Where Will the Gigafactory Feedstock Come From?

Podcast Transcript

Ed Coyne: Hello and welcome to Sprott Radio. I'm your host Ed Coyne, senior managing partner at Sprott Asset Management. I'm pleased today to welcome Joe Lowry, founder and president of Global Lithium LLC. Joe, thank you for joining Sprott Radio.

Joe Lowry: Thank you for having me.

Ed Coyne: Joe, before we dive into the lithium world, please tell us a bit about yourself and the company you started in 2012. I will harken the words of Elon Musk, who says, "Lithium's everywhere." Elon's right about that, but lithium is only in a few places where you can get it in mass quantities economically.

Elon Musk may be right that lithium's everywhere, but lithium is only in a few places where you can get it in mass quantities economically.

Joe Lowry: The company I started in 2012 only had meaning because I spent the prior 23 years with a company called FMC Lithium, which, when I joined, was one of the two major Western lithium companies in the world. I grew up in that industry and had the privilege to stumble upon being the first guy to sell lithium chemicals to the lithium-ion battery space.

I started going to Japan every six weeks from 1995 to 2000, and finally, they just said, why don't you move over there? My family packed up; we moved to Kobe, Japan, lived there for five and a half years, then moved to China, where I lived for five and a half years. I knew everybody in the lithium-ion battery space. I moved back to the U.S., ultimately left FMC, and started Global Lithium, with the ability to stay in the industry that I loved and keep the connections to everybody in the lithium-ion space.

Ed Coyne: You’re a founding father. I talked to a few experts and was told to refer to you as Mr. Lithium. I apologize for not saying that initially, but your reputation's incredible in this space, and you have three decades-plus of experience. What are some of the milestones in lithium over those last three decades that are worth pointing out today?

Joe Lowry: There was no lithium-ion battery when I first started. When it happened, the company I worked for said this would never fly. We had joint ventures in Japan, and we had a Japanese company that we dealt with that believed in it. Because we controlled the raw material, they developed the key relationships at first with Sony and Matsushita, which you would call Panasonic now.

That's how I came in, I happened to be responsible for the two product lines that the lithium space adopted as the raw materials for battery cathode. What attracted me to this industry was that it was so varied and tiny, but you can't make Post-it notes without lithium, and you can't make statin anti-cholesterol drugs without lithium. Windscreens and airliners have lithium in them. I loved all that diversity, but lithium is a battery business going forward — end of story.

Ed Coyne: To that point, you collaborate with many players in this space, from producers to users to battery manufacturers, governments and even Wall Street.  Could you walk us through each ecosystem and how they're different? What are some of the demands you're finding in those diverse ecosystems? Let's start with the producers. How are you collaborating with some of the producers, and who are some of the big producers?

Joe Lowry: There’s a big four. That would be Albemarle, based 30 minutes from where I'm sitting in Charlotte, North Carolina, and SQM, a Chilean company. Then two Chinese companies, Ganfeng and Tianqi. Then the next tier would be somebody like a Livent, which was FMC Lithium, where I worked for a long time. They have just decided to merge with the next guy, Allkem, a combination of Galaxy, which had an Australian asset and some assets in Canada and Argentina. Now we're down to six, but the big four dominate.

Then you talk about the companies in Western Australia that historically didn't make lithium chemicals. They made a precursor called Spodumene. Lithium is still a small world dominated by the first four I mentioned. If you go back to, say, 2020, they had over 70% of production that will, over time, continue to diminish as new players come on. This is still not different from big oil, where you have much more diversity of supply. It's still a small industry that will consolidate, as we have seen with Allkem and Livent merging. You'll have juniors come up, which will likely be acquired. We'll see what happens.

Ed Coyne: I bet virtually all of our listeners were surprised to hear North Carolina is one of the big four as it relates to lithium. Everyone thinks about China and other parts of the world being big players in lithium, but it’s surprising to think that it's in our backyard. I think people often don't pay attention to that, particularly in the U.S.

Joe Lowry: In the 1950s, the U.S. government put three players in the business to get the trigger for the hydrogen bomb, which was the lithium industry’s genesis. One of them was U.S. Borax, who quickly dropped out. The other two are what's now Albemarle and now Livent. They both had mines in North Carolina. Initially, we got the spodumene concentrate for the lithium that the government wanted from Canada. Even back then, they didn't want it to be in Canada.

They wanted it to be inside the continental U.S., which is why the two mines in North Carolina were built. That was the lithium industry up into the '60s and '70s. When I joined in 1990 at what's now Albemarle, it was no longer mining in North Carolina, but what's now Livent still was. By the end of that decade, everybody was out in the U.S. except for one small brine production that Albemarle had in Silver Peak, Nevada. We ceded world dominance in lithium over the period.

