Lithium miners contend with water risk amid surging EV demand projections

Lithium Americas' Thacker Pass lithium project in Nevada, whose approval has triggered legal action amid water pollution fears. Source: Lithium Americas

Efforts to mine the United States' largest known lithium potential have run into opposition from environmentalists and a veteran Nevada rancher over the potential for significant water pollution.

The U.S. Bureau of Land Management gave its final approval for Lithium Americas Corp.'s US$1.06 billion Thacker Pass project in January under the Trump administration amid a rush of approvals for mining projects with contentious political reputations. Though Thacker Pass is expected to produce about 25% of global demand with a lifespan of over 40 years, rising lithium prices and huge equity raisings by lithium companies suggest demand will grow further with EV uptake accelerating more than many expected.

So far, investors have dedicated considerable financing toward some of the lithium developments in the Nevada desert. Lithium Americas raised US$400 million from its underwritten public offering targeting US$350 million. Ioneer Ltd. received commitments to raise A$80 million from its upsized placement to its Rhyolite Ridge lithium-boron project in Nevada, which holds North America's largest known lithium and boron deposit.

Investor scrutiny of the risks in lithium mining and water pollution is increasing, according to Andy Leyland, head of strategic advisory for Benchmark Mineral Intelligence. Unlike the Thacker Pass project, which would be an open pit mine, investors have primarily been concerned with the pumping associated with lithium brine recovery, Leyland said.

However, scrutiny of potential water impacts appears to be increasing generally across the lithium sector, according to Leyland. "It's fair to say the level of scrutiny, the demands of transparency, is steadily increasing."

This accountability has taken shape within the consumer base, specifically electric vehicle producers. Manufacturers such as Daimler AG are permitting third-party audits of their supply chains to ensure compliance with their environmental standards and are holding cathode and anode producers accountable to stay clean, according to Leyland, who said this feedback is trickling upstream to lithium miners.

"Nobody wants to be producing electric vehicles, developing an electric vehicle brand, and be associated with negative environmental practices," Leyland said. "One of the large advertising aspects that you have for electric vehicles is they have a positive impact on the environment, and no one wants that to be undermined." Still, U.S. projects such as Thacker Pass benefit from more rigorous environmental standards prior to government approval, Leyland said.

Daniel Jimenez, managing partner with lithium mining consultancy iLiMarkets, told S&P Global Market Intelligence that the EV penetration rate's acceleration combined with the two lost years of investment in developing lithium assets will most likely produce a "very tight market in the coming years."

Jimenez, who oversaw exploration and iodine, lithium and chemicals operations from 2002 to 2018 at Sociedad Quimica y Minera de Chile SA, said iLiMarkets forecast that capacity utilization rates will be above 85% in 2022, after which point announced — and relatively low-risk — brownfield expansions will be needed.

However, by 2024, not only do announced brownfield expansions need to be successfully executed but also greenfield projects, which tend to have a higher execution risk as some may need new process technologies, Jimenez said.

Nevada, no stranger to mining with a strong historic gold industry, is thus the focus of not only miners and investors but the U.S. government, which sees lithium as a critical mineral key to electrification and key to President Joe Biden's US$2 trillion climate plan.

Nevada is home to the country's only lithium producer, Albemarle Corp.'s Silver Peak brine operation, so U.S. imported 2,900 tonnes of lithium in 2020, mostly from Argentina and Chile, according to the U.S. Geological Survey.

MinEx Consulting strategist John Sykes said lithium salt lakes such as those in Chile, which produce large amounts of lithium, and lithium-clay deposits such as Thacker Pass require arid conditions to form and so water use "is always likely to be an issue."

Conflict between the mining industry and the agricultural industry is also common, given they are the two main users of remote rural lands, which are often unsuitable for large populations, industry and commerce, Sykes said.

The issue could be partially mitigated by the fact that the arid conditions also mean populations and commercial activity are low, he said.

Yet lithium's "green" uses in electric vehicles also mean greater scrutiny on miners' environmental footprint and potentially other linked social, governance and sustainability approaches, Sykes said.

"In the past, a similar situation was seen with rare earths, where the increased use of rare earths in wind turbines for renewable energy around the world led to increased mining of rare earths in China under questionable environmental and social conditions," Sykes said.