TORONTO (miningweekly.com) – Electric vehicle maker and energy storage solutions provider Tesla Motors has selected the northern Mexico-located Sonora lithium project to supply lithium hydroxide for its Gigafactory, in Nevada, in the US.
Partners TSX-V-listed Bacanora Minerals and LSE-listed Rare Earth Minerals (REM) had finalised a conditional long-term lithium hydroxide supply agreement with Tesla, a deal that would see the project partners work to develop a mineral-rich, lithium-bearing clay deposit into a planned low-cost, sustainable and environmentally conscious mining operation.
"This supply agreement with Tesla represents a vital and monumental step forward in the commercialisation of the large lithium resources that the company holds, together with its partner REM, in northern Mexico. We anticipate this contract to rapidly accelerate the development of the Sonora lithium project, which we expect will prove to be invaluable in an increasingly lithium hungry world,” Bacanora chairperson Colin Orr-Ewing said.
The $5-billion Tesla Gigafactory, which was being built in collaboration with Panasonic in Nevada, was expected to produce more lithium-ion batteries in 2020 than were produced globally today – about 500 000 t/y – and create significant new demand for lithium sources outside of China.
Internal estimates of Bacanora had showed that the Sonora project would have initial production capacity of about 35 000 t of lithium compounds, with the scaling potential of up to 50 000 t/y.
Lithium hydroxide was a key feedstock material in the manufacturing process of certain kinds of lithium-ion battery cells.
On the condition that, over the next two years, the Sonora project reached certain performance milestones and successfully passed product specification qualifications, Tesla – or its authorised purchasers – would buy lithium hydroxide to feed the Gigafactory. One of the key milestones would be to confirm that the Sonora project would be able to supply lithium hydroxide in the volumes and timeframes to be established by Tesla.
The initial five-year supply agreement had an option to be extended for a further five years.
During the initial term and subject to certain terms and conditions related to project execution, product quality, pricing and timing of delivery, Tesla would buy agreed minimum tonnages, with estimated forecast maximum deliveries to be determined following delivery of future production orders from Tesla.
The company would buy minimum quantities according to an agreed pricing formula, below current market pricing, with actual prices and volumes that could only be finalised during the development phase in due course. The forecast tonnages and delivery dates were structured to coincide with Tesla's forecast Gigafactory production. This agreement would form a portion of its expected lithium-based feedstock needs, the remainder of which was expected to come from other lithium peers.
To meet both Tesla's minimum and forecast tonnages and timelines, and any other potential market demands, the Sonora project partners would need to design and construct a suitable mining and processing operation. This would require them to secure significant financing through debt and/or equity. Tesla had the right to participate in any such financing or other capital transactions, Bacanora advised.
Bacanora and REM would pursue next steps to raise finances to achieve this goal.
The partners were currently engaged with development work to be used for the prefeasibility study (PFS) for the Sonora project. The PFS, alongside additional studies, would establish a revised estimate of capital and operating costs, taking into account the new product mix that would be required to service Tesla's expected demands and those of any additional potential customers.
The Sonora lithium project was one of the biggest known lithium deposits in the world, holding about 3.28-million tonnes of lithium carbonate equivalent. The main use for this type of lithium was for lithium-ion batteries, with the Sonora assets being battery grade (99.5%+).
A preliminary economic assessment had placed a net present value, with an 8% discount rate, of C$848-million on the 100%-owned La Ventana concession of the project. Bacanora had also developed a process for recovering lithium from the clays and converting it into battery-grade lithium carbonate.