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Our ‘who cares’ attitude towards pollution and habitat
destruction are all increasing what were once tolerable pressures towards,
and sometimes already beyond, the breaking point in ecosystems all over the
world.
Fortunately, people, governments, and corporations are
waking up and trying to reduce their carbon footprint.
Our attitude towards environmental issues is changing, we
are responding to potentially catastrophic climate change and to global (and
all the way down to the micro-local and individual levels of), environmental
degradation.
One of the results of our rising awareness, and taking
personal responsibility for our own actions, is that we are in the early
stages of a major, decades-long transition in how energy is produced and
stored. A global energy transition, from the burning of fossil fuels for
energy and transportation, to using renewable non-polluting solar and wind
energy is underway.
Lithium powers many of today’s handheld tools, our modern
mobile communications, our computing devices and increasingly our
transportation system. Lithium-ion is the leading energy
storage technology, one cannot understate its importance in
transforming not only communications gadgets into marvels of handheld
technology but in taking electric cars from a niche curiosity into a major
clean energy revolution for the transportation sector.
 “The top five lithium ion
battery manufacturers are ramping up capital expenditure with a view to
almost tripling capacity by 2020.” The
Economist
China and India are both going to 100% electric vehicles.
Every major car manufacturer has electric models.Volvo has even promised
to phase out traditional internal combustion engines (ICE) from 2019.
France has promised to end the sale of gasoline and
diesel vehicles by 2040, the U.K. quickly followed suit.
Gigafactory’s making lithium-ion batteries for electric
vehicles are springing up across the globe.
Tesla’s Nevada Gigafactory, to be completed in 2018, will
produce more lithium-ion batteries than were produced globally in all of
2013. Elon Musk, Tesla’s CEO has already announced plans to build four more
Gigafactory’s.
By 2021, Chinese Gigafactory’s will provide 3.5 times
more gigawatt-hours of battery cells than Tesla’s current Gigafactory.
Europe recently announced five Gigafactories will be
built.
Bloomberg reports that global
battery-making capacity is set to more than double by 2021, topping 278
gigawatt-hours a year compared to 103 gigawatt-hours at present.
“Lithium
isn’t a bubble, it’s a fundamental change in energy usage.” financialpost.com
Morgan Stanley analysts project that by 2050, 81% of
132 million new auto sales will be electric.
Danger Will Rogers Danger
There’s a looming problem.
“It’s not clear that the resource supply chains exist
yet for all these factories.” David Hart,
director E4tech
Translation – There isn’t enough lithium currently being
mined to supply all those Gigafactory’s.
“We
estimate the lithium industry is going to need between $4-$5 billion of
investment out to 2025.” Simon
Moores, Benchmark Minerals Intelligence
The potential for supply-demand gaps to open up over the
coming decade is significant, a supply shortage of lithium will cause major
issues in the battery supply chain.
Elon Musk said, in
2016: “In order to produce half a million cars a year … We would
basically need to absorb the entire world’s lithium-ion production.”
Exposure to lithium
With the massive coming increase in demand for lithium –
because of the massive swing away from burning fossil fuels to a battery
fueled transportation system still in its infancy – and a supply chain not
capable of meeting the increase now is a great time to be looking at select
lithium stocks.
Be warned, lithium prices aren’t cheap. Lithium focused
companies had a great 2016. For most, the trend continued into 2017. Some
have seen a pullback in share price and in your author’s opinion are at an
attractive entry point.
Production and near-term production stories would seem to
offer the best leverage, or exposure, to rising lithium demand.
Market share for the “Big 3” lithium producers, the New
York listed chemical companies Albemarle, Sociedad Quimica y Minera de
Chile and FMC, has dropped from about 85 percent to 53 percent – China
now has about 40 percent of the world’s market share.
Also listed are several near-term producers; Lithium
Americas Corp., MGX Minerals Inc., and Nemaska Lithium.
Albemarle (NYSE:$ALB)
After acquiring Rockwood Holdings in 2015 Albemarle
inherited the U.S.’s only producing lithium mine, the Silver Peak lithium
mine in Nevada.
Tesla, with its Gigafactory in Nevada, plans to produce
as many as 500,000 battery packs per year and will consume nearly all of
today’s current global annual lithium supply to do it.
Outside the U.S., Albemarle produces from its assets in
the Salar de Atacama in Chile and from a 49% stake in the massive
hard-rock Greenbushes mine in Australia where the company is planning on a
doubling of production.
Albemarle has asked Chile’s government to allow it
to raise its lithium production quota to 180K metric tons/year from
the current 80K tons/year limit.
