END USERS RUSHING TO LOCK UP LITHIUM SUPPLIES
SUPPLY CHAIN BUYING DOWNMARKET INTO
JUNIOR LITHIUM PRODUCERS
Industrial end-users of lithium are nervous about securing lithium supply–at any price–and they are buying into and buying out junior lithium companies. Demand is ramping and new production is coming on very slowly.
Most recently, Toyota–the first or second largest automaker in the world, depending on the day–bought a 15% stake in junior lithium producer Orocobre (ORL-TSX; ORA-ASE) for US$224 million. Toyota said right in the press release this was to secure lithium supply. Toyota is the first–and largest–non-Chinese company to move quickly in the face of rising lithium demand and prices.
Last November, Lithium X (LIX-TSXv) was bought out by a Chinese investment company called NextView New Energy Lion Hong Kong Ltd. Lithium X was in the public markets for less than two years, only raised $50 million and was purchased for $261 million.
-Belgium-based Umicore, committed 460 million Euros in cathode capacity expansion.
-Germany’s BASF signed an MOU with Norway’s Norilsk for 400 million Euros to expand battery cathode production in Europe
-Great Walls Motors–China’s largest producer of SUVs–invested $28 million in Aussie-listed Pilbara Minerals and signed an off-take agreement
Looking at Lithium X, and the fact that Pilbara is not even in production (but will be later this year) is a clear example of Chinese interests locking in supply through the next decade.
China does most of the world’s lithium processing, so it’s no surprise to see a Chinese company be the first to do this—nobody knows how tight the lithium market will be in a few years better than them.
But this trend also speaks to–end users do not trust the major producers to ramp up production fast enough to meet demand—which is The Big Surprise. There were many “smart” investors sneering when the lithium boom took off in early 2016—saying that the major producers could increase production quickly and easily.
But that hasn’t been the case.
Lithium may be abundant, but getting permits and technical expertise to bring it to market has proven to be exceedingly rare. Albemarle (ALB-NYSE) has had a very difficult time bringing their new La Negra asset into production. Orocobre, a junior producer, is just getting through two painful years of delays and under-performance at their Olaroz brine deposit.
Chilean lithium producer SQM (SQM-NYSE) rocked the lithium world recently when they got approval to increase production by 216,000 tons way up in the Atacama Desert. But that production is YEARS away. They still have to find the labour, get the permits, build the mines, wait two years for evaporation…this will have no impact for five years at least.
And that’s why investors are rewarding lithium stocks as they get to production. Orocobre’s stock has doubled in just 4 months to $6.70 as they fixed their problems. Albemarle was a triple in the last 2 years, hitting over $140/share.
Even the near term producers are seeing big stock runs, like Nemaska Lithium (NMX-TSX), saw their stock double in the last six months of 2017, as they develop a lithium production facility in Quebec, Canada.
Yes, the lithium supply chain–from top to bottom–is nervous about securing supply, both inside and outside China as the tightness in the lithium market continues. In 2017, over US$1.3 Billion was committed to or invested in lithium development.
A new lithium mine costs roughly US$400 million (higher for brine, lower for hard rock). Demand forecasts show at least one new mine is needed per year out to 2025 (around 35,000 tpy at a 14% CAGR), so this pace of funding needs to be maintained and could total as much as $3 to $4 billion USD just in mine development.
And all this investment is upstream, to source raw material supply—I’m not even counting the millions that needs to be spent on refining and processing.
HOW LITHIUM INVESTORS MAKE MONEY NOW:
The physical lithium market is really tight right now, with prices in China over $20,000 per ton, and $14,000-$16,000 outside of China. SQM’s new production announcement will help lithium supplies in a few years–but the lithium market is, and will remain, hugely profitable in the short to medium term.
That’s why I think lithium stocks stay much stronger for much longer; the industry is now putting its money on the line to guarantee supply for the long term.
The industry majors actually have a poor track record in bringing new production online—hence the Big Home Run in new producers and near term producers like Nemaska (a double in six months) and Lithium Americas (LAC-TSX) which went from $4-$14–a triple–in six months.
But I’m not interested in owning stocks that have ALREADY had The Big Home Run. I want to find The Next One.
And I have found it. I had to work hard to find this one, because this top managment team has been very quietIy building an incredible asset base–right in the USA. And now I am so convinced that this company can be in commercial production faster than anyone else I see out there.
There are so many angles here; they have so many big advantages over other companies:
1. Permits in place
2. They can produce lithium from brine in 48 hours vs. 18 months in evaporation ponds
3. This will make them one of the lowest cost lithium producers in the world (probably THE lowest but I don’t want to get too excited)
4. They will be a home grown US producer–that’s right, this company’s big brine deposit is smack dab in the middle of the USA!!! And lithium is on President Trump’s list of critical metals.
Being able to produce commercial lithium from brine in 48 hours is an absolute game changer. The best part is…everything is off-the-shelf technology. There’s no technological Holy Grail; the industry didn’t try to do this before because it didn’t need to. But now it does. Getting SQM’s new 350,000 tons of lithium by 2030 doesn’t help anybody now.
I think The Next One in lithium is a Game Changer. The speed at which this company will be able to produce lithium will turn everyone’s head. And they have the technical team and the finance team in place to do it–it’s about to start!
Plans for the pilot plant are already underway. Their next few catalysts—all within weeks to months from now—will move the company forward so quickly, it will quickly move up the value chain. And the Big Institutional Money (BIM) will flock to it.
I have never seen a team fast track production like this. This is the single most impressive technical team I’ve come across in the junior lithium space. And I’m going to introduce them to you in my next story.
Get yourself ready, as I give you the name, symbol and reasons why my lithium stock will be The Next One to hit The Big Home Run for investors.
In the next wave of Lithium Stock Home Runs—as Big Institutional Money bids up the next round of stocks—having permits, and fast-tracking production, will be key. And this company has it all.