By Simon Moores, Co-Founder and Analyst at Benchmark Intelligence

Tesla Motors’ CEO Elon Musk has admitted the company is pursuing lithium deals in Nevada.

Tesla is looking to add to the conditional deal it struck with Bacanora Minerals / Rare Earth Minerals and Musk was forced to admit last night on Twitter that Nevada projects are being considered.

Last week’s lithium supply deal with Bacanora from its Sonora clay project in Mexico was the first Gigafactory raw material agreement to be announced, a situation that has gripped the junior mining sector since February 2014

The development surprised many sectors of the mining and investment industries, however. Not only because it is one of the newer lithium assets on the market but also with Tesla’s willingness to back the higher risk junior mining sector rather than striking a deal with an established producer.

But this discussion migrated into the realm of politics yesterday with an articlepublished by the Las Vegas Sun asking whether Elon Musk or the Nevada lawmakers were to blame for a Nevada-based lithium project not getting the green light.

Nevada is the only location in North America to mine lithium. Albemarle / Rockwood’s Silver Peak operation produces comparatively small amounts of lithium carbonate and lithium hydroxide to the rest of the world – the latter being the product needed by the Gigafactory.

In response to the article, Elon Musk took to Twitter to defend Tesla.

Politics Editor at the Las Vegas Sun, Scott Lucas, questioned whether Elon Musk “played” Nevada after the state gave Tesla $1.25m in tax breaks only for the company to turn to Mexico for its lithium.

Elon Musk responded by explaining that the deal with Bacanora was “not exclusive” and it was “definitely” correct to assume that Tesla is also going for Nevada sources of lithium. This confirmed Benchmark‘s expectation last week that the Bacanora deal is just the start of a series of Gigafactory raw material deals to be announced by Tesla.

Lucas Musk Twitter - Benchmark

Will politics influence Tesla’s next lithium call

There is no doubt that all major sources of lithium – both active and in development – have been considered by Tesla in its quest to secure the 25,000 tonnes of lithium hydroxide the Gigafactory will need at capacity. This is far more than any one producer can supply in today’s market and it will be needed as soon as 2020.

Therefore, in Benchmark’s opinion, it was unsurprising that Tesla has decided to back a new mine rather than any of the established players – not only from a practical, volume perspective but also an economical one, allowing the company to tightly control prices.

The interesting question is whether political pressure will now influence Tesla’s next lithium decision. There is no doubt Nevada-based lithium projects are on Tesla’s shortlist, but would Elon Musk now feel pressured to ramp up the company’s interest?

Nevada-based lithium companies include Western Lithium which, like Bacanora, is also a clay lithium deposit that is now an operational mining hectorite clay for the oil and gas markets. The company is also in the process of merging with South American brine explorer Lithium Americas.

Nevada was one of the exploration hotspots of the global lithium boom between 2009-2011. Other development projects in Nevada include Pure Energy Minerals, Ultra Lithium and Dajin Resources.

New projects nearly always take longer than expected to become operational with hurdles including receiving hundreds of millions of dollars of investment, permitting, construction, pilot plant test phase to produce a consistent product, being accepted into the market and production ramp up.

On average a new mine can take 10 years to become fully operational. This is made far more difficult with a mining / chemical processing hybrid operation such as lithium and not a commodity like coal, iron ore, and bauxite.

With a present shortage in the lithium market it remains to be seen whether the Gigafactory will have the quantities required by the time it reaches full capacity in 2020. By this point battery competition in Asia will also be ramped up, particularity in China.

It will be interesting to see whether Tesla intentionally starts a lithium funding race by selecting a shortlist of juniors that it will strike conditional deals with. This tactic was successfully used to secure the huge tax breaks from Nevada as it sought to beat competition from surrounding states.

But with the Gigafactory race over, the one for the critical minerals of lithium, graphite and cobalt that will fuel it is just starting.

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