Lithium Investors Recognize Potential Outlook for Energy

The most recent Resource Investing News 2011 Network Audience Survey revealed that the majority of respondents that focus on lithium consider energy to offer the greatest potential for investment in the future and a significant number of these respondents have been active in trading this year. The month long study was conducted in early fall, following up on previous research conducted last November, May and at the end of 2009.

The most recent results indicate that 19.5 percent of respondents consider lithium related companies to be a focus of their investment activity. Of these respondents, 58.8 percent consider energy to offer the greatest potential for investment and as many as 70.6 percent are planning to invest in exploration and resource mining companies in the next six months.

While the research indicates focus on lithium investment has declined 11.8 percent among respondents from a survey in November when as many as 31.3 percent had invested in lithium; interest in lithium was still 12.5 percent stronger than an initial survey conducted in December of 2009.  More than 40 percent of total respondents in the current research indicated that energy offered the greatest potential for investment and of those respondents, as many as 27.1 percent were focused on lithium.

With macroeconomic concern and financial instability representing broad themes for most of the year, global equity markets and even companies involved in energy related themes have experienced short term share price volatility. While the Byron Capital Markets lithium index is down 39.0 percent over a one year period; however some of the largest lithium brine producers have actually outperformed. Investors will note that although SQM (NYSE: SQM) and FMC Corporation (NYSE: FMC) have demonstrated higher single digit share price appreciation over the last 12 months, both are diversified chemical companies with multiple revenue segments representing a cross section of markets and are not exclusively related to lithium production or downstream industrial activities.

The Global X lithium ETF (NYSE:LIT) may provide a broader proxy of a more extensive scope of the lithium value chain.  Including mining, refining, and exploration ventures in addition to battery and energy storage solution manufacturers, the fund also offers some diversification of exposure across geographies and sector allocation.  The fund is down about 23.3 percent over a one year period.

Lithium price dynamics

There are also signs for the underlying business environment improving for lithium investors. In a press release last week, Rockwood Holdings’ (NYSE: ROC) Chief Executive Officer, Seifi Ghasemi stated, “Continued strong volume growth in our lithium, surface treatment and clay-based additives businesses, combined with improved pricing in titanium dioxide and lithium, enabled us to more than double our adjusted EPS for the quarter. All of our business units have improved performance versus last year.” Ghasmei explained during an earnings conference call with analysts “[with] the lithium business [segment] that business is growing 10 percent or better and we feel very strongly that, that will continue into 2013, 2014 and might even get better.” Providing context on his outlook he suggests strong support for confidence in the lithium industry, “[as for] organic growth, we are investing significantly in our lithium business most of our capex is going there.”  He was particularly optimistic about the, “increased demand in [batteries for] power tools and by the demand which is beginning to materialize little by little for batteries for electric cars. So, as a result overall our lithium business continues to grow and we are actually very bullish about them.”

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