Lithium stocks have been hot, white hot if you will, driven by the global phenomenon of electric vehicles. Understandably, Tesla has been the highest profile company, building its enormous $5 billion “Gigafactory” in Sparks, Nevada to churn out lithium-ion batteries for powering electric cars and homes. Tesla chief executive Elon Musk, never one afraid to speak his mind, has been vocal in saying his company can meet its goal of manufacturing 500,000 EVs annually by 2018. In order to hit this target, Tesla by itself will consume the majority of all the lithium produced globally today.
Tesla unveiled its new, more affordable Tesla Model 3 at the end of March and has received more than 400,000 pre-orders so far, sparking concern already about ability to meet consumer demand.
This goes without mentioning that other auto manufacturers, including General Motors (NYSE: GM), Ford (NYSE: F) and Daimler AG (OTCQX: DDAIF), need lithium for battery packs for their vehicles, as tighter emissions regulations and global environmental awareness serve as market catalysts. Consider also that lithium ion batteries are used worldwide in cellphones, laptops, tablets and aerospace applications, to name a few uses, and it becomes apparent why Frost & Sullivan estimates the global market to double from $11.7 billion in 2012 to $22.6 billion this year.
“Rightfully, everyone thinks about Tesla when it comes to lithium production. Sure, they are the 700-pound gorilla in the room, but demand is coming from all over the world at the same time,” said Mike Kobler, CEO at Vancouver-based American Lithium Corp. (TSX-Venture: LI) in a phone conversation on the industry. “Tesla’s not just going to take all the lithium that is allocated for other applications, more lithium absolutely has to be produced.”
The demand Kobler is alluding to has driven lithium prices up, way up. Lithium carbonate prices have surged from US$5,500 to trade at US$13,000 per tonne on the spot market in the past three years. In China, battery grade lithium carbonate (>99.5% purity) rocketed from about US$7,000 per ton in October 2015 to over US$21,000 per ton in less than a year.
Tesla is shooting for manufacturing 500,000 EVs in 2018, which is half the number of total electric vehicles on the road today (the 1 million mark was crossed in September 2015). Still, the International Energy Agency forecasts 20 million electric vehicles (including plug-in hybrids) to be in use by 2020, meaning there is going to be a lot more production that just from Tesla.
In that lane, Canaccord Genuity analysts Reg Spencer and Larry Hill believe that global supply of lithium carbonate equivalent will rise from 176,000 tonnes in 2015 to 687,000 tonnes by 2025, with electric passenger vehicles and electric buses being a key driver of demand. The analysts estimate that EVs will account for 38% of all lithium demand by 2025, compared to only about 6% today.
Where’s More Lithium Going to Come From?
In 2015, the top lithium producing countries were Australia (13,400 metric tons), Chile (12,900 metric tons), Argentina (3,800 metric tons) and China (2,200 metric tons). Interestingly, Chile is biting off its nose to spite its face with government antics in dealing with major lithium producers. Believe it or not, the U.S. made the list with its sole lithium mine, the Silver Peak lithium-brine operation in Clayton Valley, Nevada. Albermarle (NYSE: ALB) acquired the mine in 2015 in its $6.2 billion acquisition of Rockwood Holdings.
Albermerle is a leading player in the lithium oligopoly, alongside FMC Corp. (NYSE: FMC) and Chile’s Sociedad Quimica y Minera de Chile (NYSE: SQM), two companies that have converged on the lithium triangle of Chile, Argentina and Brazil. Increased demand is equating to room for smaller firms to take their share of the market, which is where investors should have their sites set.
With Tesla building its 35-gigawatt-hours factory in Nevada and upstart Faraday Future constructing a $1 billion EV plant in Nevada too, companies are clustering to the desolate area of the country because of the known and highly speculative lithium brine resources. Simple proximity to the heart of demand and quality of concentrate puts Nevada on the cusp of climbing upward on the list of top lithium producing countries.
Kobler, who was previously founded Osum Oil & Sands Corp. and built it to a $500 million valuation on its way to nearly a $2 billion valuation, is looking to repeat success by capitalizing on the lithium rush in Nevada. While many miners are vying for spots in the Clayton Valley basin alongside Albermerle, Lithium X (TSX-Venture: LIX) and Pure Energy Minerals (TSX-Venture: PE), American Lithium is looking to the northwest of Clayton Valley to Fish Lake Valley, about 3.5 hours from Tesla’s Gigafactory. Fish Lake’s geological and structural features – where lithium brines accumulate in faulted sub-basins, or “traps” – are strongly analogous to those at the Silver Peak lithium-brine operations only 25 miles away.
American Lithium has been aggressive in acquiring options for 13,000 acres (roughly 20 square miles) of lithium claims in Fish Lake Valley. Extensive historic exploration and data, coupled with more recent survey and mapping work suggest strong accumulations of lithium-brine at shallow depth on the properties. American Lithium is preparing to build upon the data by “twinning” drill holes, conducting advanced exploration and building infrastructure to bring the projects to the production stage in the next couple years.
Lithium’s Time to Shine
In a broad sense, lithium is abundant across the planet, but not often in high concentration levels, which is the key to producing the world’s lightest metal economically. Salt flats, which Nevada is known for, are the optimal location for lithium brine deposits. Lithium brine has clear benefits compared to typical hard rock metal exploration because it is near surface, easy to explore and quicker to commence production, cumulatively meaning that less capital is required from exploration to production.
These reasons are adding to the interest in lithium companies for a quicker return, as large-scale projects that require intensive capital expenditures have gone out of favor. The recent interest is exemplified by the Global X Lithium ETF (NYSE: LIT) rising 37.5% from a low of $17.03 in February to enter an uptrend and wrap trading on Friday at $23.41.
“I’ve been involved with successful metal mines and oil fields, but I have to say that I’m a firm believer that lithium – and more succinctly, lithium in Nevada – is the place to be,” Kobler said in our call.
Given the current supply structure and expected demand, it’s difficult to disagree.
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