Tesla Lithium Dash May Be Slowed as Mine Project Faces Hurdle

(Bloomberg) -- Tesla Inc.’s race to secure lithium for batteries could be slowed by possible mining-project delays at a company set to supply the electric-vehicle maker.

A court in Perth recommended Western Australia’s mining ministry shouldn’t approve an exemption from past minimum exploration expenditure obligations at the Mt. Holland hard-rock project, lithium giant SQM said in a statement on Wednesday. Development of Mt. Holland, owned by SQM and Kidman Resources Ltd., could be slowed if the ministry doesn’t award the exemption, SQM said.

In May, Tesla signed a three-year lithium-hydroxide supply contract with Kidman. The Palo Alto, California-based company’s decision to strike a deal with a junior miner that isn’t expected to start producing until 2021 shows how electric-car and battery makers are rushing to get supply of the mineral.

“This is going to be a concern to Tesla -- they had hopes to lock in supply by signing this off-take with Kidman," said James Frith, a Bloomberg NEF analyst in London. “It certainly could impact Tesla significantly if Tesla doesn’t have other supply deals in place.”

A Tesla spokesman contacted by email didn’t have an immediate comment.

Tesla Lithium Dash May Be Slowed as Mine Project Faces Hurdle

Following years of under-supply, the market will be in a small surplus until 2020 as SQM increases production capacity in Chile and two new mines are built in Australia, according to a BNEF report. Still, any delays could tip the balance -- and new lithium projects tend to encounter administrative hurdles or suffer longer-than-expected ramp ups, according to the report.

This could be the case with Mt. Holland if Western Australia decides not to approve the exemption on properties necessary to develop the project, according to the statement from SQM, formally known as Sociedad Quimica y Minera de Chile SA. Kidman Resources shares were halted on Wednesday ahead of the recommendation from the Mining Warden for Perth.

“The recommendation from the Warden’s court is not a final decision in regards to the requested exemption,” SQM said in the statement. "If it is followed, it could generate uncertainty or delays in the project’s development."

The Solactive Global Lithium Index, which includes lithium producers and consumers, rose 0.6 percent on Wednesday. SQM shares jumped 1.2 percent.

Lithium Hunt

“There are other delays that could still hit the project during ramp up, such as delays related to owners not having operated these types of mine before,” Frith said. “If delays go on for a number of years and the mine is not online by 2024 or 2025, we would start to see potential under-supply in the lithium market.”

Mt. Holland is targeting an annual capacity of 44,000 metric tons of lithium hydroxide. Less than a quarter of the mine’s production will go to Tesla, Kidman Resources said in May. The company will be providing Tesla with an amount of lithium close to what the car-maker needs to feed its battery gigafactory every year. While no other lithium supply agreements with Tesla have been made public, the company could have locked in supply through partners such as Panasonic, according to Frith.

“This shows that putting all your eggs in one basket probably isn’t the way to go,” he said. “You want to hedge your bet by securing different off-take agreements with different miners, particularly when you’re dealing with new projects.”

©2018 Bloomberg L.P.