A
new lithium war is about to begin
By James Stafford
web posted April 30, 2018
It's
the modern
gold rush. Around the world, the most sought-after mineral isn't a
precious
metal, nor is it oil and gas…it's lithium.
Lithium, or "white petroleum" as some call it,
has become a
crucial element in today's high-tech economy.
Demand for lithium is soaring, and producers are frantically
searching for new
sources of supply. Prices have doubled in the last two years, rising as
high as
$16,500 per ton.
Pic
The
biggest
reason for the surge? The immense demand for lithium-ion batteries,
needed to
power electric vehicles (EV), cell phone and wind turbines.
As the Wall Street Journal reported, the
surge in demand has
pushed lithium miners to new areas in search of rich deposits.
Traditional production of lithium and lithium-ion batteries
is concentrated in
a few key areas, but with demand set to increase dramatically in the
coming
years, investors are searching for creative new ways to increase global
supply.
A boom in Canadian lithium mining is pushing companies like Nemaska
Lithium
(TSX: NMX) and Power Metals Corp. (TSXV:
PWM.V) to tap new deposits of lithium.
The fact that China is trying to corner the market has made
the search for new
deposits even more intense, as U.S. and European firms try to get
around Chinese
domination.
For the last five years, the commodities world has focused on
the epic showdown
between OPEC and U.S. shale drillers for oil market
share. But it's
the war over "white petroleum" that will dominate the next decade.
Cornering the Market
In January, Zion Market Research projected
lithium-ion battery sales to grow at an annualized rate of 13.7
percent, rising
to $67.6 billion by 2022.
Lithium prices have risen stupendously in the last three
years—from $6,500 per
ton in 2015 to more than $20,000 in 2018.
China, which produces most of the world's lithium batteries,
has moved aggressively to secure
steady supply. Chinese
companies now own major shares in many South American lithium mines,
where the bulk of the
world's lithium is produced, in order to feed Chinese battery
factories.
China anticipates demand for lithium batteries to soar in
coming years—mostly
because they believe demand for electric vehicles (EVs) will exceed
demand for
gas-powered cars by 2030.
But the Chinese may be in for a surprise, as new mining
companies secure
deposits of lithium outside of South America.
Going Around the Chinese Wall
The Chinese may be investing heavily in South American
lithium production in
order to corner the market, but European and North American firms are
side-stepping the Chinese autarchy to secure supplies of their own.
Europe uses 25 percent of the world's lithium, while European
auto-makers are
anticipating a surge in EV production as the continent shifts away from
gasoline-powered cars.
European investors are searching out lithium deposits in
Germany and the Czech
Republic. Meanwhile, drillers are mapping out underground lithium
deposits in
the UK, Portugal and Sweden.
In North America, miners are exploring for untapped lithium
deposits that could
rival the big finds in South America. Canadian miner Quantum Minerals
Corp.
(TSX-V: QMC) has expanded its Lithium Mine Project in Manitoba by 100
percent.
Another Canadian outfit, Nemaska Lithium Inc. (TSX: NMX) is
hoping to exceed
its current rate of production (16,000 tons) by 20 percent this year.
The
probable reserve of its property in Quebec is estimated at 24 million
tons,
which means it should have no
problem reaching its production goals.
Nemaska has been a big winner on the lithium market: it rode
its discoveries at
their Whabouchi property in Canada to a $1.9 billion valuation.
Power
Metals Corp, a hard-rock lithium driller is sitting on a
deposit that could
be worth billions. Rather than mine lithium through evaporation, which
is very
time-consuming, Power Metals uses drilling to tap into deposits of
lithium
spodumene trapped within the rock.
Canada could become a key source of lithium—which
is good news for North
American industry that may be losing access to Chinese lithium
batteries.
One Door Closes, Another Opens
A trade war has broken out between China and
the United States.
While that's bad news for some industries that rely on Chinese imports,
its
good news for North American lithium miners like Power Metals and
Nemaska.
In early April, the U.S. government slapped a big tariff on imported Chinese lithium
batteries, part of
a tariff on Chinese goods worth $50 billion.
That means that lithium miners will see a bigger market for
their products—and
a surge of investment into North American mining, which has the lowest
risk
factor in the world.
