Friday 22 September 2017

Lithium has all the elements of a very sound investment as it powers future

Jesse Riseborough

INVESTORS from JPMorgan Chase to BlackRock are trying to make money from the exploding popularity of iPads and increasing sales of hybrid cars by investing in producers of lithium for batteries.

Prices for the conductive metal, the lightest in the periodic table, have tripled since 2000 in a market now worth $1bn (€794m) a year as uses expand in vehicles, ceramics, electronics and lubricants.

Apple and Toyota, maker of the Prius electric-gasoline car, have few alternatives as they pursue higher performance and mobility, leading Dahlman Rose analysts to forecast lithium demand will double by 2020.

Talison Lithium, whose shares have gained 22pc in the last month, together with Soc. Quimica & Minera de Chile SA, Rockwood Holdings and FMC, account for almost 95pc of world supply.

Rio Tinto Group, the third-biggest mining company, may join the largest suppliers if it goes ahead with a mine in Serbia it says is capable of producing 20pc of global output of the metal.

"There are some companies now that we think are attractive to get a hold of lithium exposure," Evy Hambro, who manages about $13bn in mining stocks for BlackRock in London, said. "We've got a small exposure today and we're looking for some more," he added without naming any companies.

Doubled

Demand for lithium-ion rechargeable batteries out of Asia has helped prices climb threefold in the last 12 years, London- based Roskill Information Services analyst Robert Baylis said.

Global use doubled from 2000 to 2011, according to Roskill, which has recently consulted on six lithium projects.

The advantage of lithium-ion over other battery types is that a typical cell can generate more electricity than competing cells such as lead-acid.

There is about 1.7 grams of lithium carbonate equivalent in a mobile phone, 2.1 grams in a smartphone and 20 grams in a tablet, according to Dahlman Rose.

There will be a "step change", in the global lithium industry in 2016 or 2017 when electric cars become more commonplace, Rockwood chief executive officer Seifollah Ghasemi said.

Hybrid electric vehicles that are fitted with a lithium-ion battery contain about 1.3kg of the material, plug-in hybrid electric vehicles have about 12.8kg, while an electric vehicle uses about 19.2kg.

The four-strong lithium "oligopoly has the capacity to significantly ramp supply higher, but it will take time and significant capital to accomplish," Dahlman Rose analysts Anthony Young and Anthony Rizzuto said in a May 16 report.

"There are a limited number of known high-grade resources that can be economically extracted and there has not been a new lithium mine constructed in the last 25 years."

Global consumption may jump to 300,000 metric tons a year by 2020 from about 150,000 tons now, Dahlman Rose said in a June report. Demand for lithium batteries has been growing at about 25pc a year, outpacing the 4pc to 5pc overall gain in lithium, the firm said.

"Anywhere between a doubling and a tripling of demand in the next 10 years is absolutely our view," said Peter Oliver, head of Talison, the biggest producer.

"Maybe a doubling is with minimal impact from electric vehicles and if electric vehicles take off in a big way in the next 10 years it could be as much as tripling."

Neil Gregson, manager of about $6.9bn in natural resource assets at JPMorgan Asset Management, said he's studying investing in the industry.

"You can't see any reason why that won't be a high growth market for many, many years. It's a very interesting area."

Chile, the second-biggest producing country behind Australia, last month said it will award 20-year concessions to exploit lithium brine in salt lakes. The plan allows developers to mine as much as 100,000 metric tons of the mineral over 20 years.

'Critical'

Rio's Jadar project is in pre-feasibility, which involves conducting studies to better understand the parameters of the deposit and any social and environmental impacts, the company said.

Lithium is "going to be so critical to that future world of electric vehicles and hybrids", Tom Albanese, CEO of Rio Tinto, said in London back in April.

"We've got a lot of interest from Japanese companies, from Korean companies that actually want to be in the forefront of hybrid and lithium technologies so I'm actually pretty excited about the project." General Motors' Chevrolet Volt was the best-selling rechargeable car in the US in May, topping Toyota's Prius and Nissan Motor's all-electric Leaf hatchback.

Deliveries of the GM plug-in sedan more than tripled in the month. Suppliers of lithium have benefited as some car-makers switch from older model nickel-cadmium batteries to lithium-ion.

Rockwood proposed a price increase of $1,000 a tonne in May, or about 22pc, for lithium salt sold to customers in the year starting July 1.

It said the higher price would allow it to fund expansion of its mines. Talison's Oliver said he raised prices 15pc in the first-half and expects to increase prices again in the second-half.

"The outlook for lithium is very strong in light of some of the uncertainty of other metals such as copper and many of the industrial metals," Jonathan Lee, a battery materials and technologies analyst at Byron Capital Markets, said.

"Lithium has grown roughly at 10 to 15pc over the past two years on a per-annum basis. We're having another strong year this year." (Bloomberg)

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