In the grand scheme of things, lithium is a bit of an oddity for the investment community. It’s a commodity, but doesn’t trade like one, as it’s not part of the futures market. The market is largely controlled by only three public companies: Albemarle (NYSE: ALB), FMC (NYSE:FMC) and Chile’s Sociedad Quimica y Minera de Chile (NYSE: SQM). It’s commonly used, with the majority of current lithium demand used in industrial applications, such as glass, ceramics and lubricants. As the lightest metal in the world, lithium is the product of choice in high-density energy storage for rechargeable batteries for electronics, where weight is a key factor. In spite of these uses, lithium was mostly an afterthought for investors, as measured by LIT, the Global X Lithium ETF, holding a downward trend from about $45 in early 2011 to a low of $17.03 this past February.
Enter The Catalyst: Electric Vehicles
Spearheaded largely by EV maker Tesla Motors (NASDAQ: TSLA), awareness of a potential shortfall of lithium in the future due to more electric cars being produced has virtually gone viral on Wall and Bay Streets. Even though it is definitely the bandleader, with forecasts that Tesla could consume all the lithium produced today if it can meet production goals in the next few years from its so-called “gigafactory” under construction in Nevada, it’s not the only carmaker in the race.
Upstarts have cropped up, including Faraday Future also building a plant in Nevada, and household brands aren’t letting the opportunity pass. A notable laggard in the space, Hyundai is forging plans to expand into the luxury EV market. “It is very obvious EV is definitely on the map. Definitely, that’s where the future lies,” said Manfred Fitzgerald, head of Hyundai’s luxury brand Genesis, in a recent interview with Financial Times.
Apple (NASDAQ: AAPL) is being hush-hush about their efforts, but even Tesla CEO Elon Musk thinks that the tech giant will be a direct Tesla competitor with their own EV by 2020.
As such, lithium has earned names like the “new gasoline,” and “white petroleum,” and lithium prices have surged, highlighted by spot prices for battery grade lithium in China skyrocketing from $7,000 per ton to over $20,000 per ton in roughly six months. Underscored by the fact that high-range electric vehicles can require as much lithium as 10,000 smartphones, Goldman Sachs estimates that lithium demand will triple by 2025.
The Scramble Is On
Manufacturers, including those needing lithium for traditional uses, battery makers and carmakers alike, are jostling for position and looking for options to secure lithium in the future. The expected demand increase is lending to diversification in some major miners, such as Rio Tinto (NYSE: RIO), who is known for its iron ore production, spending $70 million to advance its Jadar lithium-borate project in Siberia. Rio CEO Dean Gehring recently called the project “strategically important” to his company.
The upswing in market potential is also providing a boon to smaller companies, with savvy ones acquiring properties in Nevada, the state with the only producing lithium mine in North America (Albemarle’s Silver Peak mine) and most prolific lithium resources in the country.
“Nevada’s basin and range topography hosts abundant dry lakebeds and structural depressions. Dry lakebeds or ‘playas’ have recently become the focus for aggressive Lithium exploration, not only in Clayton Valley, but in other strategic areas in Nevada that our expert team has aggressively acquired through staking,” said Rick Wilson, President and CEO, of Nevada Energy Metals Inc. (TSX-V: BFF)(OTCQB: SSMLF)(Frankfurt: A2AFBV) in a phone conversation about the industry. Wilson’s company has been amassing a large land position of prospective lithium projects in Nevada, a state hosting the “white gold rush” for lithium that is expected to put the U.S. on the global lithium production map.
Wilson’s Vancouver-based company intends to be one of those companies and has not wasted any time growing a portfolio of projects in Nevada. These include one abutting Albemarle’s Silver Peak mine in the Clayton Valley, where the company recently completed a 70/30 farm-out option joint venture on 77 claims, putting cash in its pocket and effectively de-risking the investment by putting the onus of cap ex and development on its partner. The activity has generated investment interest in the blue-skied company, as measured by a notable increase in liquidity in 2016.
Nevada Energy Metals also owns 100% of the 2000-acre Teels Marsh West, 100% of the 2,560-acre Black Rock property, 100% of the 3,100-acre San Emidio Project, 60% of the 3,820-acre Alkali Lake Project (a JV with Dajin Resources Corp. (TSX-V: DJI)) and, most recently added 160 placer claims covering 3,200 acres dubbed the Big Smokey Valley (BSV) Project.
In aggregate, Nevada Energy Metals owns (or has ownership in) more than 25 square miles in Nevada where historic samplings suggest lithium resources, complemented by infrastructure in miner friendly jurisdictions. This is best exemplified by Albemarle’s mine that has been producing lithium brine since 1967 for the company’s southern properties.
To the north, Nevada Energy Metals is pioneering efforts only about an hour or so from Tesla’s gigafactory with projects fed by lithium bearing geothermal fluids.
The company plans to use part of the C$867,000 in its treasury for exploration across its properties throughout the year. Most recently, 27 shallow auger sediment samples from the Teels Marsh property met their goal of showing the method could be used to collect samples from beneath low sand dunes and alluvial gravel just below the surface. At depths less than 10 feet in the ground lithium values ranged from 8.9 to 104.5 ppm and helped provide some general guidance for future exploration.
Just like anything else, the lithium boom is going to experience swoons with respect to market exuberance and eventually find its level, but the fact that more lithium has to be produced is a reality. Nevada is clearly a hot spot with tremendous potential, rather than shipping in product from major producing countries like Australia and Chile. For those with little risk tolerance, the majors are the way to go, but for those with more tolerance looking to reap greater upside potential, smaller players are the place to look.
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