China may be cornering the market on South American lithium
in order to feed
its battery factories and churn out electric cars, but protectionist
policies
by the U.S. and aggressive expansion into European lithium production
may cut
the Chinese out of the global battery market.
Booming demand for lithium could be fed by the lithium mines
of Canada—turning
junior miners into major players virtually overnight.
Power Metals has announced a 15000m drilling
program for 2018. "The
explorational upside is immense," according to Dr. Julie Selway, the
company's hard-rock lithium expert, "and each drill target can
substantially increase the overall resource size."
Canadian lithium deposit, according to Selway, represent a "sleeping giant:" once tapped, it
could provide
enough lithium to satisfy North American demand.
Just as the world of oil has seen intense competition between
OPEC and U.S. shale, the lithium
world may be defined by
its own war: China vs. Everyone Else.
In this new gold rush, it pays to be prepared for anything.
Other companies transforming
the lithium the space:
FMC
Corp.
(NYSE:FMC) founded in 1883, FMC has been around the block and back. FMC
has a
long history stretching between many different industries, but within
all of
them, FMC has remained a leader in innovation.
FMC's involvement in the lithium industry is particularly
notable. The company
is one of the top three in lithium and associated technologies. It is
one of
the largest suppliers into electric vehicle applications using lithium
hydroxide.
Strong growth in lithium is expected to drive margins for FMC
and major
expansion, leading analysts to give it an outperform rating. The
company's full
year 2016 results were impressive, with lithium segment earnings of $21
million—up an amazing 90 percent from Q4 2015.
Magna
International (TSX:MG) (NYSE:MGA) is based
in Aurora, Ontario.
The global automotive supplier is gutsy and innovative--and definitely
tuned to
the obvious future--clean transportation. A great catalyst is its
development
of a combo electric/hydrogen vehicle--a fuel cell range-extended EV
(FCREEV).
It's not going to produce them (for now, at least) but plans to use the
model
to show off its engineering and design prowess and produce elements of
the
electric drivetrain and contract manufacturing.
The company's auto parts are distributed to heavyweights such
as General
Motors, Ford, Tesla, BMW, Toyota, Volkswagen and Chrysler. These huge
deals
provide a safe and steady profit stream for the company. It's
insightful,
forward-thinking and smart value/low cost for shareholders.
Tesla
Motors
Inc. (NASDAQ:TSLA):
No large cap company has dazzled over the past couple of years like
Tesla,
which overtook giant GM this year in market cap—a major,
unexpected feat. Tesla
is the future, and its stock price agrees.
Tesla's electric cars will eventually be more profitable than
traditional cars,
and easier to produce. Costs will keep coming down, especially now that
Tesla's
has launched its battery gigafactory in Nevada, and when it gets
battery (and
lithium) prices down.
It is entirely feasible that Tesla will be selling over 2
million cars annually
in less 6-7 years from now.
General
Motors (NYSE:GM) is a household name. GM
was born at the turn
of the 20thcentury and has been a leading
innovator in the
automotive industry ever since. Even though it's been surpassed in
market cap
by Tesla (of all companies), it is still the furthest ahead of the Big
3 car
makers from Detroit in terms of EVs and self-driving cars.
Recently, GM acquired Cruise Automation—a
self-driving car company, and it
seems determined to forge ahead even faster to play catch-up with the
future.
Additionally, GM is a leader in the booming electric vehicle market. As
countries across the world begin to pass regulations on combustion
engines, GM
stands to gain significantly as an early adopter in the EV game.
Alphabet
(NASDAQ:GOOG): With a market cap of over
$657 billion, this is
the second-largest by market capitalization in the S&P 500. We
love
Alphabet because its foundation is intellectual property—not
tangible assets.
Oh, and self-driving cars … definitely a huge part
of the innovation in energy
and artificial intelligence. As an early entry into the self-driving
car world,
Alphabet's innovations have paved the way for a transportation
revolution
Alphabet is set to continue to bring value to its investors
and even as one of
the largest companies in the S&P 500, Google's parent company
continues to
reach new heights. 
James
Stafford is the editor of Oilprice.com
where this originally appeared.