By Valerie Volcovici
WASHINGTON, March 2 (Reuters) - A small Canadian miningcompany has staked claim to mineral rights on over a hundredthousand acres of federal land in Utah since last year, hopingto tap lithium deposits from spent oil wells to feed America'shigh-tech battery industry.
The play by Vancouver-based MGX Minerals MGX.CD is part ofa global scramble for the super-light metal used in smartphones, electric vehicles, and storage for power generated bywind and solar installations.
MGX Minerals shares have surged 40 percent this year toC$1.43 ($1.11). Still, analysts were divided over prospects ofthe move. The company said it was encouraged by President DonaldTrump's administration's move this year to encourage more U.S.production of lithium and other metals on a list of “criticalminerals” it says are important for national security. officials "understand that the U.S. needs a supply oflithium and is cognizant of global competition," said MGX CEOJared Lazerson in an interview. He called Utah "one of the bestplaces to start for lithium for North America."
The United States currently has only one active lithiumoperation, owned by Albemarle Corp ALB.N in Nevada, andimports more than half the lithium it consumes. Other companies,including Westwater Resources WWR.O , US Lithium Corp LITH.PK and Pure Energy PE.V , are also trying to develop new lithiumprojects in the United States to feed rising demand.
MGX is focusing its mineral rights claims on southeasternUtah's Paradox Basin, a productive oil and gas drilling area.The company plans to extract lithium from drilling wastewater,using a proprietary filtration system it has piloted in westernCanada's oil patch.
Much of the world's lithium is filtered from undergroundbrines, though relatively little is extracted from petroleumwastewater, the volumes of which have been increasing in theUnited States due to a production boom.
"In this fundamental shift we are in between fossil fuelsand renewable energy, we get these hybrid models," Lazersonsaid, referring to his company's technology.
Analysts have given the venture mixed reviews.
"Think about drilling a hole 2,000 meters long, throughrock, to hit brine in Utah, and coming up with negligiblelithium," said Jon Hykawy, a battery minerals analyst atStormcrow Capital. "Wildcatting for water is probably not agreat business model."
Stephan Bogner, an analyst for Rockstone Research, was moreoptimistic: "If MGX can prove commercial viability… a bigrethinking may begin in the United States as to where capitalshould be deployed," he said. "It would be a game-changer."
Despite burgeoning demand for lithium from battery producersaround the world, some analysts believe the market for the metalis headed for a glut. On Monday, Morgan Stanley (NYSE:MS) sent lithiumstocks tumbling when it forecast a surplus in 2022 that woulddrive prices down to half their current level. Some industryofficials took issue with the outlook. said he has been told by companies to get them"anything that has any lithium in it." He did not disclosedetails.
"A TOP PRIORITY"
Lazerson said wastewater brines available in southeasternUtah are relatively rich in lithium for North America, withcontent as high as 730 parts per million. The company hired Utahland acquisition company Plateau Ventures to stake out claims inthe area and it hopes to start commercial production of lithiumfrom the holdings within 18 months.
"You have Tesla and GM bringing electric vehicles on linewith no significant new source of lithium. Everyone isstruggling for feedstock right now," he said. He said he couldnot disclose the companies with which MCX is in supply talks.
An official for electric car maker Tesla Inc TSLA.O didnot immediately respond to a request for comment.
GM GM.N spokesman Tony Cervone said the company would notpublicly comment on specific sourcing of commodities.
The U.S. Geological Survey said in a report last month thatglobal lithium consumption rose more than 13 percent in 2017 to41,500 tons - driven by surging electric vehicle production inChina and elsewhere - with prices rising worldwide.
In the United States, prices rose more than 60 percent to$13,900 a metric ton. "Lithium supply security has become a toppriority for technology companies in the United States andAsia," the report noted.
Chile and Australia are currently the world's top lithiumproducers, accounting for more than half of global output.
MGX's most advanced projects are in Alberta, where it holdsover a million acres of mineral rights. In January 2017, thecompany concentrated lithium from heavy oil waste water in theprovince using its rapid filtration process, with resultsconfirmed by the Saskatchewan Research Council.
Lazerson said the company's pilot plant in Calgary is ontrack to reach commercial scale early this year. ($1 = 1.2865 Canadian dollars)