Lithium & Uranium Are Back

Written by Gerardo Del Real
Posted October 1, 2018 at 2:00PM

German luxury car maker Porsche AG will no longer offer diesel versions of its cars.

Porsche is investing over €6 billion ($7 billion) into hybrid and electric mobility technology until 2022. Every other new Porsche car will likely be electrically powered by 2025, either as a hybrid or fully electric.

Ganfeng Lithium, China’s top producer of lithium, said it’s agreed to a deal with Tesla to supply a fifth of its production to the vehicle maker.

The agreement runs from 2018 to 2020 and could be extended by three years, Ganfeng said.

The Tesla deal follows an earlier announcement with Ganfeng agreeing to supply battery producer LG Chem between 2019-2025 under a supplementary contract.

Its lithium compounds capacity may rise to 75,000 tons of carbonate equivalent at the end of this year, making the producer the industry’s second-largest, according to CRU Group research.

According to Benchmark Mineral’s forecasts, Tesla may need as much as 28,000 tons of lithium hydroxide a year from late next year based on battery output at its Nevada facility reaching the equivalent of 35 gigawatt hours.

Context, as always, is important. Simon Moores of Benchmark — which is one of the most reputable research firms in the lithium space — put it well, saying “These deals are dwarfing the size of the entire lithium hydroxide market from only a couple of years ago.”

Remember when Elon said Tesla would focus on trying to source resources only from American producers? That didn’t work out too well.

In the second quarter of 2018, China produced 265,000 units of new energy vehicles (NEVs), up from 148,000 units in the first quarter but down from 370,000 units produced in the fourth quarter of 2017, according to industry ministry data.

Approximately 500,000 electric vehicles were sold worldwide in 2016. That figure is expected to jump seven fold, according to estimates from the U.S. Energy Information Administration and I think that estimate may prove to be conservative.

Credit tightening in China has led to supply hitting the market, which has led to a lower Chinese lithium carbonate price. That supply, otherwise, would not have been available as companies looked to secure cash, but that is not sustainable.

The electrification of everything is real. It’s a mega-trend that will only accelerate with time.

Another trend that will only accelerate with time is the rising uranium price and the equities that provide leverage to it.

The uranium spot price is now up over 35% in the last six months and the good news is that the juniors with exposure still haven’t left the station.

In the short-mid-term, U.S. producers with low-cost ISR projects, along with cashed-up high-grade players in the Athabasca Basin, are likely to reap the bulk of the gains.

You know where I think uranium is headed.

I’ve told you in the past to focus on companies with excellent management teams and boards.

UEC Chairman Spencer Abraham recently wrote an op-ed published by USA Today outlining his views on the domestic uranium situation here in the U.S.

The article is well worth your time if you speculate in the uranium space and can be found here.

For those of you who like bullet points, here are the main takeaways.

  • 20% of U.S. electricity (and about 60% of our carbon-free energy) has become almost entirely dependent on foreign uranium, much of it from countries with elevated geopolitical risks.
  • At its peak in 1980, U.S. uranium production stood at 43.7 million pounds, enough to supply all of our U.S. reactors and a substantial portion of our allies’ requirements.
  • The United States imports about 40% of the uranium needed to fuel our domestic reactors from Russia, Kazakhstan, and Uzbekistan.
  • The U.S. uranium industry is on track to produce less than 2% of the nation’s requirements, a near-70-year low.

The deadline for comments pertinent to the section 232 National Security Investigation of Imports of Uranium just expired.

The threat posed by such a reliance on foreign uranium is a real issue but don’t underestimate politicians to do what politicians do, which is politicize it. Midterm elections are right around the corner and a firm stance benefiting U.S.-based developers and producers would not only make sense, it would also poll well.

Make sure you have your favorite lithium and uranium juniors in your portfolio.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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