Many key battery materials, such as lithium, cobalt, and nickel, are in short supply and prices are escalating. Prices of lithium carbonate have quintupled in China from a year earlier and the sustained high costs will eventually be passed onto car makers. Two areas with significant lithium resources—Chile and Serbia—are having issues with lithium production from environmentalists. Recently, Serbia revoked Rio Tinto’s lithium exploration licenses and environmentalists there are pushing for a moratorium on lithium mining. Environmentalists in Chile are calling for a pause in new mining contracts for lithium because of water rights issues and extraction methods and a new constitution is being written that may change the mining sector.
The entire fundamental transformation of our economy to electric transportation is dependent upon lithium and the batteries from which they are made. So, too, is the intermittent energy policy being pushed by governments because renewable energy requires backup.
Chile is the world’s second largest lithium producer after Australia with 32 percent of the market and the largest holder of lithium reserves with 57 percent of the world’s reserves. But, plans to expand lithium mining in Chile are hitting political roadblocks. Issues abound regarding the water rights and extraction of lithium deposits that lie in the salt waters beneath a vast desert in northern Chile. To extract lithium, miners drill a hole in salt flats and pump salty, mineral-rich brine to the surface. After several months the water evaporates, leaving a mixture of manganese, potassium, borax and lithium salts which is then filtered and placed into another evaporation pool. After between 12 and 18 months of this process, the mixture is filtered sufficiently that lithium carbonate can be extracted. In Chile’s Salar de Atacama, mining activities consume 65 percent of the region’s water, which is having an impact on local farmers to the point that some communities have to get water elsewhere.
In October, the outgoing government of President Sebastián Piñera invited bids from private companies to expand lithium production to 400,000 metric tons a year. An objection was filed before an appeals court, demanding that the bids be halted and a bill was introduced in the Chilean legislature to prevent sitting presidents from inviting new mining-contract bids in the final 90 days of a term, as President-elect Gabriel Boric takes office in March. President-elect Gabriel Boric’s team asked the government to postpone the tenders and set up a roundtable to discuss various conditions to apply to the contracts.
Despite those moves, Chile awarded extraction contracts worth a total of $121 million to China’s BYD Chile SpA and Chile’s Servicios y Operaciones Mineras del Norte S.A., which were awarded the right to extract 80,000 tons of lithium each. The ministry said the quotas awarded amount to 1.8 percent of Chile’s known lithium reserves. The two companies have seven years to carry out studies and develop their projects, and then another 20 years to extract the metal. The tender took place three months before the end of President Sebastian Pinera’s mandate.
Chile has constructed a committee, however, to draft a new constitution that could change the country’s mining sector and water rights in the future, raising uncertainty about future supplies.
Serbia has 10 percent of the world’s reserves of lithium and the largest lithium reserves in Europe with hopes of eventually becoming the continent’s largest supplier. But, Serbia recently revoked its lithium exploration licenses over environmental concerns. That decision scuttled Australia’s Rio Tinto Plc’s proposed $2.4 billion lithium project and hurt efforts to grow and diversify Serbia’s economy. The decision by Serbia comes as it approaches a general election in April, and as relations between Belgrade and Canberra soured after the deportation of tennis star Novak Djokovic from Australia over its Covid-19 entry rules. It is also a major setback for Rio Tinto, which was hoping the project would help make it one of the world’s 10 largest producers of lithium. Rio Tinto has spent $450 million in pre-feasibility, feasibility and other studies on the project to understand the nature of the deposit. At full capacity, the mine was expected to produce 58,000 metric tons of refined battery-grade lithium carbonate a year, making it Europe’s biggest lithium mine by output. European governments are pushing hard for the electrification of vehicles, and the potential loss of Serbia as a local supplier is a setback to those plans.
Robust global demand for lithium is outstripping supply and pushing lithium prices to a record in recent years. Lithium futures recently jumped 171 percent to a record $38 per kilogram. In China, cash prices of lithium hydroxide monohydrate are trading around a record 262,500 yuan ($41,387.47) per metric ton, up by more than 400 percent from a year ago.
Not only are lithium mines in the United States having trouble opening, such as the Thacker Pass lithium mine in Nevada, but Serbia recently revoked its license for a mine that Australia’s Rio Tinto was to develop and Chile may have problems in the future as a new government takes over in March and a new constitution is being written that could change its mining sector. Experts expected the world’s shortage of lithium to last for another three years at least, but with the cancellation of the Serbia mining project, the shortfall could last even longer. When demand exceeds supply, prices increase, as is the case with lithium, which could end the spiraling down of electric vehicle battery prices, making the green energy transition even harder to achieve.