Ed Coyne: Let's shift and talk about the users, producers or manufacturers. Who are some of those, and do you see those evolving? What does the consumption side of lithium look like today?

Joe Lowry: It's undoubtedly dominated now by a lithium-ion battery. A lithium-ion battery for the first 10 or 15 years was mobile devices, but in the last several years, it's transitioned to e-mobility. It's the Teslas, all the EV makers in China and the legacy OEMs that are trying to move to electrification that may likely dominate the space. From a lithium purchasing perspective, it was the cathode makers early on. They sourced all the lithium, and then the battery guys got nervous that the cathode guys didn't know what they were doing.

 So, the battery makers started to source. As we move into the next 10 years, most of the big contracts will be done by the Teslas of the world. We're seeing the transition moving down the supply chain from cathode to battery into OEMs. If you look at announcements, whether it's Ford or GM, everybody's announcing their strategy to source not just lithium but battery metals in general. I will say this now and repeat it: you can make a lithium-ion battery without nickel or cobalt, but you can't make a lithium-ion battery without lithium.

Ed Coyne: The demand, it's just ever-growing. Where are we going to get all this supply? Because all these companies want to go carbon neutral, they want 100% battery by 2030, 2035. Where's it coming from?

Joe Lowry: I will harken the words of Elon Musk, who says, "Lithium's everywhere." Elon's right about that, but lithium is only in a few places where you can get it in mass quantities economically. That's where Elon's first principle's rhetoric falls off the side of the table. Australia's number one now, and it was just a bit player for most of the last 20 years because the market was dominated by Chile in the Atacama Desert. If you go back to 2020, global lithium demand was 300,000 tons of lithium carbonate equivalents. By 2023, it will be somewhere between 3 million and 3.5 million. Albemarle would tell you it would be a little more than that. When people start talking about uranium and iron ore and making those comparisons, I always ask them to tell me when either of those or any business you want to reference grew 10x in a decade. If you're not talking about software or apps, you can't tell me that story in something real and physical.

Ed Coyne: How actively are governments worldwide trying to fast-track lithium mines? Are they being disruptive?

Joe Lowry: That's the problem. People love to talk about the IRA, the curiously named Inflation Reduction Act, which is nothing of the sort, but a lot of money will get thrown around. The problem with that is you have a left-leaning government wanting to do what the left wants, which is to give everybody an EV, but they don't want any mining associated with it. I applaud wanting to build batteries and reinvigorate our manufacturing.

Ed Coyne: Talk to me about China because when we talk to our clients, it seems China is the bad guy in the room. Where does China sit in this entire ecosystem as it relates to lithium?

Joe Lowry: It's interesting you use that word because one of my best friends in the industry is a company called Ganfeng Lithium. I knew them when they didn't have two RMBs to rub together. These were two poor guys who are both multi-billionaires now because they had a vision. To China’s credit, back in 2002 or 2003, when I was doing business with them, the provinces supported all these kinds of projects. Most of these little lithium companies didn’t make any money, but they kept building capacity and signing contracts with sourcing outside of the borders of China.

They were way ahead of the curve, so when Americans or Westerners talk about this as some conspiracy or something nefarious, I would say we got our butts kicked. These guys had more vision than we did, and they were willing to put money ahead of the curve. They’re not NPV [net present value]-focused, so they’re well positioned. When people say China dominates the lithium industry, that’s nonsense. As I said, the biggest lithium company in the world is in my backyard, Albemarle in Charlotte, North Carolina. Its assets may be in Western Australia and Chile, but its resource assets are outside China. The best resources are not in China, and that is something that I’d like your audience to understand. Rare earths may be a different story, but China's almost totally dependent in terms of the lithium market. Their internal resources could be better quality and smaller, but they depend on Western Australia, Chile or Argentina to get the feedstock to converse.

Ed Coyne: We've talked about the government; we’ve talked about the producers and consumers. The last is Wall Street. What will it take for Wall Street to get behind this permanently and not just look at it as an opportunistic trade but think about long-term investment? What do you think needs to happen there?

Joe Lowry: That’s a tough one. You can build a gigafactory¹ in two years, but you're talking about a decade to bring on a lithium asset from a greenfield perspective, including the exploration time. Wall Street is not patient money, by and large. Australians and Canadians have carried the water in that regard. The ASX and the TSX are much more home to lithium companies or developers because raising money in commodity-based countries is easier.

