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Tesla Contract Gives Boost To Mining Startup Looking To Produce Lithium For Batteries

Tesla Contract Gives Boost To Mining Startup Looking To Produce Lithium For Batteries

The most ambitious project in the U.S. to free it from almost total dependence on lithium imports to make batteries has received a huge boost with a long-term deal to supply an intermediate product to Tesla, Inc. (NASDAQ: TSLA).

Lithium is generally considered the most efficient battery metal, and its production will need to rise significantly in coming years for any sort of energy revolution to take place, whether it's in a vehicle or to construct storage systems to hold electricity in reserve for when intermittent renewables aren't supplying power. Think of wind turbines on a windless day or solar panels when the sun isn't shining. 

Tesla is building its own batteries. It recently held its battery day event to discuss its progress. 

Piedmont Lithium Limited (NASDAQ: PLL) announced this week that it had reached an agreement to sell a lithium intermediate product called spodumene concentrate to Tesla for five years on a fixed-price basis. The spodumene concentrate is used to make lithium hydroxide, and that is the product that is used in the production of batteries. 

Tim McKenna, Piedmont's director of investor and government relations, said Tesla's requirement would eventually consume about one-third of the output at the mine, which is being developed on 200 acres in Gaston County, North Carolina, in the general region of Charlotte.

Piedmont eventually plans on building a chemical plant near the mine that would turn the spodumene concentrate into lithium hydroxide, a task that will cost around $300 million, McKenna said. But Tesla didn't want to wait for that, according to McKenna.  "They want to get going faster," he said. 

The spodumene would be produced by a concentrator at the mine. Concentrators take the raw ore and live up to their name — they concentrate the ore into an unfinished product with higher metal content than what came out of the ground. 

According to a prepared statement released by Piedmont, there is an option in the five-year deal that would allow Tesla to increase the quantities to be delivered to it. The concentrate deliveries are expected to begin sometime between July 2022 and July 2023. 

The mine is not yet operating, although development work is being done at the site. 

McKenna said Piedmont raised money in June but that "in order to do what we need to do, we're going to have to raise several hundred millions dollars to put this all together, and that's currently in the process of occurring."

Lithium production in the U.S. is small enough that the line for it under data supplied by the U.S. Bureau of Mines is listed as "W," for withheld. That occurs when the number is either so small or so concentrated — or both — that revealing it would essentially be a disclosure of a company's proprietary information. And the report goes on to say that the only lithium produced in the U.S. is from a company in Nevada extracting it from brine.

While projections show battery use growing and demand for lithium rising along with it, the past few years have been somewhat bearish for the metal. Outside of the U.S., lithium production worldwide declined 19% in 2019 from 2018 "in response to lithium production exceeding consumption and decreasing lithium prices," the report said. The BuMines' data shows battery-grade lithium carbonate prices average $15,000 per metric tons in 2017, rising to $17,000 in 2018 and falling back to $13,000 last year.

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