Last week, Lithium Investing News took a stab at debunking the peak lithium myth, presenting various statistics and studies that show that the lithium market will be well supplied for at least the next 100 years. While that’s good news for battery companies and electric vehicle (EV) manufacturers, where does that leave resource investors looking to capitalize on rising lithium demand?
The lithium resource market is dominated by four (soon to be three) major players: Rockwood Holdings (NYSE:ROC), FMC (NYSE:FMC), Sociedad Quimica y Minera (NYSE:SQM) and Talison Lithium (TSX:TLH). Rockwood made a bid for Talison in August, but Talison will remain in existence until shareholders and regulators approve Rockwood’s $724 million acquisition bid. For investors interested in junior mining stocks, the key is finding up-and-comers with a strong, seasoned management team and economical projects. Bonus points go to those with strategic off-take agreements.
Any junior lithium company looking to break into the space “must possess some extraordinary competitive advantages through either low-cost production or end user off-take agreements,” Chris Berry, founder of House Mountain Partners, told Lithium Investing News. Most importantly, “whether or not a company can join the ranks of producers is really a question of management experience in the lithium or industrial metals space,” said Berry, who has been following the lithium market for a number of years.
With the market overcrowded and oversupplied, at least in the short term, lithium juniors may be better off positioning themselves as M&A targets rather than focusing on breaking into the ranks of the world’s major producers. That doesn’t mean companies shouldn’t invest effort and money into readying their projects for production. “A great deal of shareholder value can be created in the discovery process as a junior mining company makes a discovery and then advances the project through feasibility to a production decision,” explained Berry. “If the economics are strong enough, you can be sure that this will attract the attention of major producers.”
Much more to the lithium story than electric vehicles
Most of the fervor over the future of lithium demand has focused on the (electrical vehicle) EV market, but Berry reminds us that there are other industrial sectors where lithium is in high demand. “Electric vehicles certainly receive an abundance of press with respect to lithium demand, but I think we need to keep in mind that this is only one of numerous avenues of demand for lithium,” stated Berry. “For example, ceramics, lubricants and glass are also sizable avenues of demand.” Together, these three sectors are responsible for over 40 percent of total lithium demand.
The EV market still has many hurdles to overcome before it can really be considered a main driver of lithium demand, according to Berry, who said he’s “a proponent of bringing more EVs on the roads,” but believes it will be some decades before this sector really begins to place heavy demand on the lithium market. “As the cost of EVs falls, battery chemistry breakthroughs occur, and EV-charging infrastructure becomes more ubiquitous, then it can realize its full potential as a main driver of lithium demand.”
For now, Berry says he’s more optimistic about lithium’s use in grid-scale energy storage. “As billions of citizens in emerging markets move to enhance their quality of life, I think we are on the verge of a third industrial revolution. This revolution involves energy and intellectual property associated with energy generation, usage and storage,” said Berry.
Battery manufacturers, like US-based EnerDel, are already beginning to diversify their business models toward grid storage and home energy storage as governments and businesses around the world seek more energy — and cost-efficient ways to generate and store energy. Last month, Lithium Investing News reported on the use of lithium batteries for utility-scale energy storage, including Pike Research’s latest findings.
“Considerable momentum is building behind newer energy storage technologies, such as advanced batteries, particularly as the renewable energy community embraces storage as a means of mitigating risks associated with variable power generation resources,” commented Pike Research Smart Energy analyst Brittany Gibson. The market for such technology is expected to reach $7.6 billion by 2017 and $29.8 billion by 2022.
“Access to cheap and reliable energy is a hallmark of a growing and sustainable middle class. Billions of dollars are being spent in research labs globally to unlock new forms of intellectual property. Lithium’s properties as a light-weight metal with high energy density position it perfectly to act as a key metal necessary for energy applications,” said Berry.
Berry sees future opportunity for lithium juniors as this third industrial revolution unfolds. “Lithium is, of course, an industrial metal and is subject to fluctuations in global industrial production; but in the coming decades, the junior mining sector can provide the feedstock for this revolution.”
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.