The new gold rush: lithium extraction in the UK

“Lithium” meant something very different to those of us lighting our bedroom candles in the daze of the early 90s, listening to Nirvana on vinyl. 30 years on, in a digital world, it means money: it is essential for the batteries in our smartphones, laptops and cars. Conventional means of extracting lithium from hard rock mines abroad are energy-intensive, environmentally damaging and a strategic vulnerability, which is why so much attention is drawn to the prospect of extracting lithium from geothermal waters in the UK.

Where the geology is right, in parts of Cornwall and County Durham, commercially attractive levels of lithium are found in solution in hot saline waters deep below the surface. The brine is extracted by drilling boreholes between one and five kilometres down to access geological faults. The hot waters are pumped up and subjected to processes that extract the lithium compounds and ultimately result in a battery-grade product. There is also potential for the heat from the waters to be used in the extraction process. A number of companies are in the race to prospect for lithium, test extraction technologies and scale up to full commercial production. This brings opportunities for landowners. Across the country, from Truro to Weardale, we are helping landowners play a role in an industry poised to move from a pilot stage to a period in which new drill sites will pop up across the country over the coming years.

The attractions for landowners are many. The footprint of a drill site is extremely small, both in terms of land take and environmental impact, so a small area can be let profitably, with little impact on its surrounding estate. There are also opportunities for the owners of mineral strata where minerals are owned separately from the surface. Whilst the law recognises no ownership in lithium or other minerals in solution, permission of the mineral owner is required to drill through the mineral strata to get to the brines. This commands a wayleave royalty. As well as the commercial returns for estates, there is the significant bonus of being part of the development of a pioneering green industry. This is a good news story that hopes to bring employment and pride back to communities that have a rich history of mining but have recently suffered economic decline.

Operators will approach landowners for the right to prospect and for exclusivity. A common arrangement is an option over an entire estate, which guarantees the operator an exclusive period for a pilot stage and in which to call for the grant of a full commercial lease when all necessary consents have been obtained. As well as seeking specialist advice on rents and royalties, landowners will want to initiate the drafting of option and lease agreements which are tailored to this new industry. These fully protect an estate’s position by focusing on environmental risks, public liability concerns, and security for restoration obligations. Negotiating the legal frameworks within this groundbreaking sector is one of the most interesting and enjoyable challenges in which we are involved.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2024