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James Burgess

James Burgess

James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…

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Tesla’s Battery Plans Could Push Lithium Prices Even Higher

Tesla factory

The global lithium market is now projected to reach US$1.7 billion by 2019, and the hunger for this decade’s most precious commodity is set to intensify further now that America’s first battery gigafactory is online and ready to start pumping out batteries to support the mass production of electric vehicles—just for starters.

Against this backdrop, there is nowhere more exciting to be than on the ground floor of a new lithium development, and the general consensus is that 2017 will lend critical acclaim to small-cap lithium companies hitting up the U.S. state of Nevada or the Latin American ‘Lithium Triangle’.

Lithium has become such a high-demand material driven by rapid expansion of the battery industry, Freedonia Group Global projects demand to rise 8.9% through 2019, which in dollar value for lithium carbonate equivalent (LCE) is roughly $1.7 billion.

Lux Research, a leading independent research and advisory firm, believes the electric vehicle market will grow to $10 billion within the next four years, while Navigant Research forecasts sales of electric vehicles to increase from 2.6 million in 2015 to over 6 million in 2024.

According to Deutsche Bank, demand for lithium will rise from 209,000 tonnes in 2016 to 534,000 tonnes in 2025.

Tesla Motors (NASDAQ:TSLA) is leading the market for now because competition is all about lithium-ion batteries. But German and Chinese competitors are racing to the finish line as well. This is a heated battle for new market share, and the key weapons are lithium and batteries. Tesla is ahead of the competition because it’s got its own battery gigafactory. And it’s only a lack of battery supply that could give its competitors—like BMW (NASDAQ:BAMXF), Volkswagen (NASDAQ:VLKAF), and Daimler’s (NASDAQ: DDAIF) Mercedes-Benz—a chance to cut in.

Still, there’s a way to go before anyone starts catching up with Tesla. By 2018, Tesla predicts it will churn out 35 gigawatts of batteries per year. It’s a massive amount that surpasses more than what the rest of the world combined produces. In other words, one of Elon Musk’s many claims to fame will be doubling global battery production capacity as early as 2018.

And while the mass production of Tesla’s Model 3 electric sedan is one of the more exciting and visible drivers of demand—with 370,000 vehicles already ordered—there are other major drivers, such as massive energy storage systems, that will push demand exponentially higher.

What it all means is that we’re set for one of the biggest bull runs of since the shale boom thanks to limited lithium supply availability. If lithium grows at its expected rate of 16 percent annually, it will be the fastest-growing commodity of the century. With this in mind, small-cap lithium companies—the heart of new supply—are where the smart money is going.

With Tesla looking to “absorb the entire world’s lithium production”, in the words of Elon Musk, and seeking “American lithium sources first”, there’s no better place to start looking than Tesla’s own back yard—Nevada.

And when there are only a small number of lithium companies listed on the TSX.V., it comes down to picking the one that’s got the right resources and the right management team. For that, we follow the money and the mining legends behind Lithium X, which has just popped up on the radar again thanks to its phenomenally fast-paced growth strategy. This time, it’s acquired a 100% interest in yet another major project in Argentina, in one of the world’s largest and least-explored lithium hot spots.

Small-Cap with Billion-Dollar Vision

One of the most talked-about lithium companies right now is Lithium X (TSX.V: LIX) (OTCQB: LIXXF), a small-cap lithium company with a world-class resource of more than 1 million tonnes indicated and 1 million tonnes inferred—not counting its brand new Argentina acquisition--and a dream team that has the capital-raising capability and the big-league mining experience to finish this race ahead of the pack.

LIX has a market capitalization of US$115 million, but its lithium resource tells a story with a potentially much higher price tag. Other lithium miners operating in the ‘lithium triangle’ have markets caps ranging from US$250 million to US$1 billion.

More than 70% of the world’s known lithium reserves are in the ‘lithium triangle’ of Argentina, Bolivia and Chile. In the U.S., not only is Nevada ground zero for the American lithium boom, but it’s also the only place you can find the precious commodity being commercially produced—and Lithium X (TSX.V: LIX) (OTCQB: LIXXF) has prime projects in both places.

The company is developing its 8,156 hectare Sal de los Angeles project, situated in the prolific ‘lithium Triangle’ in Salta Province, Argentina. LIX owns the right to mine lithium on 32 claims here, nearby major miner FMC Corp’s Salar de Hombre Muerto lithium deposit—one of the biggest lithium operations in the world. Here, Lithium X and its predecessors have already invested some US$15 million. And so far, resource estimates confirm the significance of the deposit.

This week, we saw the company make another bold move towards growth, with the acquisition of 100% interest in the Arizaro Lithium Brine Project in Argentina. That adds another 33,846 hectares to LIX’s portfolio and puts it solidly in the middle of one of the world’s biggest underexplored salars, thought to contain elevated concentrations of lithium. Furthermore, by combining Arizaro lithium with its flagship project at Sal de Los Angeles, LIX has the potential to significantly enhance its brine processing, adding even more upside.

As LIX moves fast to become THE go-to pure play lithium company, on a global level, this new acquisition just proves up their strategy further. The momentum is furious: Exploration here will begin already in February this year, and it’s all about resource expansion and upgrade.

Lithium X is also the largest land holder in Nevada’s Clayton Valley, the only producing lithium area in the entire United States. The company has over 15,000 acres in Clayton Valley, contiguous to Albermarle’s Silver Peak mine, the only American lithium producer right now, and about three hours from Tesla’s gigafactory, where flipping the on switch has just created the start of a market frenzy.

On the current playing field, the race to the finish is all about executive management, and what makes LIX the most talked about company on this scene is its raw lithium industry executive experience and the very smart money that’s been following it around.

Eduardo Morales, head of the LIX operating team, has drawn positive attention for his past heading up the development and operation of the Rockwood’s Atacama project, the world’s largest lithium brine operation, as President and CEO of Rockwood Lithium Latin America, which was later sold to Albermarle Corporation in 2014 for a whopping US$6.2 billion. This is something that makes investors sit up and listen.

They also pay attention to Paul Matysek, LIX executive chairman, and a geochemist and geologist with a flair for corporate entrepreneurship. He’s built up and sold four companies in the past 10 years for over US$2.5 billion—and that includes lithium. Brian Paes-Braga, founder and CEO of LIX, has been cast as a visionary with a golden touch.

None of this escaped the attention of Canadian mining legend Frank Giustra, whose Fiore Advisory runs LIX’s equity financing and corporate structuring. This is where the ‘Giustra Premium’ kicks in—a common media reference to the fact that capital follows Giustra around because of his reputation for financing high-level, successful natural resource deals.

The Critical Phase for Lithium

Volkswagen Chairman Herbert Deiss told CNBC at the Paris Motor Show in November that "electric mobility will take off by 2020." Elon Musk says that by 2020, Tesla hopes to be producing 1 million electric vehicles a year, which means the battery gigafactory will have to get cracking, and lithium supply will have to try to keep pace.

To do that, we need commitment from the leaders of the new lithium supply world. No one is more committed than Lithium X, which has about 14% insider ownership and advancing full speed ahead.

This is the critical juncture—when we already know the resources are big and we’re at the last technical step before production becomes imminent. The imminent reality is that lithium--the backbone of our energy future, and the new driving force of our everyday lives—is set for a bull run of the sort that should have investors rushing to pinpoint where the ‘smart money’ should go, and it’s going to come down to management.

By James Burgess of Oilprice.com

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