CORRECTED-UK's Cornish Lithium finds high-grade material in govt-backed project

(Corrects paragraph 3 to show size of UK govt investment was undisclosed)

LONDON, Sept 17 (Reuters) - Britain’s Cornish Lithium said on Thursday it found high grades of lithium in geothermal waters that can be produced sustainably from a project aimed at becoming the country’s key source of the battery material.

The exploration company, founded and headed by ex-banker Jeremy Wrathall, plans to extract lithium from brine heated by the earth’s core to meet the expected boom in demand for electric vehicles.

The UK government in August invested in Cornish Lithium’s pilot plant in the southwest county of Cornwall, which will cost a total of 4 million pounds ($5.2 million) to build. The size of its investment was not disclosed.

The company said it sampled geothermal water that is used to produce power from the United Downs Deep Geothermal Power Project with its partner Geothermal Engineering.

Cornish Lithium plans to use new technologies to extract lithium that was found in the water in “globally significant” quantities and with low impurities, it said. The water will then reused at the power plant.

This eliminates the need for large evaporation ponds seen in South America’s lithium operations, where a large chunk of the world’s lithium is sourced.

While lithium from Argentina and Chile is of higher grade than geothermal sources, concerns over sustainability have plagued the region’s miners which extract their product from pools of brine beneath the world’s driest desert.

China, the world’s top lithium consumer, dominates the battery supply chain but governments in the West are pledging more funds to domestic mines and industries.

Still, Cornish Lithium faces an uphill battle as funding for lithium producers has dried up due to low prices, a situation worsened by the financial fallout from coronavirus.

“It’s a positive move for the UK but still in the very early stages,” said Andy Miller, an analyst at consultancy Benchmark Mineral Intelligence, adding that raising capital to fully fund the project could be a major hurdle.

“The development of new types of resources outside of brine in South America and spodumene in Australia are going to be needed. The question comes around the technology to upgrade the battery grade chemicals - that’s what takes the time.” ($1 = 0.7710 pounds) (Reporting by Zandi Shabalala; Editing by Richard Pullin and Jan Harvey)