Is your portfolio underperforming? Well, it just may get a charge from a good lithium producer.
Lithium is an important ingredient in a wide range of products, including heat-resistant glass, ceramics, and high strength / low weight alloys used in aircraft. While the greatest demand for lithium is in ceramics and glass, its better known use is in lithium batteries for computers, cell phones, tablets, and mp3 players.
Given that consumption and manufacture of portable electronic devices will continue to grow year after year around the globe, so too will the demand for lithium. Yet there is another growing giant hungering for lithium’s power charge… the electric vehicle market.
Whereas the typical mobile electronic device requires just 1 ounce of lithium or less, hybrid vehicles can use some 20 pounds of the metal, while fully electric vehicles require as much as 50 pounds. Lithium’s global demand could potentially double to some 300,000 tons by 2020, according to some analysts.
There would seem to be, therefore, plenty of room for new lithium miners and producers to stake a claim and get a piece of the action.
One such newcomer to the scene is Canada Lithium Corp (TSX:CLQ), with the first ever lithium carbonate mine in Canada, located in the eastern province of Quebec.
Lithium is the lightest of all metals and the least dense of all solids. Because its nucleus is highly unstable, “lithium never occurs freely in nature,” explains Wikipedia, “and instead, only appears in compounds … and is commonly obtained from brines and clays.”
Lithium carbonate is one such compound from which lithium is extracted. And it has quite a large market, with some 130,000 to 140,000 tons moving about the globe each year.
Of that global demand, Canada Lithium Corp will by the end of 2013 supply some 20,000 tons of lithium carbonate, or some 15% of the market. A number of off-take agreements have already helped the company secure future sales.
“In total all our production for 2013 … is tied up in off-take agreements,” informed the miner’s director of investor relations, Olav Svela, as reported by Forbes. “One is a Chinese commodities trading firm called Tewoo, and the other we found fairly recently, is Marubeni.”
Between these two agreements alone, a minimum of 14,000 tons a year of the lithium carbonate produced by the mine is already pre-sold, with options available to both buyers to increase their combined purchases up to just under 20,000 tons a year.
Yet the company already has plans for expansion into other markets, with its ability to produce lithium hydroxide at some 2,000 tons per year and sodium sulphate at some 30,000 tons per year.
Another lithium producer already fully charged and growing is Australian based Talison Lithium Limited listed on the Toronto exchange (TSX:TLH).
The company’s quarterly report indicates, “Sales of lithium concentrate during the Second Quarter [ending December 31st, 2012] of 119,995 tonnes (approximately 18,000 tonnes lithium carbonate equivalent).” Revenues during the quarter were 43.1 million Australian dollars, approximately $44.5 million US, with a net profit of A$9.4 million, approximately $9.7 million US, and a basic EPS of 8.5 cents per share.
And the company has been putting all this income raised over the years to good use in its July 2010 acquisition of the Chilean lithium producer Salares Lithium Inc.
Talison sees great prospects for its new properties in the Atacama Region of northern Chile. “The Salares 7 Project,” the company describes, “consists of seven salars (salt lakes) and playas...Talison Lithium’s exploration program at Salares 7 has included initial drilling, transient electromagnetic geophysical surveys and regional surface water geochemical sampling programs.”
The company expressed its optimism, “Results for both lithium and potassium from initial drilling are very encouraging for the further development of the Salares 7 Project and Talison Lithium is progressing the next phase of its exploration program.”
Yet with the many new producers entering the market in recent years, and with new projects being prospected and developed all the time, some wonder whether the lithium market might be getting a little too crowded.
As Bloomberg reports:
“There are 23 new projects and expansions for lithium, which could turn a tight market into an oversupplied one, said Keith Evans, a retired geologist who worked in the lithium business for three decades. The industry has gone ‘berserk’ with new projects since a report six years ago anticipated a shortage, and if all the companies produce as planned, global output will climb to as much as 642,000 tons a year by 2020, Evans said.”
Even so, the complexity of the process being as advanced as it is should keep the active players in the field relatively few, to some four or five big producers always on the ready to buy out the smaller players as the demand for lithium grows.
Viewed from this perspective, it may not really matter to the smaller newcomers if there isn’t enough room for all participants in the lithium production market. Perhaps for their shareholders, jumping into a nice property and then getting bought out might be all the success they crave.