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Why the US is Backing American Lithium

Marc Davis Marc Davis,
0 Comments| April 30, 2021

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It’s a strategically symbolic investment that clearly demonstrates the US government’s determination to break China’s dominance of the global lithium trade.

Now that lithium has been declared as critical to America’s energy needs, the Biden Administration has lately been rallying around “home-grown” lithium developers. This includes the American Lithium Corp. (TSXV: LI) (OTC: LIACF) (Frankfurt: 5LA1), which is exploring/developing the strategically-located TLC claystones project in Nevada.

To this point, the US government The U.S. Department of Energy has awarded a US $2.27 million grant to American Lithium as part of a US $4.54 million combined award that was made to a consortium that is innovating the production of battery-grade lithium hydroxide from Nevada’s claystones.

The project is headed up by American Battery Technologies Company (ABTC), with American Lithium having been selected as an industrial partner to supply lithium-rich claystones to ABTC for its proposed pilot plant. The third joint-venture partner is DuPont Water Solutions, which offers expertise in the removal of contaminants from groundwater.

Tesla’s giant giga-factory in Nevada

Why the US Has to Support Domestic Lithium Development
China currently controls around 60% of the world’s lithium-ion battery supply chain, and it has been steadily increasing that stake in recent years. Meanwhile, North America accounts for just 2% of global lithium production.

That presents the US with a significant industrial risk – and the federal government is taking decisive action to address the problem.

Hence, the grant that was awarded by the US Department of Energy is intended to meet 50% of the capital cost for ABTC’s proposed new US $4.54-million lithium extraction pilot plant at American Lithium’s TLC project site near the small town of Tonopah, Nevada.

Of particular note, American Lithium is the only lithium company selected for such an award. The ultimate goal is for this enterprising company to help wean the US off its reliance on foreign supplies of lithium, thereby setting the stage for the full-scale transition to electric vehicles.

American Lithium CEO Mike Kobler hailed the grant as “ strong validation of the unique characteristics of lithium mineralization at TLC and its potential to produce significant amounts of battery-grade lithium hydroxide monohydrate,” as well as the calibre of the project collaborators.

“Together, we can be leaders in the growth of lithium chemical supply in the burgeoning field of large-scale battery manufacturing in the United States,” says Kobler.

Vancouver-based American Lithium has already developed its own innovative processing methods and has already demonstrated the ability to effectively extract lithium from TLC claystones. The company is now working on how best to produce battery- grade lithium on a cost-effective basis.

The venture with ABTC will run in tandem with the development of American Lithium’s own in-house lithium extraction process , thereby bolstering the Company’s chances of mining lithium in the most cost-effective ways possible.

How US Lithium Supplies are Strategic National Assets
Lithium-ion batteries are vital for transportation and energy storage as the world transitions towards an electric future, but economic supplies are scarce. Much of it is mined and processed in China, which now produces nearly two thirds of the world’s lithium-ion batteries, as well as controlling most of the world’s supply chains of the “Critical Minerals” used in such batteries.

Alongside its domestic production, Chinese companies such as Tianqi Lithium have made significant inroads into Australia and South America – the regions with the world’s largest lithium reserves.

This makes the need for North America to ensure the security of its own supply chain all the more pressing. Hence, Nevada also offers the prospect of a more convenient, cost-effective and secure source of lithium than Australia and South America.

Canadian mining financier Andy Bowering re-capitalised, re-positioned and transformed American Lithium after recognizing that US supplies of lithium were minimal and that there was a growing, critical need for new sources of domestic supply. His actions proved to be very timely with lithium being designated a “critical mineral” by the US government within months of his involvement. He also points out the difficulties in extracting lithium around the world.

“There’s a lot of lithium that can come out of Australia’s hard rock, but it’s typically expensive to extract,” he says. “Plus, the brines in South America have their own geopolitical problems and significant water issues in addition to complex extraction techniques.”

Salar de Atacama in Chile is the world’s largest and purest active source of lithium. This lake bed contains 27% of the world’s reserve base of lithium, according to the US Geological Survey. For that reason, it has been dubbed “the Saudi Arabia of lithium”.

Lithium brine is mined from salt lakes in Latin America

However, lithium brine extraction methods require large supplies of fresh water, and lithium brine ponds are often fraught with environmental concerns. This is particularly problematic considering that the supply chains for electric vehicles are expected by end users to be as “green” as possible too.

“Brine production in the Atacama requires around 500,000 litres of fresh water for every tonne of lithium carbonate,” says Bowering. “In one of the driest places on earth, you’ve got competing interests for that scarce water – wildlife, indigenous communities, regular communities, copper miners and lithium miners – so the government has said no so far to an increase in production.”

To produce more lithium there, miners will have to find another greener extraction technique, which could prove expensive and time-consuming. “It’s also important to utilize sustainable new technologies for mining big lithium deposits in Nevada,” says Bowering.

Fortunately, American Lithium’s TLC claystone project in Nevada is significantly more sustainable than typical brine mining operations.

Bowering explains, “The nice thing about Nevada is that the sedimentary lithium deposits sit at the surface going down to a depth of only 100 meters. So, you just cut it out and process the metals that you want and then put the inert rock back into the ground where you found it. That’s what’s called cut and cover mining.”

With environmental issues largely mitigated in Nevada, Bowering expects a concerted, government-driven push to ramp-up US lithium mining operations in the years ahead.

