John Rud has been riding the peaks and valleys of the commodities markets around North America since he left the University of Oregon 55 years ago with a master's degree in geology. "The valleys are real broad, and the peaks are real narrow," he likes to say. Copper in Canada. Silver in Texas. Gold in Mexico. Iron in Arizona. Uranium in Utah. In one 18-year stretch, Rud and his wife moved 27 times. "I got to where I could load up a house in a U-Haul truck starting at 4 p.m., be done by midnight, and be on the next job by morning," he says. "I considered that quite a talent." (His wife was rather less impressed and eventually left him.)
Rud—pronounced like the adjective—typically shows up in an area with abundant stores of a natural element that looks set for a price spike, puts his geology skills to work finding a lode, files a claim under the General Mining Act of 1872, and waits for the phone to ring. Once it does, the company he co-owns, GeoXplor Corp., leases its claim to the would-be owner and offers its extraction services. "We're glorified prospectors," Rud says of himself and his business partner, Clive Ashworth. "Some days, not so glorified."
On a cold, gray January morning, Rud sits in his white Dodge Ram pickup with his pet Chihuahua mix, B.J., outside the Dinky Diner in Goldfield, Nev. He's on the phone with a drilling-rig operator he hired to dig a well in nearby Clayton Valley. They're trying to get at a mineral-rich brine solution stuck between layers of a porous aquifer created by the explosion of volcanoes in the vicinity about 5 million years ago. "We need some gravel on this road; can you talk to the county about that?" the driller asks. "Yeah, I'll get on 'em," Rud replies.
The rumblings of underground activity are again being felt on the outskirts of Goldfield, the epicenter of an early 20th century mining boom that for a while made it Nevada's largest city. This time the rush isn't for gold or silver or the other traditional minerals that have historically helped fuel the state's economy, but for a metal crucial to what bankers, regulators, and clean-energy advocates see as the imminent transformation of the transportation sector and the electric grid: lithium.
The lightest metal on the periodic table of the elements and a superb conductor, it's what gives the lithium ion batteries in our cell phones, laptops, newer Priuses, and Teslas the ability to recharge more times, last longer, and provide more energy per weight or volume than other battery chemistries. And it's cost-effective: The lithium in a Tesla costs around $500, less than a roof rack. It's also what makes devices explode if their battery-management systems aren't working properly, as seems to be the case in many so-called hoverboards, or there's a manufacturer defect, as with Samsung's Galaxy Note 7.
Rud came to this remote region, three hours northwest of Las Vegas, eight years ago. "In my business, you follow the minerals that come in flavor, you might say," he explains, his voice sounding as if the county dumped that gravel down his throat. "We were into a uranium exploration because uranium prices were up. When uranium prices dropped, I started looking around at what's going to be hot next. And I thought the batteries for electric cars were just beginning to be nosed around with. We decided on lithium, and where do you find lithium? Well, Clayton Valley was the only place in North America."
The four companies that in 2015 provided 88 percent of the world's lithium can't keep up
At least six startups have recently placed or leased claims in the area. They join North Carolina-based Albemarle Corp., whose recently acquired Silver Peak mine and processing operation has been unearthing lithium from Clayton Valley's brines since the mid-1960s, for use in glass, ceramics, greases, medical applications, and consumer electronics. Each newcomer is hoping to become the pure-play lithium company that blows up to fill a projected supply shortage.
Banks and consultants such as Deutsche Bank and Macquarie Research are near-unanimous in the belief that the next several years will see an increase of 60 percent to 250 percent in demand for lithium—and that it will sell for 50 percent or more above historical levels. The rise in demand will be driven by batteries for electric vehicles and energy storage for wind and solar plants. UBS Group estimates that electric cars will account for 9.2 percent of global light vehicle sales by 2025, up from only 1 percent today, while analysts at Goldman Sachs Group Inc. have suggested that the market for lithium in energy storage could eventually be bigger than in all other products combined.
Already, the four companies that in 2015 provided 88 percent of the world's lithium can't keep up: Lithium contract prices have increased from $4,000 per metric ton in 2014 to as high as $20,000 today. "From a lithium standpoint, we are pretty much sold out," Albemarle Chief Executive Officer Luke Kissam told investors on an earnings call last year.
That's why a host of junior entrants are scrambling to get into the game. Whoever can figure out the extraction and chemistry required to get lithium out of the ground and into batteries stands to capture a significant share of the market. But as with any commodity, it's a precarious business.
