Lithium: ‘More economic colonialism?’ Nevada: ‘Yes, please.’

If lithium really is the mineral industry darling of tomorrow, we should think about how we’re going to tax it

March 23, 2023 7:41 am

The jar on the right is where the money’s at. (Lithium Americas press photo)

For roughly three years before it began skyrocketing in late 2021, the price of a metric ton of lithium carbonate mostly ambled along in the vicinity of $17,500.

The price peaked in November 2022, at more than $86,800 per ton.

More recently, it’s been plummeting, and as of Thursday morning was down to less than $43,000 a ton.

Which is still a lot more than $17,500 a ton.

And even that is more than $6,743 a ton. That amount is what Lithium Americas, in a January presentation to shareholders after General Motors announced it was investing hundreds of millions of dollars into the venture, projected to be the cost of mining and processing lithium carbonate at its proposed Thacker Pass mine in Nevada.

The presentation also envisioned an average price of $36,000 a ton in coming years, a price the company said would garner annual earnings of $2 billion before taxes, interest, depreciation and amortization.

Such earnings would be more than the value of gold – $1.4 billion – produced in 2022 at Nevada’s largest gold mine, the Cortez mine operated by Nevada Gold Mines.

By some estimates, Lithium Americas is being modest. There is no shortage of market observers who dismiss the recent price slump as a blip, and who forecast lithium prices to resume soaring and eventually settle into a floor in the $70,000 to $80,000 range. Or more.

There are also projections, usually dismissed as outliers, from doubters who are skeptical that lithium will ever sustainably reach lofty boom prices that have been predicted by so many for so long. Thacker Pass is far from the only – and not the largest – lithium development underway in the world. If Berkshire Hathaway and other companies successfully bring to scale geothermal-based extraction processes they are developing near the Salton Sea, Thacker Pass won’t even be the largest lithium play in the Western U.S.

Additionally, battery breakthroughs – from hydrogen to salt to solid state technology – could turn the long-promised lithium boom into a whimper.

Preposterous posturing by politicians notwithstanding, the multiple forces determining lithium’s future are far beyond Nevada’s control.

And Lithium Americas still must stave off a legal challenge from tribes who object to, among other things, placing a sulfuric acid plant next to a sacred burial ground.

But if the Thacker Pass project is developed as planned and the conventional wisdom is right – that is, if the price of lithium goes high and stays high for the foreseeable future – Nevada should take advantage of that.

For starters, if lithium is going to be more profitable than gold, lithium mining companies should be taxed at least as much as gold mining companies.

Could be something, could be (and often is) nothing

It took a pandemic coinciding with an external threat of a tax-raising ballot initiative that scared the living daylights out of the resort industry. But during a special session of the Nevada Legislature in 2021, state lawmakers, perhaps surprising even themselves, raised taxes on Nevada’s gold mining industry by creating a new tax.

Specifically, the new law levied a 0.75% tax on gross revenue between $20 million and $150 million, and a 1.1% tax on gross revenue bigger than that.

Those of you who do arithmetic in your head have already figured that a 1.1% tax on $2 billion – the Lithium Americas earnings before expenses etc. estimate – would be $22 million. Not a giant amount by many standards, but something.

Except under the 2021 law, it would be nothing. Lithium Americas wouldn’t have to pay it. The law only applies to gold and silver. 

The only mining tax Lithium Americas and any other lithium producers would have to pay is Nevada’s long-standing – and long-mocked – tax on “net proceeds of minerals.” 

That’s the tax so riddled with huge deductions that every year several mines end up paying no mining taxes at all on hundreds of millions of dollars worth of gold.

There is currently only one commercial lithium producing operation in the U.S., Albemarle USA’s Silverpeak mine in Esmeralda County, Nevada, U.S.A. In 2022 the mine produced $41.7 million worth of lithium. After declaring $25.4 million in deductions, Albemarle ended up paying $319,000 in mining taxes – less than eight-tenths of 1% of the $41.7 million. Maybe Lithium Americas will do better.

Or better yet, maybe Nevada can do better.

Anticipating its own lithium rush near the aforementioned Salton Sea, California’s legislature last year enacted an excise tax on lithium production of $400 per ton on the first 20,000 tons, $600 per ton on production between 20,000 and 30,000 tons, and $800 a ton on production above that.

If Thacker Pass produced the annual average 67,000 tons Lithium Americas thinks it will, the tiered fees would total $43.6 million.

That’s almost twice the $22 million the mine would pay if the 2021 Nevada law was amended to apply not just to gold and silver, but to lithium too.

As things are, Nevada will get neither the $43.6 million nor the $22 million, but only whatever’s left of the “net proceeds” tax after that law’s deductions. To reiterate, every year, for a few mines, that translates to a mining tax burden totaling exactly zero American dollars. (To be fair, the relatively paltry mining and processing cost estimates provided to investors makes it hard to believe Lithium Americas could deduct its way to zero.)

If for whatever reason lithium fails to live up to its hype as the mineral industry darling of tomorrow, either a flat tax or taxing lithium the same as gold are designed to acknowledge that. If Thacker Pass, Albemarle, ioneer (the Australian outfit that evidently doesn’t like capital letters any more than it likes little flowers) or other lithium miners don’t end up producing as much, or at as high a price, as they hope, their mining tax burden will be commensurately small.

And if lithium does live up to all the hype, Nevada shouldn’t let the lithium industry treat Nevada as the gold industry always has, i.e, as an economic colony.

In fact, it needn’t be an either/or. Nevada should roll lithium in with gold and silver so it has to pay the new tax lawmakers enacted in 2021. And Nevada should not be intimidated by squeals of “Californication” and also adopt the flat fee model. If lithium is all it’s cracked up to be, the lithium mining industry can easily shoulder both responsibilities.

In the extreme outside chance that state lawmakers get up the gumption to put Nevadans ahead of mining instead of the other way around, they might as well eliminate deductions from the net proceeds tax while they’re at it.

If enacting any of those proposal is remotely possible, it would be the one that taxes lithium the same as gold. Establishing a flat fee and eliminating deductions seem highly improbable. Nevada adopting all three measures is inconceivable. 

For 160 years, a national and then international gold mining industry has exploited Nevada. The industry’s executives and shareholders have treated the state not as a place with people looking to prosper and natural resources to be protected, but as a place with a commodity to be pillaged.

There’s no reason to assume Nevada won’t let the lithium industry do the same.

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