Ground Zero of the Global Lithium Boom
We've talked a lot about the global lithium boom these past few weeks — and for good reason.
It's the hottest commodity on the market. Lithium isn't over-supplied like oil and it's not affected by monetary policy like gold and silver.
It's under-supplied, and demand is rising rapidly.
Lithium prices have boomed as a result, surging 43% this year.
Indeed, lithium was selling for $5,000 per metric ton just nine months ago. Now it's at $8,500 and could make $10,000 by year-end.
But enough about that.
The real question is, who's profiting?
Well, I'll tell you...
There's one country that's at the very center of the global lithium boom, and that's Australia.
Australia is the world's largest supplier, on pace to produce 64,000 tons of lithium this year, according to Macquarie Research. It's also home to the two biggest lithium mines.
The biggest lithium mine is currently the Greenbushes lithium mine in southwest Australia. It's owned by Talison Lithium, which itself is 51% owned by China's Sichuan Tianqi Lithium Industries. U.S.-based Albemarle (NYSE: ALB) holds the rest.
Greenbushes is the world’s largest single lithium reserve. It has a proven and probable mineral reserve estimate of 61.5 million tonnes of spodumene ore grading at 2.8% lithium. (Note: 2.8% is extraordinary high quality.) That translates to roughly 4.3 million tonnes of lithium carbonate equivalent. It's also been operational for more than 25 years, making it the longest continuously operated mining area in Western Australia.
There are two lithium processing plants on-site that recover and upgrade the spodumene mineral into a range of products for bulk or bagged shipment.
The operation is just 150 miles south of Perth, and has ready access to multiple ports. That makes shipping to China a snap. And that's really Australia's greatest advantage.
You see, Australia may be the world's biggest lithium producer, but it's actually not home to the world's biggest reserves. That would be Chile. What makes Australia tops in the game, though, is that it's got a robust mining industry and close proximity to the Asian market.
China has been a chief driver in lithium demand. The country aims to have 5 million electric vehicles on its roads by 2020. Sales of “new energy” vehicles there nearly tripled last year. Meanwhile, major electronics manufacturers in Korea and Japan require lithium as well.
That's what puts Australia squarely in the middle of this new boom.
As such, Talison Lithium is joined there by many competitors, including Pilbara Minerals (ASX: PLS).
Pilbara is proprietor of the world's second-largest lithium project — Pilgangoora. The company's most recent mineral resource update, published in July, showed measured, indicated, and inferred reserves of 128.6 million tonnes of spodumene grading 1.22% lithium, good for roughly 1.57 million tonnes of lithium oxide.
Unlike Talison, Pilbara is the project's sole owner.
The company recently raised $100 million through a share placement to fund the project, and expects to begin operations next year. It's also signed an offtake agreement with Chinese firm General Lithium.
Pilbara chief executive Ken Brinsden says potential Chinese customers are already building new processing operations, noting that most westerners aren't aware that many Chinese electric car makers there are buttressing demand.
He says his company will increase focus on new lithium developers and look for low-cost operations with proximity to ports.
Neometals (ASX: NMT), another player, is looking to commercialize its lithium resources at Mount Marion in the goldfields region of Western Australia. It will launch a pilot plant in the fiscal year of June 30, 2017.
And Galaxy Resources (ASX: GXY), which is in the middle of a friendly merger with General Mining (ASX: GMM), resumed production at its project at Mt Cattlin in July.
Yet, even with all of these miners rushing into action, there's still a concern that lithium suppliers will fail to meet demand.
“There’s a step change going on right now,” Michael Fotios, executive chairman of General Mining Corp., told Bloomberg. “Raw material supply hasn’t kept pace, and probably can’t keep pace with the projected demand.”
Macquarie estimates global demand will rise to more than 260,000 tons in 2020. Metals and minerals consultancy Roskill Information Services has a similar estimate, pegging its base scenario for lithium consumption at 290,000 tons in 2020. However that figure rises to a whopping 420,000 tons in its "optimistic" scenario.
In any case, 2020 supply figures to be less than 238,000 tons. So the shortfall is apparent.
And that's why lithium and the companies mining it have seen such a huge run.
Galaxy has gone from A$0.01 a year ago to A$0.40. General Mining went from A$0.04 to A$0.74 before being absorbed by Galaxy. And Pilbara is up 316% over the past year, soaring to A$0.52 from just A$0.10.
These stocks will likely trade even higher in the years ahead.
But if you really want to get ahead you should check out Nick Hodge's latest lithium report. He's found what's probably the last “sleeper” play in the industry.
It's got the largest land package in North America and is directly adjacent to the only producing lithium brine operation in all of North America. He even went to visit the project himself earlier this year.
Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of The Wealth Warrior, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page.
You'll Never Be On the Inside!
After getting your report, you’ll begin receiving the Outsider Club e-Letter, delivered to your inbox daily.