By Dave Brown —Exclusive to Lithium Investing News
According to the United States Geologic Survey, top producing countries for lithium last year were Chile with 7,400 tonnes; Australia 4,400 tonnes; China 2,300 tonnes; and Argentina 2,200 tonnes, with worldwide estimates totaling 18,000 tonnes. These totals were down from the previous year’s production of 25,400 tonnes in 2008 reflecting a difficult environment for producers that faced increasing expenses coupled with reduced immediate demand as a result of the global financial crisis. Market conditions deteriorated for lithium-based products in 2009. Sales volumes for the major lithium producers were reported to be down between 15 percent and 42 percent by mid-2009. Consumption by lithium end-use markets for batteries, ceramics and glass, grease and pharmaceuticals all declined.
The limited number of publicly traded companies that are engaged in the extraction and production of lithium is even more concentrated than the geographical extent of operations; however the dynamic industry experienced some important developments which investors have taken notice of this year.
Sociedad Quimica y Minera de Chile S.A., or SQM (NYSE: SQM), is a major Chilean producer of specialty plant nutrients and chemicals. Despite being a top producer of lithium in the world, the lithium component of the company’s total sales last year represented approximately only 8 percent. In September, SQM delivered strong first half earnings, reporting an annual net income increase for 2010 of over 4.2 percent to $181.5 million. Revenues represented a 29.5 percent increase over the comparable period last year. Segmented revenues for lithium showed a considerable relative improvement recording an increase of 47.6 percent compared with last year.
FMC Corporation (NYSE: FMC) is a diversified chemicals company with strong competitive positions in agricultural, industrial and consumer markets. Last year, the lithium component of FMC’s operations represented 23 percent of the specialty chemicals business unit, which was attributable for 27 percent of the company’s consolidated revenue. In October, FMC reported net income of $82.9 million, in the third quarter of 2010, versus net income of $28.0 million, in the third quarter of 2009. Net income in the current quarter included restructuring and other income and charges of $0.6 million after-tax, versus restructuring and other income and charges of $37.3 million after-tax, in the prior-year quarter. On Thursday, December 2 the FMC executive team will share their collective vision for profitable growth over the next 4 years at a New York based conference for institutional investors.
The Chemetall Foote subsidiary of Rockwood Holdings (NYSE: ROC) is a global enterprise focused on products and processes for the chemical treatment of metal surfaces and plastics and fields of fine chemistry. Last week the parent company reported third quarter results with higher total sales volumes which were partially offset by lower selling prices of lithium carbonate and higher raw material costs. The specialty chemical business unit reported a 19 percent increase over the previous year’s third quarter total sales to approximately $137.5 million. On November 9, the parent company hosted a formal investor meeting. Seifi Ghasemi, chairman and chief executive officer, reviewed the company’s accomplishments over the past two years, strategic goals and growth initiatives.
Talison Lithium Limited (TSX:TLH) mines and processes lithium bearing mineral spodumene at Greenbushes near Perth, Western Australia. The company produces a range of lithium concentrates that are distributed to a well-established global customer base, including China. In July, a binding letter agreement was executed to combine Talison with Salares Lithium Inc. (TSXV:LIT) in order to strategically merge their respective lithium assets. Last month, Talison released unaudited year-end results for its Greenbushes lithium mine in Western Australia. The highlights included a 33 percent increase over the previous year’s production of lithium concentrate as of June 30 with sales also increasing over the previous year by approximately 19 percent.
Development and Exploration Stage
With the seemingly inevitable promise in the electric car space and forecasted international demand for lithium within a mid to long term investment horizon, there are many lithium exploration and development companies that could be worthwhile for investors to monitor. As the industry has already experienced some consolidation and joint venture projects over the last year, the investment environment seems receptive to merger and acquisition activity. This would tend to favour advanced level developmental stage companies trading at relatively attractive valuations that could be immediately accretive in a merger or strategic reorganization. Investors might also consider some of the larger capitalized opportunities for longer term opportunities.
Galaxy Resources (ASX:GXY) is an advanced level developmental mining and chemical company focused on lithium and tantalum production. The company has a hard rock spodumene lithium project called Mount Cattlin, near Ravensthorpe, Western Australia. The project encompasses a mine and minerals plant and the company intends to establish a downstream lithium processing facility in China. Last week, Galaxy announced plans to list on the Hong Kong Stock Exchange and develop a strategic foothold in Asia to move towards a vertically integrated business model and production and marketing of E-Bike lithium batteries. The intention is for long term investors to potentially benefit from higher operating margins.
Lithium Americas Corp. (TSX:LAC) is a junior exploration company focused on the exploration for lithium, potassium, borax and other minerals in Argentina. As of March 15, the company had rights over approximately 146,821 hectares in five salt lakes in the Jujuy and Salta Provinces with principal properties including a portion of two adjacent salt lakes, Cauchari and Olaroz, approximately 250 kilometers northwest of San Salvador and 100 kilometers east of the international border with Chile. The Cauchari-Olaroz Properties include 70 mineral exploration permits that cover approximately 64,572 hectares in the Puna Plateau. This year, the company has had a number of news developments of interest including important strategic alliances with some international corporate investors.
Orocobre Limited (ASX:ORE) is an Australia-based mineral exploration company. The company focuses on lithium, potash and boron resources in Argentina. The company’s projects include Salar de Olaroz, Santo Domingo and South American Salars. Orocobre has joined forces with Toyota Tusho to develop Salar de Olaroz, and expects to complete the Definitive Feasibility Study on the project by next spring, with initial commercial production starting in 2012 and positive operational cash flows by the end of the next fiscal year. Last week, the company released its annual report and announced an initial drilling program at Salinas Grandes to assess the sub-surface geology and hydrogeology with the objective of estimating an inferred resource at Salinas Grandes by next spring.
Canada Lithium Corp. (TSX:CLQ) is an exploration company with interest in a Quebec lithium property located near Val D’Or, Quebec. The project consists of 12 contiguous claims covering 404.69 hectares. Canada Lithium has completed initial metallurgical tests for the production of spodumene concentrate, and through further processing, the production of battery-grade 99.6% lithium carbonate. The company is conducting a definitive Feasibility Study which could lead to construction of an open pit mine and processing plant by late 2012. Canada Lithium has had a number of interesting news developments this year including a distribution agreement with a Japanese metals trading firm, Mitsui and Co. Ltd., to market a portion of the company’s product in China, Korea and Japan.
Western Lithium USA (TSX:WLC) is engaged in the development of a lithium resource located in northwestern Nevada. The company anticipates the completion of an initial stage prefeasibility study to be completed next year and has set an objective for production of stage one in 2014. According to an NI 43-101 preliminary assessment and economic evaluation, Western Lithium forecasts estimated average revenue at $263 million per year for stage one of its operation. The company notes that its project in Nevada is strategically located to meet US domestic market requirements offering staged and scalable development as production increases are matched with incremental demand growth.