The Chinese lithium-ion battery producer has taken significant stakes in two U.K. entities associated with a mine which could hold up to 8.8 million tons of the raw material in clay deposits. As yet, the mine is untested.

The huge volumes of lithium potentially needed to power EVs are prompting battery producers to snap up the world’s deposits of the commodity.

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Jiangxi-based lithium battery manufacturer Ganfeng Lithium has splashed almost £22 million ($27.8 million) on a stake in the as-yet unproven Sonora lithium clay mine in Mexico.

As concerns mount about the socio-economic cost of extracting limited lithium resources around the world – the EU is touting a strategy to launch a manufacturing industry for ‘sustainable’ energy storage batteries – Hong Kong listed Ganfeng has taken a stake in the British company with rights to the Mexican mine.

An update to investors published on Saturday touted the lithium clay deposits at the Sonora mine as offering speed of lithium extraction similar to that of working ore allied with the low cost of producing the material from salt lake brine

Ganfeng, which is based in Xinyu City and claims to have been the world’s largest lithium metals producer in 2017, will pay £14.4 million for a 29.99% holding in loss making London-based company Bacanora. The Chinese company will pay a further £7.5 million for a 22.5% stake in Bacanora lithium clay subsidiary Sonora, with an option to raise its holding to 50% in future.

Estimated lithium deposits

A report on the Mexican mine by SRK Consulting (UK) Ltd has estimated a total lithium carbonate equivalent of 8.8 million tons.

With the mine yet to start operations, Bacanora lost $12.8 million in the 12 months to June 2018 plus a further a $4.3 million loss to the end of last year.

The company expects to extract 17,500 tons of lithium in the first phase of operations at Sonora and Ganfeng’s share purchase will secure it offtaker rights to half of that output. The Chinese company would then have the right to raise its entitlement to 75% of the as yet unspecified capacity produced in the second phase of mining operations.

Investors are betting on the relatively small number of nations with extensive lithium deposits ensuring the commodity will offer a high return as the transition to electric vehicles – powered by lithium-ion batteries – gathers pace. However, extensive research is being conducted around the world into the development of battery chemistries with a potentially less harmful ecological footprint.