Tesla Signs Two Lithium Suppliers For Gigafactory

AUG 31 2015 BY MARK KANE 9

Sonora Lithium Project

Sonora Lithium Project

Tesla Gigafactory Scale Model

Tesla Gigafactory Scale Model

Tesla Motors found its first lithium suppliers for the Gigafactory – Rare Earth Minerals and Bacanora Minerals, two companies that are already interconnected in the mining business.

Joint venture partners will work under the Sonora Lithium Project in Northern Mexico to supply Tesla with lithium hydroxide.

Due to the large scale of the Gigafactory (lithium-ion cell production 35 GWh annually), Tesla needs a lot of raw materials and now is in the  process of establishing a supply chain.

An interesting article from business stand point was recently published by LearnBonds.com, in which the whole project of the Gigafactory is described as risky.

In the press release from Rare Earth Minerals we note that both companies first need to secure financing through debt and/or equity, before they will be able to demonstrate that the Sonora Lithium Project is up to the task of supplying approximately 35,000 tonnes of lithium compounds annually.

Rare Earth Minerals Plc.

(“Rare Earth Minerals”, “REM” or “the Company”)

Sonora Lithium Project Signs Lithium Supply Contract

Rare Earth Minerals and (LSE AIM: REM) and Bacanora Minerals Ltd. (TSX-V: BCN and LSE AIM: BCN),  the joint venture partners of the Sonora Lithium Project1 in Northern Mexico (Bacanora and REM are collectively referred to as the “Sonora Lithium Project Partners”), have finalised a conditional long-term lithium hydroxide supply agreement with Tesla Motors, Inc. (“Tesla”), the maker of electric vehicles and energy storage solutions (“The Supply Agreement”).

The Sonora Lithium Project Partners are working to develop a mineral-rich, lithium-bearing clay deposit into a planned low-cost sustainable and environmentally conscious mining operation. It is estimated that the mine and processing facility will have an initial production capacity of approximately 35,000 tonnes of lithium compounds, with scaling potential of up to 50,000 tonnes per annum. To achieve this, the Sonora Lithium Project Partners will need to raise finances to design and construct a mine and processing facility. It is currently anticipated that lithium hydroxide and lithium carbonate would be among the materials produced by the mine. Lithium hydroxide is a key feedstock material in the manufacture of certain kinds of lithium-ion battery cells.

On the condition that, over the next two years, the Sonora Lithium Project reaches certain performance milestones and successfully passes product specification qualifications, Tesla – or its authorised purchasers – will buy lithium hydroxide to feed the manufacturing of batteries at Tesla’s Gigafactory in Nevada. One of the key milestones will be the confirmation that the Sonora Lithium Project will be able to supply lithium hydroxide in accordance with volumes and timeframes to be established by Tesla. The Supply Agreement has an initial five year term commencing from the date of the first order by Tesla, with an option to extend for a further five years.

During the initial five years, and subject to certain terms and conditions in relation to project execution, product quality, pricing and timing of delivery, Tesla will purchase agreed minimum tonnages, with estimated forecasted maximum deliveries to be determined following delivery of future production orders from Tesla. Tesla will purchase minimum quantities in accordance with an agreed upon pricing formula, below current market prices, with actual prices and volumes that can only be finalized during the development phase in due courseThe forecast tonnages and delivery dates are structured to coincide with Tesla’s forecasted Gigafactory production. This agreement will form a portion of Tesla’s anticipated lithium-based feedstock needs; the remainder of which is expected to come from other lithium peers.

To meet both Tesla’s minimum and forecasted tonnages and timelines and any other potential market demands, the Sonora Lithium Project Partners will need to design and construct a suitable mining and processing operation. This will require the Sonora Lithium Project Partners to secure significant financing through debt and/or equity. Tesla has the right to participate in any such financing or other capital transactions. Bacanora and REM will be pursuing next steps to raise finances in order to achieve this goal. There can be no assurance that the conditions to supply product under the supply agreement will be met or that the agreement will prove to be economic.

Development work to be used for the pre-feasibility study (“PFS”) for the Sonora Lithium Project is currently being carried out. The PFS alongside additional studies will establish a revised estimate of capital and operating costs, taking into account the new product mix that will be required to service Tesla’s anticipated demands plus those of any additional potential customers.

Details of REM’s ownership of the Sonora Lithium Project:

REM owns a direct interest of 16.4% in Bacanora, and through that holds an indirect interest in the La Ventana asset of 16.4%. In addition to the 16.4% in Bacanora, when aggregated with REM’s 30% direct interest in Megalit S.A de CV (the company holding the Buenavista, Megalit and San Gabriel concessions) and the 30% direct interest in Mexalit S.A de CV (the company holding El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 1 concessions), results in a total economic interest in each of these companies of Megalit S.A. de CV and Mexalit S.A. de CV of 41.47%.

