Lithium and the new technology

With global auto makers suggesting that oil-powered cars will be declining into oblivion by 2030, battery-electric powered technology has a positive future development curve.

Source: Bloomberg

Tesla has announced that the sales of Powerwall (lithium ion) units in Australia will begin in early 2017.

A solid lithium polymer metal battery — when it arrives commercially — will allow electronics designers to be more creative, because they will be able to use a plastic-like material (the polymer) that allows smaller and more flexible packaging, and requires fewer complex safety mechanisms.

The Breakthrough Energy Venture Fund (BEV) headed by Bill Gates lists energy storage as one of its key investments. The fund is specifically in place to take ideas from laboratories to early stages of commercial viability, with ultra-low cost electricity storage cited as one of the quests.  

Australia has 14 listed companies in the lithium space. Of these 14 listed companies, only four have JORC-compliant* ore bodies. Lithium and its compounds have several industrial applications, including heat-resistant glass and ceramics, lithium grease lubricants, flux additives for iron, steel and aluminium production, lithium batteries and lithium-ion batteries. These uses consume more than three quarters of lithium production.

While there is a lot of interest in lithium as mineral of the future, it is already in wide use and readily available, meaning supply equals demand at this point in time. Lithium never occurs freely in nature, and instead, appears only as a compound. There is some work to do to extract the lithium substance. Enter, the four Australian JORC compliant lithium miners.

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The common element on all four charts are the highs made between April and July.
The standout chart is GXY and ORE both attempting a rally back to the April/July highs, whereas AJM is at risk of moving back to the support level below 10c.

Galaxy (GXY) has made the point that the lithium sector overall has been and continues to be undercapitalised. Since September 2015, A$510m of equity capital has been raised to increase production. Galaxy has divested its China-based processing facility as a cash raise to develop further mines in Argentina.

ORE, dual listed on the ASX and Toronto exchange with operations in Argentina, operates on US$5,755 gross margin per ton after operating costs of US$3579/t. Orocobre also produces boron products used in high-tech glass and LED screens and solar panels. Thus, the company’s fortunes are not solely based on the current interest in lithium.

Neometals Ltd (NMT) in a joint partnership with mineral resources MIN, is in the early stages of feasibility studies to open a carbonate processing plant. The plant will use existing processing methods to extract lithium carbonate.

Altura (AJM) is in the development stage of a mine with ore extraction, expected to start in Q3 2017. The company is in the cash burning stage before any revenue from sales appears. Referring back to the chart, this highlights the potential for price weakness leading into first production.

For investors, the lithium space can be rewarding for the long haul, with a diverse array of individual company metrics. The investing opportunities will come from announcements and developments in the expanding use of lithium in commercial electricity storage and ion battery space, which, from all reports, is the way of the future in automobiles and household power storage.

Traders looking for a short-term opportunity using proper money management techniques would be looking for momentum in price and trend rather than holding positions waiting for price trends to develop. In the early stages of mine and industry development, the risks include cost overruns and fluctuating base prices for the product, as more supply comes on line as this new technology grows. 

*JORC Mineral resource classification is the classification of mineral deposits based on their geologic certainty and economic value.

Mineral deposits can be classified as:

  • Mineral resources that are potentially valuable, and for which reasonable prospects exist for eventual economic extraction
  • Mineral reserves or ore reserves that are valuable and legally, economically and technically feasible to extract

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