There are many companies with big bets on a future filled with electric vehicles. In the mining sector, none are more closely tied to this future than graphite and lithium producers. The commodity demand for electric and hybrid car batteries is potentially immense. Lithium batteries use a lot of lithium and even more graphite (10-30 times the lithium).
Today, after months of speculation, Dow Jones and CNBC are both reporting that Tesla Motors has chosen Nevada for the location of their planned "Gigafactory" which is expected to double the current global production of lithium-ion batteries in just 5 years.
Man on a mission
In February 2014, Tesla's billionaire CEO, Elon Musk, announced plans for a $5 billion "Gigafactory," which would produce enough battery packs by 2020 to power as many as 500,000 vehicles. The project involves 6,500 jobs and is considered the premiere economic development prize of this decade
Musk is on a mission to reduce the cost of lithium-ion batteries in order to drop the price of his line of electric vehicles to a point where they can compete with the likes of Ford, GM and others.
In a comment in March, Tesla stated: "As we at Tesla reach for our goal of producing a mass market electric car in approximately three years, we have an opportunity to leverage our projected demand for lithium ion batteries to reduce their cost faster than previously thought possible. The Gigafactory is designed to reduce cell costs much faster than the status quo and, by 2020, produce more lithium ion batteries annually than were produced worldwide in 2013. By the end of the first year of volume production of our mass market vehicle, we expect the Gigafactory will have driven down the per kWh cost of our battery pack by more than 30 percent."
They had previously announced the site of the Gigafactory would be in Nevada, Arizona, New Mexico or Texas.
With Tesla supposedly choosing Nevada, shares of Western Lithium (WLC:TSX) which is developing the Kings Valley project in Northern Nevada jumped $0.24 per share (37.5%) on 3.9 million shares to close at $0.88 per share today.
Why would a lithium producer jump so much on this news? Well, Tesla will have to source lithium, graphite, copper and other commodities for its Gigafactory.
Although they will likely choose sources based on quality of product and costs, the location of the deposit will also be important not only for transportation costs or potential disruptions but also for stability of supply (which is critical). Bolivia is a huge supplier of lithium, however Tesla is unlikely to feel confident in the stability of the supply chain there.
Western Lithium put out a pre-feas in mid-2012 which showed that the project was one of the best undeveloped lithium projects in the world. The project is expected to generate in excess of $120 million in average annualized cash flow and cost $248 million in phase I and $161 million to expand. The deposit is large and is expected to be mined for over 20 years.
The company is led by Ivanhoe Mines alum including: John Macken, Ed Flood, Matthew Hornor and Terry Krepiakevich. Jay Chmelauskas is the President/CEO and was formerly the President and CEO of China Gold International
After the share price jump today, the company has a market cap of $104 million with over $10 million in cash.