Mon, 07 Nov 2011
Lithium: The New California Gold Rush
This story appears in the November 7 issue of Forbes Magazine. By Todd Woody Standing on the edge of the Salton Sea in southern California’s sun-blasted Imperial Valley, Luka Erceg surveys a Mad Max landscape—head-high mud volcanoes, hulking geothermal power plants shooting steam into a pale-blue sky and the rotting corpses of tilapia, mouths agape, stranded on a saline shore that sits 227 feet below sea level. The air is heavy with a pungent mix of sulfur, salt and dead fish. Some 6,000 feet below Erceg’s feet lies what may be one of North America’s largest deposits of lithium, a high-priced element essential to our high-tech civilization and a key component in everything from iPhones and iPads to electric car batteries. Gambling on an electric-vehicle boom to drive lithium demand, Erceg’s startup, Simbol Materials, aims to sell tons of the stuff not by mining it but by pumping it up from the Earth’s depths. The lithium is suspended in the scalding geothermal brine that the region’s power stations bring to the surface, tapping the heat to create steam for electricity- generating turbines. Simbol borrows the cooled brine before it is pumped back under this stark desert 130 miles east of San Diego and extracts the lithium through a novel technology. If it lives up to its promise, Simbol could break the grip of South American multinationals like Chile’s SQM that now control the multibillion-dollar lithium trade. “It’s definitely an oligopoly,” says Erceg, Simbol’s 40-year-old cofounder and chief executive, who has lined up $43 million in funding from Japanese conglomerate Itochu and Silicon Valley venture capital firms Mohr Davidow Ventures and Firelake Capital. “We really want to move the needle on lithium production in the U.S. and revive the industry here.” As recently as the 1990s the U.S. dominated lithium production. Back then companies mined the superlight element from seams of spodumene, a mineral found in North Carolina. But as the consumer electronics revolution drove up demand for lithium ion batteries, South American companies began tapping vast reserves of lithium that lay suspended in brine a few hundred feet below the surface of ancient lake beds. They pumped the brine into giant evaporation ponds to let the sun extract the lithium, a method that proved to be far cheaper than hard-rock mining. The U.S. industry withered. Worldwide lithium production totaled 25,300 metric tons in 2010, according to the U.S. Geological Survey. (In a sign of just how insignificant a player the U.S. has become, the agency does not release domestic lithium production data because the nation’s sole producer, Chemetall, considers the information proprietary.) The USGS estimates worldwide lithium reserves at 13 million tons; Simbol thinks there’s 800,000 tons—about $4 billion worth—below the Salton Sea region. “If Simbol is able to do this successfully, that’s a pretty huge resource to start mining from,” says Brian Jaskula, a lithium specialist with the USGS in Reston, Va. “If you can get it to the market quickly at the same price as evaporative brine or even cheaper, you have a competitive business.” The company, which employs 52 people and is headquartered in the San Francisco Bay Area suburb of Pleasanton, is locking up the lithium through deals with geothermal companies. Simbol bought 150 acres to build its first production plant, which will sit adjacent to a 50-megawatt geothermal power plant now under construction near the Salton Sea town of Calipatria. The company will pay the geothermal plant’s owner, EnergySource, royalties from the lithium it sells after production begins next year. Lithium: The New California Gold Rush Page 2 of 2 At a nearby geothermal plant owned by CalEnergy Generation, Simbol has been operating a small demonstration plant for the past year. Some 6,000 gallons of brine a minute flow through the power station’s pipes. When Simbol’s full-scale production plant is online it will be able to produce 16,000 tons of lithium annually from a 50-megawatt geothermal plant. Right now Simbol is siphoning off just a tiny bit of that flow and pumping it through a Willy Wonka-like maze of tubes and tanks to filter out silica and other impurities and extract and concentrate the lithium. (The company also plans to eventually mine the brine for manganese and zinc, metals used in batteries and agriculture.) The process takes about 90 minutes, a dramatic improvement over the 18 months needed to extract lithium in evaporation ponds. Erceg is counting on that speed advantage to lower Simbol’s costs and give it the flexibility to adjust production to match the market. What comes out of the other end of the pipe is a lithium chloride solution. That’s a salable product, but Simbol is shooting for the top of the market—the extremely high purity needed for electric vehicle batteries. That will mean trucking the lithium chloride to Simbol’s new lithium carbonate plant a few miles away, in the desert town of Brawley. Currently the company is taking low-grade lithium bought on the open market and putting it through a proprietary filtering process to create lithium carbonate that is 99.999% pure. “It’s the new white gold,” says Paul Gutwald, Simbol’s vice president of marketing, as he peers into a bag of lithium carbonate that resembles very pricey table salt. In one corner of the plant sits a 1-ton pallet of shrink-wrapped lithium ready for shipment to a potential customer. Erceg won’t reveal the retail price of this white gold, and neither will anyone else. Prices are a closely held secret, but Jaskula of the USGS and analysts believe that battery-grade lithium currently sells for between $5,000 and $6,000 a ton. It’s a volatile business. Jaskula says in the short term the risk to companies like Simbol is that lithium will flood the market as manufacturers rush to expand production in anticipation of a spike in demand for electric vehicles. In 2010 about a quarter of lithium production went to lithium ion batteries used in everything from consumer electronics to cars, according to the USGS. Kevin See, an analyst with Lux Research, says Simbol is taking a sizable risk building a business on the bet that drivers will abandon their gas-guzzlers. “There’s a lot of hype about electric vehicles, and many a business plan is premised on demand exploding,” he says. “That hasn’t happened yet.” Maybe not now in the U.S., argues Josh Green, a general partner at Simbol lead investor Mohr Davidow, but it will as Europe moves to curtail carbon emissions and Asia goes electric. “Asia is going to leapfrog the entire petroleum infrastructure,” he says, “and both of those markets will show significant growth in the EV market in the next couple of years.” And that means, he adds, the lithium industry is ripe for disruption. Simbol isn’t the only U.S. lithium company with a new technology. Western Lithium aims to mine shallow clay deposits in Nevada, for instance. As Erceg pilots a rented Toyota Camry past fields of luminescent green alfalfa growing incongruously in the desert between Thunderdome-style geothermal plants, he acknowledges that the stakes are high. Still, he says, “quality producers are scarce.” “We expect in 2020 the demand for lithium carbonate to be at 280,000 tons per year,” Erceg adds. “The production from just four geothermal plants would represent a 25% share of that market—and we’re sitting on one of the most prolific hydrothermal resources in the world.”

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