The Company’s Executive Chairman, David Lenigas, commented:

“The selection of the Sonora Lithium Project as one of the lithium suppliers to the Tesla Gigafactory is a landmark transaction that will support the development and commercialisation of the Sonora Lithium Project. This key supply agreement with Tesla will hopefully be the first of a number of potential lithium off-take partners for the Sonora Lithium Project as we move towards the next stages of project development.”

Videos about Sonora Lithium Project from first half of the year:

“Kiran Morzaria, the chief executive of Rare Earth Minerals (LON:REM), tells Proactive Investors he is very pleased with the rate of progress at the Sonora lithium project in Mexico given its size. It comes as REM revealed SRK Consulting will carry out a review of Sonora, including an update of the project’s resource estimation. Morzaria says the company is on budget with enough cash to complete a pre-feasibility study, while he also touches on the other projects in the portfolio.”

“Kiran Morzaria, chief executive of Rare Earth Minerals (LON:REM), says assay results from the company’s drilling programme at the Sonora lithium project in Mexico confirms its belief there is a high-grade deposit. Rare Earth has found more good indications of lithium in an exploratory hole drilled to the west of the La Ventana deposit at Sonora in Mexico. The hole successfully intersected two clay beds at shallow depth and returned strong assay results of up to 2.3% lithium carbonate equivalent. Morzaria discusses what’s next for the company and how the lithium Gigafactory being built in Nevada by electric car pioneer Tesla will affect the market.”

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9 Comments on "Tesla Signs Two Lithium Suppliers For Gigafactory"

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Chris

This was retracted, you may want to fact check that..

PVH

Indeed, I read this too. This may become embarrasing for the author if it remains uncorrected..

Dan

I could be wrong, but I think there was confusion between two companies called Rare Earth Minerals – one USA based and one Europe based.

Investors of US based Rare Earth Minerals mistakenly thought there was a deal with Tesla, the shares sky rocketed, and then the CEO came out and said they didn’t have a deal. Tesla does have a deal with Europe based Rare Earth Minerals and Bacanora.

Tech01x

The only retraction was that the Rare Earth Minerals discussed is LSE:REM and not NDQ:USMN. Two difference companies as Dan points out below.

jmac
Nevada has much of the known U.S. lithium reserves. At present the only working lithium mine in the U.S. is in the Silver Lake, Nevada area and is operated by Rockwood Holdings. The mine has been in operation since 1967 but has had a number of different owner/operators over the years, notably Chemetal-Foote. Rodinia Lithium is also prospecting in the Silver lake area. The Silver Lake area is about half way between Reno and Las Vegas, along the California-Nevada border in south-central Nevada. http://www.landandmineral.com/lithium.php Another company, Western Lithium is busy trying to develop a large lithium deposit in the King’s Valley area in far northern Nevada near the Oregon border. http://www.westernlithium.com/project/quick-facts/ The presence of nearby lithium reserves must have played a role in Musk’s decision to build the mega-factory in Nevada rather than somewhere else. That somewhere else could very well have been the Salton Sea, rich in geothermal brines chock full of lithium carbonate. Representatives from Tesla went to Salton Sea during the original search for a gigafactory site. The link below leads to an interesting article about Simbol Materials and the search Tesla conducted at Salton Sea. Simbol was at one time working on a process to extract… Read more »
Anon
George Bower

If I remember correctly Li is a fairly small proportion of the materials cost in a Li batt. I think Ni and Co are bigger drivers.

Pushmi-Pullyu

Yes, it’s small. If I recall correctly, the original 52.8 kWh Roadster battery pack has only about 9 lbs of lithium in the ~950 lb pack.

Also, lithium commodity speculators will cite crazy prices like $500/lb for lithium, in an attempt to convince investors it’s a worthwhile investment. But that’s only for very pure lithium metal, used only in small amounts by laboratories. As the article above notes, for li-ion batteries you don’t start with pure lithium metal, but rather a mineral such as lithium hydroxide or lithium carbonate. Those minerals are sold by the ton, not by the pound.

Technical note: Lithium is often mentioned in the same breath with “rare earth” elements, but it’s not actually one of the rare earths.

Mister G

Why is Tesla always under a microscope? Do we apply the same standard to Ford, GM, Chrysler? Maybe if we did Ford, GM, Chrysler wouldn’t have needed a tax payer bailout.