“Lithium
isn’t a bubble, it’s a fundamental change in energy usage.” finacialpost.com
MGX Minerals Inc. (CNX:$XMG)
Petrolithium focuses on concentrating lithium and other
minerals from the abundant brine that accompanies oil and gas (O&G)
production.
MGX has a patent pending, proprietary, low-energy process
specifically designed to rapidly concentrate lithium and other minerals from
highly-mineralized brines associated with oilfields. MGX’s patented
technology separates heavy metals and hydrocarbons from brine, purifying the
wastewater and creating a steady flow of brine feedstock for MGX’s recovery
process.
The wastewater treatment industry is expected to grow
into a $45 billion market annually by 2025, globally O&G producers are
increasingly looking for opportunities to reduce wastewater handling
costs. MGX has entered water/brine testing and analyses agreements with
major oil companies across North America and has completed testing at
more than 25 locations providing an initial pipeline of mineral and water
handling projects.
MGX has also recently signed an agreement with Power
Metals Corp. to acquire all of the company’s current U.S. petrolithium brine
assets and a 20-per-cent working interest in all of the company’s current
hard rock assets and any future assets that the company acquires for the next
36 months.
MGX Minerals also has magnesium and silicon projects.
Sociedad Quimica y Minera de Chile (NYSE:$SQM)
The company’s largest assets are in the Salar
de Atacama, or the Atacama Salt Desert – considered to have the
highest lithium and potassium concentrations ever recorded.
Beyond its lithium business, SQM is also a
significant potash producer and the world’s largest producer of
iodine. SQM is the world’s lowest cost producer of lithium and is intent
on greatly expanding capacity.
Many might consider SQM expensive as its stock sells for
more than 40 times trailing earnings and 30 times forward earnings versus 25
times forward earnings for ALB and 18 times forward estimate for FMC
Corp.
FMC (NYSE:$FMC)
FMC’s lithium operations are next to SQM, in the
Salar del Hombre Muerto of Argentina.
FMC’s lithium segment jumped 45% in the first quarter of
2017 from the year before.
The company is fast ramping up its global lithium
hydroxide production capacity to serve the growing electric vehicle
market. In July, 2017 FMC Corp said it plans to expand lithium hydroxide
capacity by 8,000 tonnes next year to 18,000 and further boost output to
30,000 tonnes over the next several years.
“There will
be more EVs on offer than internal combustion engines 15 years from now.” Mark Fields, CEO Ford Motor Company
Lithium Americas Corp. (TSX:$LAC)
Lithium Americas has a joint venture with Sociedad
Quimica y Minera de Chile (SQM) for the Cauchari-Olaroz project in Jujuy,
Argentina. Cauchari-Olaroz is believed to be the world’s third-largest
lithium brine resource.
SQM and Lithium Americas plan to develop their JV
Cauchari-Olaroz project with targeted production of 50,000 tpa of LCE.
The benefits of this joint venture include an opportunity
for Lithium Americas to apply its recently gained operational know-how to its
solely-owned Clayton Valley Lithium Nevada project.
“Lithium supply security has become a top priority for technology
companies in the United States and Asia.” United
States Geological Service
Nemaska Lithium (TSX:$NMX)
Nemaska Lithium is one of the only companies in the world
looking to produce lithium hydroxide (the most valuable battery-grade
lithium ingredient) directly instead of from lithium
carbonate.
The spodumene concentrate produced at its Whabouchi mine in
Quebec will be shipped to the Corporation’s lithium compounds processing
plant to be built in Shawinigan, Quebec. This plant will transform the
spodumene concentrate into high purity lithium hydroxide and carbonate using
the proprietary methods developed by the Corporation, and for which the
Corporation holds four patents.
Goldman Sachs, in
2016 said: “Every 1% increase in electric vehicle
penetration would increase demand by 70k MT (LCE) per year.”
Conclusion
If, as the Financial Post says, lithium is a fundamental
change in energy usage does that mean lithium is the new petroleum? Are
internal combustion engines going to be replaced by more efficient energy
technology much like petroleum replaced coal, and coal replaced wood?
Lithium is a strategic green metal. Grand View Research
Inc., in its report, has placed the world
lithium-ion battery market at $93 billion by 2025, with a 17% compound annual
growth rate.
Investors should seriously consider Lithium as a long
term hold with respect to this ever growing demand.
Richard Mills
Aheadoftheherd.com
Legal Notice / Disclaimer
This document is not and should not be construed as an
offer to sell or the solicitation of an offer to purchase or subscribe for
any investment.
Richard does not own shares of any company mentioned in
this report. No companies mentioned are advertisers on his site
aheadoftheherd.com
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