EC The Best Lithium Stocks: Industry Investment Analysis From Mining To Batteries

Lithium, also dubbed “white petroleum,” is one the flashier metals that you will come across. While it is white or gray in typical form, when it is thrown into a fire it turns bright red. Lithium mineral was documented in the 1790’s, but it wasn’t until 1855 that the element was separated and identified.

Lithium (atomic symbol Li) has many unique characteristics. It’s light and soft – soft enough to be cut with a butter knife and light enough to float on water. Further, the metal has a relatively low melting point but a high boiling point. Its uses vary dramatically, from the manufacture of aircraft and batteries to mental health medicine.

In 1991 Sony popularized the lithium-ion battery and now it has become a vital part of nearly every electronic device. Naturally, the use of electronics has taken off with mobile phones leading the way in the last decade. However, electric vehicles are becoming the true drivers of demand, as an electric car requires 5,000 to 10,000 times as much lithium as a mobile phone.

This has caused an interest in investing in the Lithium industry to surge.

This guide gives an overview of the Lithium Industry as well as detailed analysis on lithium stocks and lithium investing.

Lithium Industry Overview 

In 2009 the lithium-ion battery made up roughly 21% of all lithium consumption. Last year about 46% of lithium produced went to batteries – more than doubling its share (in a growing market) in less than a decade. Other important uses include ceramics and glass (27% of the market) and lubricating greases (7%).

Extracting Lithium

There are two main ways of extracting lithium: mining and brine water. Interestingly, about 87% of lithium is extracted via brine water from briny lakes known as salars. The highest concentrations of these lakes are found in Chile and Argentina. Lithium is obtained via evaporation in the form of lithium carbonate, the raw material used in lithium-ion batteries. This process also leaves behind magnesium, calcium, sodium and potassium.

While brine mining is a lengthy endeavor – normally taking 8 months to 3 years – it is still usually easier and cheaper than hard rock mining.

The remaining 13% of lithium is found in traditional mining operations. The concentration of lithium is greater in hard rock mines, but the cost to operate these mines and the environmental and geological impact is much greater. Still, a hard rock mine in operation can be competitive with an upstart brine mine.

While there are 145 minerals containing lithium, just five are used in lithium extraction. Moreover, of these five, spodumene makes up the lion’s share (~90%) of mineral-derived lithium. The mineral is heated, cooled and mixed with sulfuric acid to create lithium carbonate.

Finally, there is a very small amount of lithium that is being recycled from electronics. This method does not provide pure enough lithium to make new batteries, but it is suitable for other uses such as glass and ceramics.

Supply

Total lithium production in 2017 amounted to 43,000 MT (metric tons).

Here are the top lithium producing countries in 2017:

  1. Australia = 18,700 MT (43.5% of worldwide production)
  2. Chile = 14,100 MT (32.8%)
  3. Argentina = 5,500 MT (12.8%)
  4. China = 3,000 MT (7.0%)
  5. Zimbabwe = 1,000 MT (2.3%)

As you can see the production of lithium is highly concentrated, with 98.4% of it being produced by just five countries. Indeed, Australia and Chile alone accounted for three-fourths of the production market last year.

Total worldwide lithium reserves are estimated to be 16 million tons (372 times last year’s production). Here are the top lithium reserve countries:

  1. Chile = 7,500,000 MT (46.9% of worldwide reserves)
  2. China = 3,200,000 MT (20.0%)
  3. Australia = 2,700,000 MT (16.9%)
  4. Argentina = 2,000,000 MT (12.5%)

Here too the lithium reserves are quite concentrated in just a handful of countries. While some reserves exist in other countries throughout the world (60,000 MT in Portugal, 48,000 MT in Brazil, 35,000 MT in the U.S. and 23,000 MT in Zimbabwe for instance) these are not “long-term pools” of resources available to be extracted.

Long-term mining activity will continue to be driven by Chile, China, Australia and Argentina.

Demand

The demand for lithium currently has three main drivers:

  1. Continued mobile device adoption
  2. Energy storage for electric grids / renewable energy
  3. Electric vehicles

As noted above, short and intermediate-term demand for lithium will likely depend on the dynamics of the electric vehicle market. Mobil device adoption will continue to be a driver, but electric vehicles require thousands of times as much lithium and hence have a much larger influence. Batteries for storage for renewable energy could be an important driver down the line, but that is viewed as more of a long-term demand driver.

Bloomberg anticipates electric vehicle sales, which came in at 1.1 million last year, to rise to 11 million by 2025 and to 30 million by 2030, as electric battery costs become cheaper than internal combustion engines. Moreover, the expectation is that China will lead the charge (literally) with electric vehicles making up 33% of the global fleet and 55% of all new car sales by 2040.

EV Vehicle Sales Forecast

Source: Bloomberg New Energy Finance

Additionally, while demand forecasts vary widely, it is largely expected that electric vehicle production will test supply in the years and decades to come. Indeed, some believe that electric vehicle adoption will be stymied by the availability (or lack thereof) of key components like lithium, as the recent ramp up in demand moves much faster the ability to establish new mines, which often take years.

However, despite tremendous expectations, it should be noted that while lithium is an essential part to electric vehicles, it is not necessarily a fundamental cost driver. To give you an example, Tesla’s Model S’ entire battery pack weighs about 1,200 pounds, but the amount of lithium equivalent used is only about 15 pounds.

Battery Pack Cost Increase

Source: Bloomberg New Energy Finance

More important cost drivers could include Nickel and Cobalt, making up 73% and 14% of a typical battery, as compared to 11% for lithium. Tesla’s Elon Musk calls lithium “the salt on the salad,” noting the relatively low expense of the material as compared to the overall cost of the vehicle.

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David Newson 1 month ago Member's comment

I would add $NMX.CA and $ORRP