reliability.
What the end users have overlooked, because it wasn’t important to them, is the fact that properties don’t always scale up. That is that a big battery doesn’t always act as if it were just a larger version of a small battery.
No one at Duracell [NYSE:PG] or Eveready [NYSE:ENR], for example, seems to have given much consideration to what might happen if a vastly scaled up version of a rechargeable lithium-ion technology battery, weighing half a ton, were hit by a hot (This means not temperature but momentum. A hot round is one with its killing impact still at the maximum) fifty caliber machine gun slug. They also failed to study the safety impact of temperature extremes on the recharging cycle.
The military quietly withdrew these batteries from use in missile silos where they were used for back up power in the later 1990s (In fairness much our silo based deterrent was being downsized due to our victory in the cold war). A contract to recycle the lithium (and any other strategic metals) was awarded to a company called Toxco. It was a four year contract to recycle a million kgs of military storage batteries. Two years into the contract only 25% of the batteries had been recycled according to a USGS mineral report on Lithium published for 1998. I have not been able to find any additional information on the contract, so I conclude that an economically viable way to do the recycling has not yet been developed. This is a very serious issue.
Sony [NYSE:SNE], the originator of the contemporary portable electronics “walkman” culture, began making long life and rechargeable batteries early on as a textbook example of vertical integration. Sony did not want to depend on traditional battery manufacturers for either cell technology or manufacturing technology. Instead Sony created an in-house research and development group just as they had done before with great success (and some failures. Remember Beta?). Until last week Sony’s lithium-ion technology was the world standard both in primary (single use) and secondary (rechargeable) batteries. The batteries were expensive but, it was understood, they were reliable, safe, and (everyone thought, perhaps, wrongly) good for the environment, because they did not need replacing as often as older technologies and could be easily recycled.
There really weren’t very many fires, before Sony decided to recall nearly 5 million laptop batteries, but insurance standards gave Sony no choice. The speed with which the story has evaporated before anyone could ask about why it happened, why it won’t happen again, and what will be done with the returned batteries is a testament to the deflection skills of the public relations departments of the affected companies. It is also a testament to the obtuseness of the press that tells us it is so concerned with our welfare and that of the environment.
The laptop battery recall has discretely awakened the OEM automotive industry from its slumber with regard to lithium-ion technology.
Questions are being asked, but only a few answers are giving the OEM automotive industry any confidence in the future of hybrid and battery powered vehicles that utilize lithium-ion technology. We would all like to know:
What caused the fires? The answer given is defective manufacturing technology allowed free, very finely divided, reactive metallic lithium to form and circulate within the electrolyte creating the condition for a fire if any easily reduced material came into contact with the lithium metal.
The solution to the problem we are told publicly is better quality control. The truth is that it is the core technology that is questionable. It may well have been mass produced without the kind of long term safety and reliability studies that were necessary. We are being told that other lithium based technologies are available based on safer and cheaper materials of construction. This seems late in the production cycle to say that there were unresolved problems of this magnitude that were overlooked.
If lithium-ion technology is the technical answer to the question “What is the best available technology for electrical storage and generation for vehicle propulsion?” then what is the answer to the following economic and political inquiries:
1.
Is there enough lithium produced and available, after other traditional uses and the growth pattern fro these are taken into account, to manufacture the batteries for OEM automotive use that our most optimistic models project?
2.
If not, are there reserves of lithium that can be developed in a time frame in which we can live?
3.
In either case will the price of lithium remain at a level that will make lithium ion batteries economically feasible?
4.
Is there a recycling technology now?
5.
If so, what cost does this technology add to the project?
6.
Is there a country risk (i.e., the risk that an unfriendly nation that has recoverable reserves of lithium will withhold them from the USA purposely)?
The above questions are being asked by manufacturers and end users of all kinds of batteries.
My personal opinion is that, in the short term (perhaps, the next two years) until the questions are answered the actual possession and operation of lithium producing properties and/or lithium processing properties can only add value to companies so situated. After that time period it’s anyone’s guess. |