One company that encapsulates the potential—and potential pitfalls—of lithium development is Vancouver-based Lithium X Energy Corp. In mid-2015, after GeoXplor had been hunting in Nevada for five or six years, Rud's partner, Ashworth, who lives in Vancouver, asked his son to set up a meeting with a high school acquaintance, a 27-year-old college dropout and former retail broker named Brian Paes-Braga. Paes-Braga was learning the ropes of venture capital from Frank Giustra, a former CEO of Yorkton Securities Inc., a major resource-development finance company. Ashworth pitched Paes-Braga on getting into lithium, and soon after, Paes-Braga took the idea to Giustra while they vacationed in Greece. The idea was to establish a public company that would combine top mining assets and top management in a well-capitalized company.
Giustra, who was one of Vancouver's first Tesla owners, remembers thinking, "I don't know a lot about lithium, but as a Tesla driver I know I'm never going back to a gas-fired car." He's in a conference room at the offices of his Fiore Group, on the 39th floor of the BMO building in Vancouver; on his wrist is a Shinola watch with the presidential seal, a gift from his pal Bill Clinton.
Paes-Braga proposed looking for lithium in Clayton Valley. "My view about exploration is it's a tough gig," Giustra told his young friend as they sat by a pool overlooking the Mediterranean. "If you're only going to do exploration, you're rolling the dice—it's not that often that economic ore bodies are found."
"Clayton Valley is just a stepping stone," Paes-Braga countered. The long-term plan was to go to South America's "lithium triangle," a region straddling Argentina, Bolivia, and Chile that provides more than half the world's lithium, via companies such as Albemarle, Philadelphia-based FMC Corp., and Chile's SQM.
"You have to know your way around these jurisdictions, and that's sometimes a little tricky," Giustra replied. "How are you going to go about this?"
Paes-Braga mapped out a plan by which the prospective company's presence in Clayton Valley helped it raise money it could use to invest elsewhere. "I liked that idea," Giustra says now.
A month or two after returning from Greece, Paes-Braga booked a flight to Las Vegas and drove up to Goldfield to meet Ashworth and Rud. They showed him claims they'd staked adjacent to Albemarle's and tried to sell Paes-Braga on acquiring them. "Starting at 900 feet down to 1,200 feet, there's a gravel layer," Rud explained. "It's got a huge amount of brine to it."
Lithium can be mined from rocks, as in Australia and China, but in Clayton Valley and the lithium triangle it's extracted from briny aquifers. Wells are drilled to get the brine out, then it's evaporated naturally in large ponds. Sometimes quicklime is added to remove undesirable minerals, such as magnesium, from the liquid; magnesium leaves a film on the surface of the pond, inhibiting the sun's work and slowing evaporation, which increases operational costs. Clayton Valley's brine has a low lithium concentration compared with other sources, but also a low magnesium ratio. "The grades are only in the 60s"—parts per million that are lithium—"but the quantity is large," Rud told his potential clients. And the lithium could be concentrated relatively cheaply, because the water holding it would evaporate fairly quickly in western Nevada's sunny, dry climate.
Rud had by then staked tens of thousands of acres in the valley, far above Albemarle's 11,000. They were also well located; some newcomers were claiming turf along the mountainsides, where little to no lithium is likely to be found. Rud had already leased 9,500 acres to Pure Energy Minerals Ltd., another Vancouver-based pure-play lithium company, which around the same time as Paes-Braga's visit entered into a deal to supply Tesla Inc.'s Gigafactory, 200 miles from Clayton Valley.
When Paes-Braga's tour was over, the men negotiated a deal that gave Lithium X access to what Rud says he believes is some of the richest ground in Clayton Valley, hard up against the claims from which Albemarle has been producing lithium for more than 50 years. GeoXplor would also run operations for the startup, starting with drilling into the gravel layer and testing whatever Rud and Ashworth and their contractors managed to pull out of it.
With the deal in place, Paes-Braga returned to Vancouver, where Giustra opened doors for him at investment banks so he could raise money for Lithium X. Paes-Braga was also looking for talent. In November he hired as executive chairman Paul Matysek, a Vancouver geologist who'd founded, built, and sold mining companies valued at $2.5 billion over the years, including Lithium One Inc., which had interests in deposits in Argentina. On Nov. 30, Lithium X listed on the Toronto Stock Exchange.