If you're going to invest in some 18-year-old that's building an app that might become DoorDash or something, you're probably going to do that before you say, we can put $1 billion in, and maybe the thing will be built, and perhaps it’ll run in seven years. That's not a Wall Street theme that will get much traction. What has happened is that it's easy to raise $5, $10 or $15 million to explore. What's hard is to get the money to develop something. What you've seen now, unfortunately, is the fact that the Chinese are willing to do it.

The Chinese have invested globally, and America sees this as “those bad Chinese”. They're ahead of the curve and investing with a century in mind, not simply next year's earnings. That's where we're still in trouble. Look at the North American gigafactory plans between now and 2030. There are 20 to 25 gigafactories on there, and you just saw another $9+ billion given to Ford and SK Innovation to build gigafactory capacity.

There is one permitted greenfield lithium project in the U.S. right now. Lithium Americas’ Thacker Pass project will take four years to be built and fully online. GM has 100% of that supply because it invested ahead of the curve. A 150 gigawatt-hour gigafactory will wipe that out. What about the other guys? Where's it going to come from? Tesla is building a big converter in Corpus Christi, however, the lithium it will need to run through that process hasn't been brought into production yet.

Ed Coyne: That's incredible. Do you see more auto manufacturers getting to the head of the line here and saying, we're going to invest in the mine itself? Is that maybe where some of the assets come from?

Joe Lowry: Ford has signed many contracts, including some in production. But Ford has a very limited amount from those players because it has many other customers. They've also invested in some early-stage projects. This is going to be increasingly a problem.

Ed Coyne: Let's talk about some innovations in extraction or techniques. Have any innovations or techniques come to light that makes this extraction process faster, safer and more plentiful? You're tethered to this market, so what can you share with us on that?

Joe Lowry: In the last five years, the Chinese have figured out how to do conventional technology to a very high level that's good enough for a battery. The original lithium industry was predicated on industrial demands, and a battery requires a much higher quality product that the existing plants weren't designed to do. You're hearing a lot now about direct lithium extraction and a process that's 10,000 times faster. That's absolute abject nonsense.

Nobody's brought that to market. There's only one company doing a modified form of DLE, or direct lithium extraction,  in the West. The Chinese have some moderately successful direct lithium extraction, but most of those assets use pods too. The real issue here is that a lot of brine in North America is associated with oil fields. You must have direct lithium extraction to exploit that. The evaporation characteristics in North America aren't like they are at 4,000 meters in the Andes. We can't build ponds and extract lithium the way they do in South America very effectively in North America.

Direct lithium extraction will unlock both quantity and quality because it will yield a higher-quality product if properly implemented. We're still five years away from seeing any significant impact. I'm on the board of a DLE company, so I'm not anti-DLE, but I am a rational actor in the industry.

Ed Coyne: You can only discuss lithium by mentioning sodium replacements or other alternative technologies? How far are we away from things like that even putting a dent in the lithium supply? What else is going on out there?

Joe Lowry: It takes a lithium price to make sodium economic, and then sodium still has technology challenges. It would only be for the energy storage system and renewables, where that would get great traction. If you're talking about EVs, it would be more like buying a $5,000 EV in China that's more like a glorified golf cart; yes, you could have sodium in that, but you'll never get sodium where you have lithium-ion.

I welcome sodium because anything that takes the pressure off lithium to me is good for the lithium industry. After all, the lithium industry is small and not ready for prime time. There are new technologies out there, but they all include lithium. Whether you're talking about solid state or lithium theme variations, all the good stuff comes back to a lithium chemical or metal.

Ed Coyne: It's clear that this isn't going away anytime soon. To your point, Wall Street thinks in days, not decades, but they'll come around. It’s an interesting opportunity for people to start thinking about this as part of their portfolios. What questions should I have asked that you think our listeners should be aware of?

Joe Lowry: I always ask that question on my podcast too, and there is so much that you could talk about. My key themes are don't blame China because this is a self-inflicted wound. I was talking to the big automakers seven years ago, and they didn't want to hear it. They said lithium’s not our problem, it's the battery guy's problem. Don't blame China because the Western players didn't listen.

Ed Coyne: That's fascinating. I appreciate you taking the time today. For our listeners that would like to learn more about Joe and the extensive work you do, I mentioned you do podcasts and articles. I've seen you on a couple of really great videos. I'd encourage everyone to start with your website, which is globallithium.net. Joe, once again, thank you for being on Sprott Radio.

Joe Lowry: My pleasure.

Footnotes

¹ A gigafactory is a massive factory that produces lithium-ion batteries for electric vehicles (EVs), energy storage and other battery-powered devices on a gigantic scale.