“The US definitely does not want to run into the same situation as it did in the oil space, where it was reliant on foreign oil,” Bowering says.” Likewise, they don’t want to be reliant on foreign lithium supplies in a world that is becoming less globalized and more nationalized. They have to incentivize it somehow. This grant is a step in the right direction.”

American Lithium’s TLC deposit in Nevada is ideally located in arid, desert-like
Terrain near the Tesla giga-factory

The New “Green” Gold Rush Heats Up
Bowering draws parallels between gold in the early 1970s and lithium today. After the price of gold was deregulated, it rallied from $35 an ounce in 1971 to almost $850 an ounce by the end of that decade. Subsequently, the share prices of gold miners soared during the 80s. Bowering believes lithium miners could enjoy a similar trajectory over the next 10 years.

“There are very few lithium producers out there right now, but all of a sudden you have major demand coming on for lithium,” he says.

“If the projections are at all accurate and General Motors replaces all of their internal combustion engine cars and trucks with battery powered vehicles by 2035, you’re going to have a minimum tenfold increase in the amount of lithium needed by 2030. The supply is not there right now, so you’re going to see price increases in order to ensure supply.”

He points out that lithium stocks rallied between 2016 and 2018, as the metal reached an all-time high. But most fizzled until they were kick-started again by rebounding lithium prices, combined with President Biden’s new green energy policies being announced earlier this year.

Bowering likens it to the situation with Amazon following the tech bubble at the turn of the century. Amazon’s share price surged to $105 in 1999, only to drop to around $5.50 by October 2001 following the bubble bursting. It is now north of $3,000 a share.

“The second wave of Amazon really did well for shareholders,” he says. “I would suggest that we’re in a second wave for lithium stocks right now. I think we’re early.”

Lithium miners are starting to generate a buzz on Wall Street. Bloomberg data shows that miners raised almost $3.4 billion in equity offerings in the Americas this year. That is seven times the total amount raised from 2018 to 2020.

Bloomberg calls it “a bullish wager that’s still available on the EV frenzy”, while industry consultant Chris Berry – president of House Mountain Partners – says Wall Street has not been this bullish on lithium since 2017.

Accordingly, virtually all pure-play lithium stocks have at least doubled in value since the start of the year, while some of them have rallied as much as 600% higher, literally representing billions of dollars of value creation.

In recent weeks, these high-flying “battery stocks” have cooled off and have given back some of their big gains. However, they continue to outshine virtually all other sectors of the mining investment industry, especially gold equities. Indeed, this trend seems set to continue with the arrival of what promises to be a multi-year super-cycle for lithium stocks.

Lithium prices have also increased exponentially on the back of heavy demand for lithium-ion batteries this year, according to Benchmark Mineral Intelligence. Its battery grade lithium carbonate midpoint price for mid-March shows lithium prices have increased by 88% since the start of 2021, reaching their highest level in two years.

In China, lithium has sold for $13,400 a tonne, making it the first time Chinese lithium carbonate has sold for more than $13,000 since August 2018.

Benchmark reports that annual lithium demand should increase to more than 2.5 million tonnes lithium carbonate (LCE) by 2029, which represents an increase of around 800% on the production levels of 2020.

While demand is soaring, the market anticipates a shortage of lithium between 2023 and 2024, which should push prices higher. That should bode especially well for companies such as American Lithium.

Investment Summary
Key to American Lithium’s value proposition is the fact that the company’s 6,000-acre TLC claystone project site is located in mining-friendly Nevada, which is close to infrastructure and only 3.5 hours’ drive from Tesla’s giga-factory in Nevada.

The project benefits from a measured and indicated (M&I) resource of 5.37 million tonnes of LCE, which has been drill-delineated, while another 1.76 million tonnes are currently designated as inferred (meaning that this resource can be upgraded to an M&I status with additional definition drilling).

Last month, American Lithium announced that it is acquiring rival lithium developer Plateau Energy Metals, which owns the Falchani lithium project in south-eastern Peru.
This acquisition thereby establishes American Lithium as one of the largest developers of lithium projects in the Americas.

All told, this fast-emerging, well-financed company seems destined to become a serious global player in extracting large volume, low-cost, battery-grade lithium hydroxide from Nevada’s claystones – and on an expedited timeline.

The key takeaway here is that a long-term US energy policy must support a strong domestic supply chain, and American Lithium appears to be in the right place at the right time.

In fact, if we take January of this year as the kick-off point for this new bull market in emerging lithium stocks, then it is still very early in the game indeed. The biggest rewards for risk-tolerant investors are still on the table. At the same time, American Lithium offers everyone a rare “feel good” opportunity to cash in on the green energy revolution.

In other words, the best is yet to come.

ABOUT THE AUTHOR: Marc Davis has a deep background in the capital markets spanning 30 years, having mostly worked as an analyst and stock market commentator. He is also a longstanding financial journalist. Over the years, his articles have appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, The Times (UK), Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post, AOL, City A.M. (London), Bloomberg, (Germany) and the Independent (UK). He has also appeared in business interviews on the BBC, CBC, and SKY TV.

An enthusiastic shareholder of American Lithium, his opinions are therefore biased and should not be relied upon for making investment decisions.

Business writer Martin Green collaborated on the writing of this article.

FULL DISCLOSURE: American Lithium Corp. is a client of Stockhouse Publishing.

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