The following March, Paes-Braga's vision of expanding beyond Nevada—and beyond exploration—was realized with the acquisition of 32 claims on about 20,000 acres in Argentina's Sal de los Angeles, inside the lithium triangle. To exploit it, and pave the way for success in Nevada, the company would need technical expertise. "That meant getting Eduardo Morales," Matysek says.
Morales had run the world's most productive lithium deposit, the Salar de Atacama in Chile. At 12,000 feet above sea level, the Atacama Plateau contains the highest-grade lithium brine deposits in the world. Thirty-six years ago, the Chilean government began to recognize the potential riches locked beneath its northeast reaches. An agency set up to develop the resource was looking for engineers, and Morales had recently graduated with a degree in chemical engineering.
Profitably pulling lithium from the ground and processing it to a quality level manufacturers can use is more complicated than panning for gold
On the unforgiving plateau, Morales recalls, "there were no roads, no electricity, nothing—only an Indian village." He and a few other young Chilean engineers worked for years testing the purity of brines in the lab, piloting a plant that could take the slurry that comes out of the evaporating ponds and process it into battery-grade lithium carbonate or lithium hydroxide. He developed a technique for treating the Atacama brine through fractional crystallization, concentrating it step-by-step and precipitating out the undesirable salts. Eventually, the site became an industrial-scale operation. But it wasn't easy. "Nothing works well at 12,000 feet," he says.
Then there was the bureaucracy. "The Chilean government office that was evaluating the project was coming and saying, 'We're not sure about the economics of this project, and we don't see the return, so we should stop.' " Morales remembers. "I said to them, 'Are you aware this is the finest deposit of lithium in the world? What is the meaning of "good" for you?' The guys had no answer to that, so the project went ahead. And it's been the most successful project in the history of the agency."
When Lithium X moves beyond exploration work in Clayton Valley, Morales's experience will be crucial to characterizing the brine and designing a process to recover its lithium and produce lithium salts. For now, the newer companies there are only beginning to encounter the technical and logistical challenges that producers in South America have overcome.
Prime among these for Lithium X is figuring out, with GeoXplor's assistance, how to get at the brine. A used drilling rig goes for about $250,000; new ones are between $2 million and $3 million. "Then you have to buy all the stuff that goes with it, which comes to another 2, 3 million," Rud says. Drilling in Clayton Valley's soft sediments also requires skill and experience. "You've got to get through it without bringing everything in from the side," he explains. "If you get to a sand layer, it's easier for the air to go out the side than go up the hole." That creates a cavern, which can't support the weight of the drilling rig. "You could tip your rig over," Rud says. "Total disaster. We have gone through our share of that."
Lithium X is probably a couple of years behind at least one of its Clayton Valley competitors. Pure Energy Minerals is soon expected to complete its preliminary economic assessment, a statement required by the Toronto Stock Exchange. But even something as apparently innocuous as the liner of the evaporation pond can mess with the concentration process, causing costs to rise. Profitably pulling lithium from the ground and processing it to a quality level battery-materials manufacturers can use is more complicated than panning for gold. "Not everybody can start a plant producing lithium carbonate or lithium hydroxide," says the vice president of Albemarle's lithium division, David Klanecky. "There's a lot of know-how involved in the complexity of the processes—running the chemistry, getting it to concentrate, different specs required by companies we supply to."
The best hope new entrants have of catching Albemarle lies in a process being developed by Tenova SpA, an Italian engineering company. This method, which strips the lithium using an ion-exchange system and returns the water to the ground, would allow companies to skip evaporation ponds, slashing production time from months to hours while yielding a higher concentration of lithium. Pure Energy has a small pilot plant, but so far no one has been able to make the process work at scale. Albemarle isn't trying it because it's concerned that returning water to the aquifer under high pressure could damage the resource or the surrounding environment. But if the technology proves effective and safe, it could help the industry meet the expected wave of demand.
Three hundred miles due south of Rud's claims, across the Palmetto Mountains and Death Valley, is a former manufacturing hub on the outskirts of Los Angeles County, a small city called Lancaster. Mayor R. Rex Parris, a Republican who believes in climate change, started working years ago to make his city greener. Lancaster set a target to become the first North American municipality to get its carbon emissions to "net zero"—producing from renewable sources as much energy as it consumes—and began pushing to get its workforce, 20 percent of which was unemployed, into green industries. Parris touted the city's skilled labor base, which formerly made parts for the aerospace industry, among other things, in persuading the Chinese battery and auto manufacturer BYD Co. to build its first American bus factory there. The facility, a 125,000-square-foot former RV assembly plant, opened in 2013.
