Lithium Mining: Dirty Investment or Sustainable Business?

Can industries with big environmental footprints, like mining, operate sustainably? That's the question at the heart of a host of new mineral and ore discoveries that—if extracted, applied, consumed and recycled wisely—can lead to sustainability achievements and allow us to set even loftier environmental goals. 

Take lithium, or the "white metal." Lithium—a common geological commodity—is difficult to extract due to its density. An alkali metal, lithium is used in the production of alloys and glass, in chemical synthesis, and in rechargeable storage batteries. These batteries, referred to as lithium-ion (Li-ion) batteries, are used in everything from portable electronics to military vehicles and aerospace applications. Business intelligence firm Visiongain calculated that the global lithium-ion battery market would see a capital expenditure (CAPEX) of $34.29 billion in 2018. The market for Li-ion batteries is clearly a significant percentage of the total battery revenue market share.

For an investor looking to exclude companies with a negative environmental impact or looking to invest in sustainable, "do-good" companies, where do lithium miners fall? Should an investment manager focus on the negative effects of mining or the positive effects of its applied output?

Lithium Mining Effects

Mining does have a big footprint. In fact, in 2016, the largest mining companies, as measured by CO2 emissions, were responsible for 211.3 million metric tonnes of carbon emissions in that year alone. Mining for lithium, like most metals, is a dirty business.

But by the same token, the metal these companies extract may be used for sustainable initiatives. In particular, lithium goes into the batteries of electric vehicles (EVs), wind turbines, and electronic (smart) grids, all of which lower global C02 emissions.

In fact, Li-ion batteries, pound for pound, are some of the most energetic rechargeable batteries available. They are much lighter than other types of rechargeable batteries of the same size and have a high energy density, which means that they can store more energy than other batteries of the same size. Lead-based batteries are typically more than three times the weight of their lithium counterparts. Additionally, Li-ion batteries can handle thousands of charge and discharge cycles.

In addition, there have been significant cost reductions and enhanced performance of li-on batteries because of both increased production and investment, according to the International Energy Agency (IEA). 

The Future of Lithium Mining

In 2015, there were three li-ion mega factories in the pipeline, with a total capacity of 57-gigawatt hours (GWh). As of 2018, there are 33 mega factories expected to be completed by 2023. The total capacity of these factories will be approximately 430 GWh globally. Each 20 GWh of capacity added requires up to 16 thousand tons of lithium. The industry continues to address energy density improvement and raw materials management.

In addition, there are many new junior players, including the next lower-cost lithium producers through either new technology or strategic approach.

A big part of this expansion has to do with regional environmental goals. Sales of new energy vehicles should reach 2 million by 2020 and account for more than 20% of total vehicle production and sales by 2025, according to China's Ministry of Industry and Information Technology. Additionally, in an effort to support the Paris Climate Agreement, India is making a bold vow to start selling only electric cars by 2030 and ban internal combustion engine vehicles. Furthermore, average battery sizes are growing, meaning growing lithium requirements.

It's possible to quantify these benefits. EVs represent significant avoided CO2 emissions, even without reduction or elimination of the carbon output from the grid. However, in the IEA's Sustainable Development Scenario, decarbonization of the power grid could more than double the well-to-wheel (assessment of the environmental impact of an EV throughout its lifespan) CO2 emissions reductions from the electrification of transport.

Lithium Disadvantages and Doubts

Improving efficiencies through innovation is present across the lithium industry. Many point to better li-ion battery performance and lower production costs on the horizon, arguing that, for the foreseeable future, this is likely the battery technology platform that will see the most development and deployment. 

However, others argue that there's no guarantee that li-ion batteries will be the battery of choice going forward. Instead, they focus on experimentation with other metals either through inclusion or substitution that can reduce or eliminate some of the lithium's disadvantages, of which there are many. Li-ion batteries start degrading as soon as they leave the factory and only last two to three years from the date of manufacture — used or not.

Lithium is also extremely sensitive to high temperatures. And if a li-ion battery is completely discharged, it's ruined. Li-ion batteries require an onboard computer to manage the battery, making them more expensive. And finally, there is a small chance that if a li-ion battery pack fails, it will burst into flames. 

Chemistry, performance, cost, and safety characteristics vary. Mixing lithium cobalt oxide, for example, improves high density but presents safety risks, Lithium iron phosphate, and lithium nickel manganese cobalt oxide offer lower energy density but longer battery life and a reduction in the likelihood of unfortunate real-world events (e.g., fire and explosion). Other important factors to the EV and metals link include the potential impact of EVs on copper demand in charging facilities and power distribution networks as well as the rise of recycling EV battery materials.

The Bottom Line

We should not stop mining for lithium; rather, we should encourage industry to advance its sustainable efforts and direct more research and development toward cleaner and safer operations. Thus, companies will be viewed as sustainable investments by both institutional and retail investors.

We should continue mining for the same reason that we should continue hydraulic fracking. To cease either activity would be purely impractical as we are not (yet) capable of relying solely on renewable energies or recycled materials to meet our growing demands. But until then, we can work toward making the big industry more sustainable and off of the "bad-boy" list.