A Brief Overview of Lithium Stocks and the Lithium Market

Here is a (very) brief overview of some lithium basics and what's been happening in the market lately.

Uncertain future

Investors have become increasingly interested in lithium stocks for several years now, and there are a number of reasons why.

Some are seasoned metals investors interested in looking beyond silver and gold. Others are new investors, drawn into the space by the hype surrounding Elon Musk and Tesla Motors’ (NASDAQ:TSLA) lithium-ion battery gigafactory.

Whatever the reason, it’s important to get familiar with the lithium market before investing in lithium stocks. Here is a (very) brief overview of some of the basics.

The rundown

Lithium is a soft, silver-white metal used in pharmaceuticals, ceramics, grease, lubricants and heat-resistant glass. It’s also used in lithium-ion batteries, which power everything from cellphones to laptops to electric vehicles — demand from this sector for lithium is growing quickly.

Lithium is found all over the world, in both hard-rock deposits and evaporated brines. There’s some contention as to which type of deposit is superior, but generally there are trade offs either way

Editor’s note: As one of of our readers points out and expands upon in the comments below, lithium is also found in clay deposits.

The world’s largest hard-rock mine is the Greenbushes mine in Australia, and the bulk of the world’s lithium brine production comes from salars in Chile and Argentina. Most large lithium reserves are in Chile, and the prolific “lithium triangle” spans Chile, Argentina and Bolivia. Australia was the world’s largest lithium producer in 2016, and it was followed by Chile and Argentina.

Battery grade vs. technical grade?

There’s more than one type of lithium product out there. Technical-grade lithium is used in ceramics, glass and other industrial applications, while battery-grade lithium carbonate and lithium hydroxide (which are much more expensive) are used to make lithium-ion batteries; they can also be used for technical applications in a pinch.

The current state of the market

Tesla has stoked a lot of excitement in the lithium space with its gigafactory plans. Benchmark Mineral Intelligence estimates that the Nevada factory could need up to 25,000 tonnes of lithium by 2020, but it’s not the only gigafactory set to come online.

As Visual Capitalist notes, global lithium-ion battery production is set to increase 521 percent by 2020, and China’s battery sector is the largest factor behind that growth.

In short, the world will continue to need a lot of lithium, and some of the major producers are trying to make sure they’ll be able to provide it. For example, take Albemarle (NYSE:ALB), the world’s biggest producer of lithium. In March, the company announced plans to double its production at its Greenbushes mine.

Even so, many market watchers believe that it will be tough for lithium producers to meet demand. As Joe Lowry of Global Lithium recently wrote, “supply will have a hard time keeping up with demand well into the next decade and perhaps beyond.” He has said that new supply from the Mt. Cattlin and Mt. Marion mines will have a “positive impact” on supply.

Lithium stocks, big and small

There isn’t much middle ground when it comes to the lithium space. There’s the “Big 3” — a group of large chemical companies responsible for much of the world’s lithium production — and then there are a number of junior lithium explorers and developers.

The Big 3 is made up of Sociedad Quimica y Minera de Chile (NYSE:SQM), FMC (NYSE:FMC) and Albemarle. Rockwood Lithium was also on that list until its parent company was bought out by Albemarle in 2014. Lithium makes up only a small portion of revenues for these companies, making it difficult for investors to gain exposure to the metal by investing in them.

Orocobre (TSX:ORL) is ramping up production at its Salar de Olaroz project in Argentina and also holds a partnership with Advantage Lithium (TSXV:AAL). Other brine-focused companies include Pure Energy Minerals (TSXV:PE) and Dajin Resources (TSXV:DJI).

Through a joint venture with SQM, Lithium Americas (TSX:LAC) is developing the Cauchari-Olaroz brine deposit, also in Argentina. In February, the company announced that the project continues to advance “as planned.”

Companies focused on hard rock include Frontier Lithium (TSXV:FL) and Nemaska Lithium (TSXV:NMX). Nemaska is a bit further along. In fact, in late March, the company announced the results of initial spodumene concentrate production at its Whabouchi mine

Exact prices?

Getting a look at lithium prices isn’t easy, and that can make it difficult for investors who are looking to assess the viability of a given project. Lithium products aren’t traded on the public market, and major producers don’t often give out stats.

That said, Benchmark Mineral Intelligence is a good place to start. In fact, the company’s managing director, Simon Moores, recently tweeted lithium price projections over the next three years:

It’s expected that Chinese lithium-ion battery makers will cut domestic prices by 40 percent in 2017, although that is unlikely to interfere with global battery markets.

This is an updated version of article originally published by the Investing News Network on September 14, 2015.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: Advantage Lithium, Nemaska Lithium and Dajin Resources are clients of the Investing News Network. This article is not paid-for content. 

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Comments
  • Yes there is a 3rd type of Lithium source, Clay and this doesn’t need any evaporation pools or complex mechanism such as Hark Rock lithium to extract, The Tesla deal with the Sonora Project JV with REM Plc (LON:REM – rareearthmineralsplc.com) is using this as the source of it’s lithium.

    It’s not such a small resource just a very new source, with only 10% of their strike zone explored they can still produce Tesla requirements of 50,000 tonnes of lithium without issue from the amount of resource they have and the clay is on the surface so it’s a open pit operation so should be very cheap to extract and produce, 40kms of continuous / semi-continuous lithium- bearing clays. Currently focused on Beunavista 6 km at surface exposure
    – Drilled circa 3km
    – Highest reported grades of 2,210ppm Li

    Funding for the operation is the only real outstanding issue and Tesla is wanting in on that also so should not be a problem either since the conditions were basically REM need to meet the initial 35,000 MT target in 2 years, with Tesla involved in funding this should not be thought of huge hurdle, especially since REM already have a pilot plant up and running producing the Lithium that Tesla wants at high purity.

    Since the Sonora Project (REM Plc & Bacanora) is only a short train ride from the Tesla Giga Factory this is a big plus point for the USA. And there are approx 20 car assembly plants near by that could want the lithium regardless. With VW and Porsche announce all electric vechicles by 2018 (http://www.cnbc.com/2015/09/14/reuters-america-porsche-and-audi-unveil-electric-cars-to-take-on-tesla.html) along with BMW i8 Series demand is set to rocket.

    REM Plc also own part of Western Lithium as well as a large chunk of BCN as well as another operation in Europe.

    REM Plc may be a small operation at the moment but once finance is in place (with Tesla backing that’s pretty much a given see RNS here http://www.lse.co.uk/share-regulatory-news.asp?shareprice=REM&share=rare_earth_min) and production is started it will be a huge player in the market.

    Musk would not have picked REM Plc as it’s 1st major Lithium supplier if it thought REM Plc couldn’t deliver the lithium. The Tesla Lithium deal with the Mexican Sonora Project (REM plc JV with BCN) breaks the choke hold I think of the ‘Big 3’ on the lithium market, and that’s why possibly the press in general appear to be so flippant about this REM Plc deal..

    The director David Lenigas tweets this as the ‘Saudi of Lithium’ because of the size of the resource here in Mexico.

    As always DYOR.

    Reply
  • That was a ton of info. I just started looking at lithium, and that info that was shared i learned a lot. Curious as to what Company that will be or a private investment. hope a follow up will be coming, thanks John

    Reply

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