On a recent morning, construction workers in hard hats and orange vests are building a 240,000-square-foot expansion to the plant. A few dozen of BYD's 500 or so factory workers, many sporting Carhartt clothes, work boots, and elaborate tattoos, crowd around a food truck in the parking lot during their lunch break. These men are responsible for making 150 electric buses each year—capacity will grow to 1,000, postexpansion—for customers such as Long Beach Transit, Denver's Regional Transportation District, Stanford University, and the University of California at Irvine. The buses are lithium-intensive; each uses about 8 times as much as an average electric vehicle, which in turn uses about 10,000 times as much as an iPhone.
To make the vehicles, lithium from Nevada or, likely, Argentina, is processed, sent to materials manufacturers to be converted into battery cathodes, then passed on to battery cell makers, and then to one of BYD's battery assembly plants or the company's home base of Shenzhen, before finally being stuffed under the buses for BYD America's customers. The vehicles are more expensive than ones that run on diesel or natural gas, but only initially. After three to five years, "customers save $50,000 to $75,000 per year per bus on fuel and maintenance," says Macy Neshati, senior VP for heavy industries. "The adoption curve for municipalities is really turning steep. Up and down California, it's lighting up. The mayor of Albuquerque got involved as soon as he saw the numbers."
As with coal and Italian soccer teams, the market for electric buses is stronger in China than in the U.S. Since 2015, the Chinese government has been paying half the cost of municipal transport agencies' electric bus purchases, helping nationwide sales grow 315 percent, to 112,000 vehicles, from 2014 to 2015 (though Bloomberg News has reported that officials are considering reducing the subsidy). In Shenzhen, 20 miles north of Hong Kong, thousands of electric buses draw wind power from the grid overnight, when residential and business customers aren't using it, and then disperse it during the day as they drive around the city.
A shift toward electric vehicles is under way in Europe, as well. BMW and Daimler AG have each invested hundreds of millions of dollars in electrifying their fleets, moves that help drive German policy, which in turn drives the European Union's. And China's broader electric auto market will soon dwarf them all.
Although electric vehicle adoption has been slower in the U.S. than expected, the price of battery packs has been dropping fast, to the point that auto industry observers see electric cars as poised to become cost-competitive with gas-powered vehicles—and thus to become popular outside the specialty markets of luxury buyers and those seeking green cred. Tesla's soon-to-arrive Model 3 and the Chevy Bolt now in dealerships are priced at about $30,000 after subsidies, but a battery assembly that a few years ago might have cost Tesla $300 per kilowatt hour (a Model S uses 60 to 90 kilowatt hours' worth of lithium ion batteries) today costs General Motors $145 per kilowatt hour for its Bolt. And the figure is hurtling toward $100, the number that HSBC Securities (USA) Inc. and consultant Wood Mackenzie Ltd. agree will make electric vehicles as cheap as gas-powered cars, freeing mass-market EVs from their current dependence on subsidies.
Observers of the energy and utility sectors are united in their belief that the Trump administration won't slow the trends toward electrification of transport and broader reliance on renewables, even if the president follows through on his declared intentions to pull out of the Paris climate accords and to alter fuel efficiency standards finalized in the last days of the Obama administration. "Trump doesn't have unlimited flexibility to eliminate the federal program, and furthermore, California has its own," says Roland Hwang, director of the energy and transportation program at the Natural Resources Defense Council. He maintains—despite the administration's announcement that it will do the auto companies' bidding and EPA administrator Scott Pruitt's refusal at his confirmation hearing to guarantee the waiver allowing California to shape its own emissions policies—that "they are in for a long, rocky road to roll back clean car standards."
As for energy storage, on March 28, Trump issued an executive order aimed at nullifying Obama's Clean Power Plan, which has been boosting the sector. But undoing those pollution standards will require a process just as arduous as the one that created them. And it will face fervent opposition at every step, from public comments to the courts. Batteries offer flexibility to the grid at a competitive price, and the president can't simply halt solar and wind development in favor of nonrenewable sources such as coal and natural gas—and he certainly can't do so in China, where much of the shift is occuring.
All of which means that lithium is likely here for the foreseeable future. In a few years, Nevada may be supplying a battery market that's almost twice the size of today's, and Lithium X and the other juniors could be chipping away at the big four's domination of lithium production. If that happens, Rud and his Chihuahua will finally be able to settle down.