Lithium has been likened to the “new gold” or the “new gasoline,” given its huge potential for rapid demand growth in the coming years. Electric vehicles are already making inroads in the transportation sector, and while only capturing a tiny share of the transportation sector, EVs are expected to post blistering growth rates in the near future, and they will require large volumes of lithium for their batteries.
As this revolution unfolds some new pure-play miners are poised to become giant lithium suppliers, and it’s all about vision and timing.
The lithium market is still small, but the emerging miners aren’t just seeking to break into this market and shake up the playing field—they’re positioning themselves to become billion-dollar lithium producers, and the market suggests they have a good chance.
Just four years ago, few paid much attention to this lightest of all natural metals, aside from the companies actually mining it—and there weren’t very many. Now Tesla is building the world’s first gigafactory, to produce millions of lithium-ion batteries for its cars. The annual car production that Tesla is aiming for is 500,000 by 2018 and as many as a million by 2020.
This is a huge number of cars that will need lithium-ion batteries and, as Elon Musk has noted, Tesla alone will use up the world’s current lithium output once the gigafactory starts operating. So, even if Tesla was the lone EV manufacturer of the world, prospects for lithium miners would still look pretty good. Yet Tesla is not the only EV manufacturer in the world and EVs are not the only market segment where lithium is used in large amounts.
Energy storage systems are being developed that will make renewable energy more viable and many of these are using lithium-ion storage as well, not to mention all the consumer electronics that the connected world needs and will need increasingly in the coming years. Although it is still in its early stages, lithium mining could soon take off.
The lithium production industry has so far taken the shape of many small-cap miners focused exclusively on lithium—and it is these ‘pure plays’ that are shaping investor sentiment at a time when other commodities are not doing well and their volatility is nerve-wracking.
There are two ways to mine lithium: from the rock and from the brine. Since lithium is a highly soluble metal, it can be found in large, relatively easily accessible quantities in underground salt water deposits. Lithium brine is faster and environmentally friendlier to produce--and it comes in the form of lithium carbonate, which is the form its buyers prefer.
Lithium X (LIX-TSXV) was one of the first pure-play companies to enter the field and is already reaping the benefits of this early entry.
It has prime acreage in the Argentine portion of what’s called “the Lithium Triangle,” with historical reserves estimated in 2011 at 2.8 tons of lithium carbonate equivalent. Lithium X is earning an up to 80 percent interest in the Sal de Los Angeles project – and in May this year, the company closed a JV production agreement with local Salta Exploraciones.” The pilot project will produce 2,500 to 5,000 tons of lithium carbonate equivalent, and after collecting real-time data on the operation, Lithium X will consider a much larger operation of an additional 15,000 tons.
At home, Lithium X has the largest acreage in Clayton Valley, Nevada--the only place in the entire U.S. where lithium brine is already being mined.
The proximity of the Tesla gigafactory is no coincidence. If not all, then most of the lithium mined in the Nevada area – the richest in lithium in the U.S. – will be bought by Tesla. The rest will go to its new competitors, consumer electronics makers, and energy storage system manufacturers. In short, lithium is a brilliant seller’s market.
But this is where management vision plays its trump card, and where Lithium X really stakes its claims. The company recently announced it has taken on as Chief Operating Officer Eduardo Morales, former President and CEO of Rockwood Lithium Latin America. Morales, a chemical engineering vet, led the development of one of the world’s largest lithium brine mines, including the largest lithium mine in the world, Salar de Atacama. He will now lead the development of the Sal de Los Angeles deposit. Morales is possibly the most experienced South America lithium mining expert at the moment.
The company’s Executive Chairman, Paul Matysek, is another mining industry superstar, with decades of experience setting up and developing winning mining companies. In fact, he is probably the only mining executive who has successfully built, developed and sold for billions companies active in four different commodities, among them lithium, potash, and uranium, via Lithium One, Potash One, Energy Metals Corporation, and Goldrock Mines.
Founder Brian Paes-Braga was the right man with the right vision, who managed to turn his initial idea into a company that’s already seen its market cap shoot up to $92.75 million over the year of its existence, on its way to realizing its creator’s vision of building the Tesla of lithium mining. Paes-Braga did all this with the help of co-founder Frank Giustra – a mining investment veteran who has under his belt a long string of successful company set-ups and subsequent sales worth billions.
In an interview for USA Today, Paes-Braga explained that mining companies are virtually the only chance investors have for exposure to lithium. Unlike gold and industrial metals, lithium is a new star. There are no futures and no pure play ETFs. Investment opportunities are limited.
Besides, Paes-Braga added, the biggest players in lithium are not exclusively lithium miners, they are diversified chemical companies. So, pure-play lithium miners are the only ones that offer direct exposure to lithium. Among them, the winners are determined by their teams and the experience of its members, and by the quality of their assets.
Now, Paes-Braga’s ambition is to turn Lithium X into a billion dollar company, and he’s pretty optimistic about the viability of this goal.
So, is lithium the new gold or the new gasoline? Not exactly. The market for lithium is much smaller and immature and although it will likely continue to be smaller, its growth prospects are immeasurably better—and this is what investors are really looking for.
Over the next five to ten years, the lithium-ion battery industry is set for a real boom – it’s practically impossible to stop or reverse the trends that are pointing in this direction. More and more lithium mining startups are likely to start popping up, as always happens when a new and promising niche opens up in any market.
With this influx of small players in the lithium field it will become harder for investors to choose the right play to put their money in. At that point, it will all come down to proven asset quality and team experience – the combination that would ensure not just returns on investment but maximum returns.
Get ready for this billion-dollar market because when these entrance doors close—and they will close soon—they will be prohibitively expensive to reopen.
By James Burgess of Oilprice.com
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