Albemarle Intends to Double Lithium Supply at the Silver Peak Mine Project

Albemarle- the North Carolina-based chemicals company, says that it will invest $30 million to $50 million by 2025 to expand capacity at the Clayton Valley basin lithium extraction site. It will also begin exploring clay deposits and evaluating new technologies that may “improve the viability” of lithium mining from these resources.

In recent years, lithium has gained prominence as a critical component of rechargeable batteries that control an expanding fleet of electric vehicles. It is also essential for other technologies that will allow the low-carbon energy transition.

Despite having the world’s fourth-largest lithium reserves, the United States’ production levels are low currently. With domestic demand expected to increase, producers are looking for new ways to maximize this important resource.

“Our priority is to optimize our world-class resources and production,” said Eric Norris, president of lithium at Albemarle. “This includes Silver Peak, which is the only lithium-producing resource in the United States.”

“This investment in domestic capacity demonstrates our commitment to investigating the various ways in which Silver Peak can provide domestic support for the expanding EV market.”

Albemarle Can Improve US Lithium Security By Expanding Silver Peak

The expansion plan, according to BMO Capital Markets analyst Joel Jackson cited by Reuters, would increase Silver Peak’s production capacity to 10,000 tonnes of lithium carbonate equivalent.

“The motivation would appear to be clearly to bulk up its US operations as lithium and EVs become more strategic this decade, especially under the new green-friendly Biden administration,” Jackson said.

During his presidency, Trump had made a number of interventions aimed at increasing the United States’ capacity to produce “critical minerals” including lithium.

While they are considered strategic, the country relies heavily on imports, notably from China and Russia. Establishing a domestic supply chain is seen as critical to boosting US mineral security in the face of rising demand.

Silver Peak currently extracts lithium from brine deposits, and Albemarle says it will look into new ways to optimize extraction, including through a Department of Energy-sponsored research project with the Argonne National Laboratory.

Albemarle also has brine resources in Arkansas and the Kings Mountain site in North Carolina, which it claims is “one of the richest spodumene ore deposits in the world”, in addition to the Nevada facility.

Spodumene is a lithium-rich hard rock ore that can be extracted in addition to brine resources.

Increased Earnings Forecast

Rising lithium prices are bad news for the electric vehicle market, but they are good news for corporations that mine the metal. Albemarle, the global chemicals company that owns the Silver Peak mine southwest of Tonopah, increased its full-year 2022 guidance less than three weeks after releasing its initial 2022 earnings forecast.

In the last year, the price of lithium has increased by about 500%. Citigroup Inc. has stated that an “extreme” price rally is still possible. Many companies are working to build new lithium mines but this is a multi-year process. In the meanwhile, EV manufacturers’ demand continues to rise.

The exceptionally high lithium prices are spot prices whereas Albemarle operates with long contracts. Hence, there is some lag time for the contract prices to rise. Albemarle said in late May that it raised its 2022 guidance “primarily due to the completion of extra lithium contract renegotiations.”

On May 27, Albemarle’s stock price rose 6.22% to $270.92. On April 26, the stock price of the company was $187.76. The organization’s stock price rose 44.3% in a month and it now anticipates net sales of $5.8 billion to $6.2 billion in 2022. Earnings before interest, taxes, depreciation, and amortization are expected to be in the $2.2 billion to $2.5 billion range.

These figures are significantly higher than the company’s May 3 guidance. Albemarle stated at the time that it expected 2022 net sales to range between $5.2 billion and $5.6 billion, and adjusted EBITDA to range between $1.7 billion and $2 billion.

“We’ve made substantial progress in renegotiating more variable-priced contracts with our lithium customers over the last 12 months,” said Albemarle CEO Kent Masters. “The execution of these contracts is a key driver of the year-over-year improvement in our financial results that we expect.” Depending on favorable market dynamics for our lithium and bromine businesses, we now expect full-year 2022 adjusted EBITDA to be more than 160% higher than the previous year.”

Both businesses are critical for advancing digitization and electrification while transitioning to greener energy.

In a press release, Albemarle stated, “Lithium adapted EBITDA for the full year 2022 is now anticipated to increase approximately 300% year over year, up from the previous outlook.” “Average realized costing is now predicted to be 140% higher year over year, as a result of the development of index-referenced, variable-price contracts and elevated market pricing.”

What Are Lithium Demand’s Long Term Prospects?

According to Nobel Prize winner M. Stanley Wittingham, who once laid the scientific foundations for today’s batteries, the raw material will still be important in the years to come. “It’ll be lithium for the next 10 to 20 years,” Wittingham predicts. Simultaneously, in the interest of climate protection, the number of electric vehicles is expected to skyrocket.

By 2029, the Volkswagen Group alone intends to have 26 million pure electric vehicles on the road. Long term, a substantial percentage of the raw materials used will be recycled, reducing the need for “new” lithium. This will not be felt, however, until 2030, when used batteries will be returned in large quantities.