Gold as an investment

A Lithium Rush Is On at California's Salton Sea: Who Are the Players?

Oct 1, 2022

Fast-forward 174 years from the start of the California Gold Rush in 1848 and zip southeasterly about 460 miles from the location that sparked that frenzy, and you'll land at the Salton Sea in 2022. This Southern California locale, being dubbed Lithium Valley, is home to a lithium rush.

Demand has been soaring for the metal that's used in the 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 has been struggling to keep up, which has jolted lithium prices skyward. Record prices are spurring an even-more-robust lithium rush than what occurred about six years ago when lithium prices jumped significantly.

Domestic EV makers are surely cheering on the lithium rush that's underway across the United States. Only an estimated 1% to 2% of the lithium produced in the world is mined in this country (by lithium giant Albemarle (ALB -1.95%) in Nevada), which threatens the hardiness of EV supply chains.

Three white EVs in a vertical row charging at a charging station.

Image source: Getty Images.

Geothermal brine is at the center of California's lithium rush

Lithium for commercial use is currently obtained from just two source types: brine (salty water) beneath dry salt beds in arid and elevated regions, mostly 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 lithium deposits in the U.S. This field has 11 geothermal power plants along the southeastern shore of the Salton Sea, the state's largest inland lake.

Geothermal power production generates a waste stream of brine that contains various minerals, including lithium. Many entities, some assisted by government funding, are developing technologies to efficiently extract the lithium from these brine waste streams before they're reinjected into the ground.

Diagram of how a geothermal energy plant works.

Image source: Getty Images.

Advantages of using geothermal brine as a lithium source 

Extracting lithium from geothermal brine would have at least two key advantages over the current sources of commercial-scale lithium. 

  • It occupies a smaller production footprint.
  • It improve the economics of producing geothermal power, as plant owners would generate revenue from sales of the lithium byproduct. This factor could accelerate the growth of geothermal power, which in 2021 accounted for almost 6% of California's utility-scale electricity generation, according to the U.S. 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 can't buy stock, such as private companies and nonprofit organizations. 

Two huge publicly traded companies have exposure to the Salton Sea lithium exploration and development activities: Warren Buffett's Berkshire Hathaway (BRK.A -1.52%) (BRK.B -1.40%) and General Motors (GM -1.54%).

Berkshire Hathaway Energy Renewables (BHE Renewables) owns 10 of the 11 geothermal plants in the Salton Sea area, which operate as CalEnergy. (Privately owned EnergySource owns the other plant.)  BHE Renewables, which has received federal and state funding, is developing two demonstration plants near its geothermal plants: one for extracting lithium chloride from geothermal brine, which just came on line, and the other for converting the lithium chloride into battery-grade lithium hydroxide.

In July 2021, GM made a multimillion-dollar investment in Australia-based Controlled Thermal Resources' Hell's Kitchen geothermal power and lithium extraction project in the SSGF. The auto giant will have first rights on lithium produced by the first stage of this project, including an option for a multiyear relationship, according to the press release.

There's also a company that doesn't seem to currently be involved in the Salton Sea lithium rush, but looks poised to be a possible player: Ormat Technologies (ORA -0.37%). 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 Salton Sea vicinity for geothermal exploration.

Ormat is worth putting on your watch list. In 2021, it was profitable on the basis of net income, but not free cash flow, largely because it's investing heavily in growth initiatives. It did, however, generate positive cash flow from operations. The mid-cap stock returned 21.3% over the one-year period through June 7, compared with the SP 500 Index's negative 0.4% return.

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