Lithium Mining: Serbia’s Choice

The Rio Tinto web site describes the Jadar mine as:

The Jadar is a mineral deposit containing lithium and boron discovered by our geologists in 2004 near Loznica in the Jadar Valley in Western Serbia, some 160 kilometres from the capital of Belgrade. The Jadar deposit and its unique mineral, Jadarite, contains high-grade mineralisation of boron and lithium. Jadar is planned as an underground mine capable of producing 3 products on an annual basis, all in powdered form: 

• ~ 58,000 tonnes of refined battery-grade lithium carbonate 
• 160,000 tonnes of boric acid 
• 255,000 tonnes of sodium sulphate

A quick survey of Chapter 13 Valuation of Mines in my college textbook Engineering Valuation and Depreciation (Iowa State University Press 1970 edition) reminded me of the numerous risks faced in any underground or surface mine development. A decision to develop a mine, with more than a decade of lead time, requires the investors to have faith in management’s: estimates of reserves, projected selling prices, annual operating costs, transportation (rail, truck and ocean) availability and costs, estimates of administrative, selling, development and facilities costs and estimates of government taxes and royalties. Add to this list the cost of capital required by investors and any venture looks formidable. I did not discuss this I my interview Monday.

In my interview I did mention that many international analysts are predicting a large increase in the demand for lithium for the manufacture of electric batteries in global markets. The International Energy Agency (IEA), for example, projects that by 2040 the world will need 40 times more lithium. This lithium will be used mostly to supply batteries for the new generation of electric vehicles (EV) and for batteries to store electricity on the electric grid.

The growth in electric vehicles manufacture is required to align with national transportation goals to replace gasoline and diesel cars and trucks. In additional new lithium batteries added to the electric grid will allow more electricity production from solar and wind resources replacing coal and natural gas fueled facilities.

However, there are significant issues related to any future increase in lithium demand. First, China dominates the refining of lithium meaning that, absent significant refinery construction elsewhere, lithium mining companies will be dependent on the capacity and availability of Chinese refineries. Access to Chinese processors via ocean shipping routes will be vital.

Secondly, the average time it takes to bring a new lithium mine into production is 16.5 years. Long lead times like that add to the investor’s risk as new substitute technologies could replace lithium in electric vehicle batteries during the 16-year period. New electricity storage technologies may also be developed, lowering future demand for lithium.

Therefore, in the near term, the winning investments in lithium mining will be in those developers in production areas and countries which can license and establish new mines quickly while there is still expectation of a real demand increases for lithium.

In my interview I mentioned that I Serbia there are vocal and widely held public concerns about the impacts of lithium mining. Three significant areas of concern are:

1. whether applicants for mine licenses have a record of environmentally responsible mining,
2. whether Serbia’s environmental laws are adequate, and
3. whether royalty and tax payments to the Serbian treasury will be adequate and competitive with other mining operations internationally.

The first issue is whether the applicants for the new lithium mine licenses can operate under environmentally acceptable conditions. To assess this risk members of the public, environmental protection organizations and the state environmental regulators can do two things.

1. They can inspect the environmental records of the mining companies operating mines in other countries who are applying for new lithium mining permits in Serbia. Applicants with a poor historic record of safety or environmental impact should be closely reviewed.

2. Serbian institutions and the public can also ensure that there are adequate environmental protection laws for water, air and land use quality applicable to the new lithium mines and that penalties are high enough to ensure compliance. These laws must be in place before licenses are issued to give investors some certainty in the environmental regulation.

Of course, after the award of licenses the Serbian government’s environmental regulators will need to vigilantly monitor all aspects of the mining from the layout and construction of the mines to the effects and impacts of day-to-day mining operations.

In answer to the question: Should Serbia should permit new lithium and other mining operation in the future?I replied, yes, but under the conditions specified in this interview. Serbia has a long history with respect to mining. It benefited in the past from its natural resources of gold, silver and copper. Serb’s have been known to brag that it’s Kings and nobility in the 12th century ate off of “golden plates” with “silver forks” when Western Europeans made do with wood and clay utensils.

In my opinion, Serbia could develop its resources safely and in an environmentally responsible way. To do so Serbia and any other country with prospects for new mining need strong laws, harsh penalties and vigilant enforcement. Those conditions should gain public trust and support for future mining.