Lithium Reboot

Lithium metal figures prominently in electric car vehicles, even if it is not the most significant required material in terms of volume.  Graphite wins that contest.  However, lithium mining does not appear to be keeping pace with demand  -  at least as demand has been projected for use in electric car vehicles.  Lithium reached all-time high prices in November 2017, from a record low in February 2016.  Battery grade lithium is now running about $20,000 per ton on the China spot market, representing a significant value-add from the average $7,000 per ton for lithium carbonates imported into China.

The post “Listed Lithium” discussed several new lithium development projects that have been announced in recent months, most likely motivated by the rising price of lithium.  The majority of raw lithium supply comes from the Andean salt flats of Chile and Argentina.  There are additional salt flats in Colombia that are under development.  Australia makes a meaningful contribution to world lithium supplies through a clutch mining operations.    

There is another way to solve the lithium supply problem (if there is one)  - recycling.  Lithium in existing batteries is not used up.  Charging and discharging cycles eventually render a battery useless, but the metals within remain. 

Recycling lithium ion batteries is a bit more complicated than lead acid or nickel metal hydride batteries.  Lithium ion batteries have a wider variety of materials in each cell.  In larger batteries such as the ones used in Tesla’s Model S, the number of cells can exceed one hundred.  Active materials in the cells are in the form of powder and coated onto metal foil.  There is no standardization from battery to battery.  Separation and removal of valuable metals can be complicated. 

There are several possible methods to extract lithium from used batteries.  In pyrometallurgical processes, the lithium ion batteries are fed into high-temperature shaft furnaces.  The electrolyte and plastic burn off and the valuable metals are reduced to an alloy of copper, nickel, cobalt and iron, which are recovered through a leaching step.  The slag contains lithium, aluminum and a few other materials.  Pyrometallurgy is not an economical or energy efficient recycling method.

A hydrometallurgical process method calls for the batteries to be fed into a hammer mill.  The broken up plastics are sorted out with a water-fed shaker table.  Water in the rest of the materials is partially drained off and then mixed with soda ash to precipitate the lithium and cobalt.  Like pyrometallurgical processes the water-based method is only economically feasible if cobalt and nickel are in the mix of recovered materials.

Umicore NV (UMI: BRU) has been in the recycling business for years.  The company uses a combination of pyrometallurgical and hydrometallurcial process to extract nickel, copper, cobalt, cerium, neodymium, and lanthanum, among other metals.   Its proprietary UHT technology results in a higher metal recovery record than competing recyclers.  It also features a gas cleaning system that serves to reduce emissions of harmful toxins.  Umicore also claims their system uses less energy than others and generates near zero waste.

A stake in Umicore can be had for a price 27.6 times forward earnings.  That seems a bit pricy for a company that only generates 2.4% operating margin.  Still investors might consider the stock for its dividend given that the current forward yield is 2.0%. 

The start-up Li-Cycle in Canada claims a new technology that is more friendly to the environment than high-heat and water-based processes.  The Li-Cycle Technology, as they call it, can be applied to a wide variety of battery chemistries.  The process recovers lithium, cobalt, copper, and other metals through a low-temperature process.  While as a private company Li-Cycle does not disclose financial results, the company does claim that on a unit basis its recycling process is profitable.

Li-Cycle may get a chance to prove itself economically feasible.  Currently only about 5% of lithium ion batteries are recycled.  That means there is considerable room for market penetration.  For investors looking for a means to ride the wave of new demand for electric vehicles, a recycler of the batteries could be an interesting hedge.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.