As I was having my morning coffee today I came across some quite incredible news. The world’s largest lithium miner Albemarle stated that they expect there will be a massive shortage of lithium this decade. The report stated that “global lithium demand should hit 3.7 million tonnes by 2030.” Given that the total lithium market was only at about 370,000 tonnes pa in 2020 that would mean a 10x increase in demand this decade. Albemarle expects an 800,000 tonne lithium deficit by 2030 with lithium prices staying high. Albemarle CEO Norris stated: “Incentivizing industry to fill this gap requires strong long-term pricing”.
This got me thinking about who will be the next lithium miners to help meet this huge demand for lithium. Perhaps it will be Avalon Advanced Materials Inc. (TSX: AVL | OTCQB: AVLNF) (“Avalon”).
Separation Rapids predominant lithium ore is petalite which contains 4.5% Li2O and is extremely pure. Petalite ore is already successfully being mined in Zimbabwe to supply the lithium ceramics industry. Avalon state on their website that they have “developed a process flowsheet to make lithium hydroxide from its petalite. The potential for production of high-grade lithium hydroxide (99.9%) was demonstrated through laboratory test work performed in 2015 and defined in a Preliminary Economic Assessment filed in 2016.”
Source: Avalon company presentation
Avalon continues to be somewhat under the radar despite having an MOU to supply LG Energy Solution Inc. (“LGES”) and plans to build a lithium hydroxide refinery in Thunder Bay, Ontario, Canada.
LGES is one of the leading global manufacturers of lithium-ion batteries for electric vehicles, mobility, IT, and energy storage systems.
Avalon’s agreement with LGES is to supply battery-grade lithium hydroxide starting in 2025. That suggests that LGES has good confidence in Avalon’s potential to make it to production. The MOU would see Avalon commit, for five years initially, to provide LGES with at least 50% of its planned initial lithium hydroxide production from its Thunder Bay JV refinery (planned 20,000tpa capacity), with the potential to increase production as demand grows.
The Thunder Bay lithium refinery would be designed to accept lithium concentrate material from both Avalon’s Separation Rapids Project and other new projects in the region. In a January 10, 2023 regulatory filing Avalon stated:
“Essar failed to confirm their interest in finalizing an agreement with Avalon and the Company is now pursuing agreements with other potential investing partners including LG Energy Solution (“LGES”)……..This agreement with LGES (when it gets finalized) will involve providing initial financial and development support for building a lithium refinery in Thunder Bay, Ontario that will be designed to accept lithium minerals concentrates, not only from Avalon’s Separation Rapids Lithium Project north of Kenora, ON, but also from other aspiring new producers from the many lithium pegmatite resources that occur in northwestern Ontario. It will operate as a separate private business, called Avalon Lithium Inc., a newly established Avalon subsidiary in which LGES would potentially become a co- owner, when they finalize a formal agreement.”
Avalon also has an off-take agreement with a major non-Chinese international glass ceramic manufacturer to supply petalite concentrate from Separation Rapids for the glass-ceramics market.
The next steps for Avalon include a winter drilling campaign (deeper drilling at Separation Rapids main lithium pegmatite resource known as the Big Whopper), completing Feasibility Study-level cost estimates, project engineering and pilot plant work to optimize lithium battery materials process flowsheet & costs for the refinery and confirm the location for the refinery on a vacant industrial site in Thunder Bay. Also to complete environmental assessments and project permitting. Beyond that Avalon plan to begin small scale commercial operations with sales of petalite and mineral by-products while the new battery materials refinery is constructed ready for production in 2025/26, all going well.
Avalon Advanced Materials ticks many boxes for investors. Great lithium assets in Ontario Canada, supportive local, state and Federal governments, and a preliminary agreement to work with a multi-billion dollar company such LGES to establish a lithium supply chain in Canada. All at a time when it appears lithium will have a great decade. Execution risks to achieve lithium production remain high, but should de-risk with each successful step along the way. What’s not to like with Avalon Advanced Materials on a market cap of C$68 million.
InvestorIntel plans to have some interviews in 2023 with CEO Don Bubar to get an update on how the Company’s plans are progressing.