Fast forward 174 years from the start of the California Gold Rush in 1848 and glide southeast about 460 miles from where that frenzy started, and you’ll land at the Salton Sea in 2022. This region of Southern California, dubbed Lithium Valley, is home to a lithium rush.
Demand has skyrocketed for the metal used in lithium-ion batteries that power electric vehicles (EVs). These batteries are also used in other applications, such as energy storage systems and consumer electronics. Supply is struggling to keep up, which has sent lithium prices soaring. The record prices are spurring an even more vigorous lithium rush than what happened about six years ago, when lithium prices rose dramatically.
Domestic electric vehicle manufacturers are surely applauding the lithium rush that is underway in the United States. It is estimated that only 1% to 2% of the lithium produced in the world is mined in this country (by the lithium giant Albemarle (ALB -2.08%) Nevada), threatening the robustness of electric vehicle supply chains.
Geothermal brine is at the center of California’s lithium rush
Lithium for commercial use is currently obtained from only two types of sources: brine (salt water) under dry salt beds in arid and high regions, mainly in South America; and hard rock containing lithium-bearing minerals. Most hard rock lithium mines are in Australia and China.
California’s lithium rush is centered on the Salton Sea Geothermal Field (SSGF) – also called the Salton Sea Geothermal Resource Area – which is believed to contain one of the largest deposits of lithium in the United States. . This field has 11 geothermal power plants along the southeast. shore of the Salton Sea, the state’s largest inland lake.
Geothermal power generation generates a brine waste stream that contains various minerals, including lithium. Many entities, some aided by government funding, are developing technologies to efficiently extract lithium from these brine waste streams before they are reinjected into the ground.
Benefits of Using Geothermal Brine as a Source of Lithium
Extracting lithium from geothermal brine would have at least two key advantages over current commercial-scale lithium sources.
- It occupies a smaller production footprint.
- This would improve the economics of geothermal power generation, as plant owners would generate revenue from sales of the lithium byproduct. This factor could accelerate the growth of geothermal energy, which in 2021 accounted for nearly 6% of California’s large-scale electricity production, according to the US Energy Information Administration.
Who are the players in California’s Lithium Valley?
Some of the players involved in the Salton Sea lithium rush are entities in which retail investors cannot buy shares, such as private companies and non-profit organizations.
Two huge publicly traded companies are exposed to Salton Sea’s lithium exploration and development activities: Warren Buffett’s Berkshire Hathaway (BRK.A -1.83%)(BRK.B -1.69%) and General Motors (GM -1.65%).
Berkshire Hathaway Energy Renewables (BHE Renewables) owns 10 of the Salton Sea region’s 11 geothermal power plants, which operate as CalEnergy. (The private company EnergySource owns the other plant.) BHE Renewables, which has received federal and state funding, is developing two demonstration plants near its geothermal power plants: one to extract lithium chloride from brine geothermal plant, which has just been commissioned, and the other to convert lithium chloride into battery-grade lithium hydroxide.
In July 2021, GM made a multi-million dollar investment in Australia-based Controlled Thermal Resources’ Hell’s Kitchen geothermal energy and lithium mining project in the SSGF. The auto giant will have the first rights to the lithium produced by the first stage of this project, including an option for a multi-year relationship, according to the press release.
There’s also a company that doesn’t currently seem involved in the Salton Sea lithium rush, but looks set to be a possible player: Ormat Technologies (ORA -0.81%). It designs, builds, owns and operates geothermal power plants and is involved in other facets of the renewable energy space. It has a federal land lease in the vicinity of the Salton Sea for geothermal exploration.
Ormat deserves to be put on your watch list. In 2021, it was profitable based on net income, but not free cash flow, largely because it invests heavily in growth initiatives. However, it generated positive cash flow from operations. Mid-cap stocks generated a return of 21.3% over the one-year period to June 7, compared to S&P 500 Indexnegative return of 0.4%.