China Wants in on the Clean, Copious, and Chilean Energy Boom

PALM BEACH, Florida, March 27, 2018 /PRNewswire/ --

Marketnewsupdates.com News Commentary 

With a GDP growth rate of 6.9% last year - its fastest in seven years - China is now inches behind the U.S. as the world's largest economy. One particular area in which China has set eyes on to exert its dominance is the electric vehicle market, now accounting for nearly half of the world's production, and it can only get bigger as the nation moves toward its emissions targets. This is why China is hungrier than ever to get their hands on more lithium - a key component in car batteries. Following in Tesla Inc. (NASDAQ: TSLA)'s footsteps, China is now looking to enter the Chilean lithium market. Chile is home to about half of the world's lithium reserves, and its Atacama Desert Salar has attracted companies such as Albemarle Corp. (NYSE: ALB), Sociedad Química y Minera (NYSE: SQM), FMC Corp. (NYSE: FMC), and Wealth Minerals Ltd. (TSX-V: WML).

Despite its vast landscape, China's lithium resources aren't enough to meet its current needs due to the growing demand for electric car batteries - expected to rise by tenfold by 2025. It's even looking to buy lithium even before it has been mined. Chinese firms have begun penetrating the global markets to secure their lithium supply, signing deals in Argentina, Australia, and the Congo last year. But the biggest lithium opportunity right now is in Chile, where the election of pro-mining president Sebastián Piñera and recent resolution of the longstanding dispute between the State and Chilean mining giant SQM have opened up a global lithium production boom.

Last year, Reuters reported that Tianqi, China's largest lithium company, and Chinese private equity firm GSR Capital were rumored to be among the bidders for a 32% stake in SQM, which must be sold by holder Potash Corp. for regulatory reasons. Tianqi already purchased a 2% stake back in 2016.

In its latest move to establish a dominant position in a now-transforming Chile's lithium market, Wealth Minerals Ltd. has now teamed up with state-owned National Mining Company of Chile (Enami) to develop and commercialize its assets in the Atacama. This government deal puts Wealth Minerals a step closer toward becoming a large-scale producer like SQM.

"With an increasing supply of lithium, Chile is key for any company that wants to become global in electro-mobility," said Eduardo Bitran, the executive vice-president of Chilean development agency Corfo. "With higher quotas, the Atacama salt flat alone could more than quadruple production to 350,000 tonnes a year without extracting more brine."

How Chile's Lithium Compares To The Rest 

The inflow of lithium investment from emerging markets is a recent phenomenon in Chile. For decades, the Chilean government failed to recognize the commercial viability and economic potential of lithium, until last year, when it finally opened up with an international tender for lithium projects and a green light for Albemarle - also with operations in Atacama - to expand production. Recently, state agency Corfo also resolved its four-year dispute with SQM, allowing it to increase its output and work out a potential supply deal with Tesla. Tesla, leading the global EV revolution, is already considering building a processing plant in Santiago.

In 2014, BBC released a feature on Chile's rich lithium resources, citing that it's the cheapest place to mine the metal on Earth. Compared with its biggest competitor, Australia, where lithium must be extracted out of rocks instead of brine and shipped away for processing, Chile's conditions make mining much cheaper. Another advantage Chile has in the lithium mining space is that neighboring Argentina - another lithium producer, is often plagued with political instability and economic turbulence.

Recognizing the true potential Chile holds in the lithium market, Wealth Minerals moved in early, ahead of competition, and now holds four major projects across Chile, with the potential to produce 512,960 tonnes of lithium carbonate, which is about four times Albemarle's current production.

The company's foothold in the Atacama comprises the more underexplored northern part of the salar, whereas Albemarle and SQM have focused mainly in the south. In fact, only those two companies were allowed to mine lithium under the past regime, so the potential of the northern salar has yet to be unlocked.

Wealth Minerals' operational focus is on the Laguna Verde project farther south, where it began drill testing recently, with results anticipated in the first half of 2018. Drilling is also planned on the Atacama and Trinity projects.

From One Corner of the Lithium Triangle to the Next 

Before Chile's lithium market reform, Argentina was a top target for Chinese investors. Last year, China-based Nextview New Energy Lion Hong Kong Ltd. acquired Canada's Lithium X Energy Corp., currently operating in Argentina at a 29.4% premium. This deal sent shockwaves throughout the industry and it signalled China's serious commitment to lithium mining in this region.

Now with rumored bids for SQM's Chilean assets from China, further involvement from China in this region seems inevitable. Investors could also foresee Wealth Minerals go down the path of Canadian counterpart Lithium-X - through partnerships or acquisitions presenting a long-term value play in Chile.

According to analysts at Benchmark Mineral Intelligence: "The removal of the political bottleneck in Chile is good news for a lithium industry post-2021."

Comparables: 

Tesla Inc. (NASDAQ: TSLA) - Tesla and its CEO Elon Musk are looking to revolutionize the entire auto industry and the renewable energy sector, pledging a fully "green ecosystem". The company is known for making the best-selling electric car models in the world, with Model 3 being its latest signature vehicle. This month, Tesla's total vehicle production surpassed the 300,000 mark. Its goal is to raise that to 500,000 by year 2020.

Albemarle Corp. (NYSE: ALB) - Albemarle currently has its lithium operations at a number of locations worldwide. In Chile, the company is producing 125,000 tonnes of lithium carbonate per year at the Atacama salt flat. Expansion plans are also in place at Atacama, with a new production plant scheduled for construction in the early 2020s.

FMC Corp. (NYSE: FMC) - FMC operates its lithium business mainly in Argentina at the Salar del Hombre Muerto. Recently, the company announced that it would invest $300 million to double its production to 40,000 metric tonnes per year at the salar by 2019.

SQM (NYSE: SQM) - SQM is mainly focused on its operations at the Salar de Atacama, where the company had a long dispute with the government over project royalties until it was resolved in early 2018. It's now developing projects in both Chile and Australia. In 2016, the company produced 44,000 tonnes of lithium carbonate.

Chile's Lithium Market Has Untapped Potential

With its lithium market finally opening up to the world, Chile will now look to cement itself as the leading global supplier of lithium, and China, being the biggest lithium battery market and buyer, has recognized that. Chile still has a vast amount of untapped production and boasts the lowest production costs - an ideal combination for mining operations.

Companies with a strong presence and government partnerships in Chile like Wealth Minerals Ltd. will look to take advantage of this opportunity through further expansions and perhaps consolidations. They know that their Chinese counterparts are circling around.

Historically, large injections of Chinese capital have been rampant in other key industries, such as agriculture; this story will continue in the rising lithium market. Now holding down the yet-be-explored part of the Atacama Salar with government endorsement and potentially competing with Chinese bidders for more, a key protagonist could be Wealth Minerals Ltd.

For a free research report on Wealth Minerals Ltd. (TSX-V: WML.V), please visit Streetsignals.com

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