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As lithium supply catches up with demand, 4 players are riding the surge

The global supply of lithium may be catching up with demand, according to recent reports
electric car
The future of lithium (and its fortunes) could rest on the heels of electric vehicles taking hold

Chances are if you’re reading this on a smartphone, tablet or laptop, there’s a lithium-ion battery powering your device.

While electronics may have been an original consumer, the boom in electric vehicles (EV) is now fueling much of the demand — one example being Elon Musk’s Tesla Inc (NASDAQ:TSLA), which has based its entire business on lithium-ion technology.

A critical component in these batteries? Lithium: the soft, silvery-white alkali metal is the lightest metal and the lightest solid element. It exists in a compound form alongside other minerals, usually in igneous rock or in brine pools.

According to research by Deutsche Bank released this week, there’s positive news on the horizon for lithium, as analysts believe supply is catching up to demand.

“We continue to forecast a surplus, albeit smaller than previous forecasts (mainly due to some supply disappointments), between 2019-2025,” said the report. “The surplus is a result of South American brines and hard rock conversion capacity additions expected in China and Australia.”

Another recent report by Ademe, the French Environment and Energy Management Agency, echoed the sentiment, stating lithium supply may not be a serious issue even by 2050. The authors said that only with a 75% penetration of electric vehicles there is a supply risk.

According to both reports and echoed by many others across the industry, the primary risk factor for lithium comes from a lack of players in the global lithium industry.

In short, there’s a monopoly held by a handful of countries: Chile, China, Argentina and Australia. Other countries have smaller reserves, including Portugal, Brazil, the US and Zimbabwe.

According to Ademe analysts, there is a global split in the lithium market: an Atlantic market, with Europe and North American being primarily supplied by South American producers, and an Asian market, meaning China is provided with lithium from its own domestic industry and Australia.

Recent market sentiment has been pessimistic

According to the Deutsche Bank report, “market sentiment has been pessimistic following the fall in Chinese lithium pricing and supply expansion plans announced by most companies.”

Chinese lithium prices have remained under downward pressure, with the spot price in dropping in 2018, as the market absorbs supply from a number of sources, primarily Australia, with new hard-rock mines coming online.

The spot lithium carbonate market dropped from an average of US$26.18 per kilogram in December 2017 to US$11.23 in October 2018, according to Fastmarkets MB.

Keep in mind this is purely a domestic Chinese price, which reflects the price of lithium carbonate ex-works in China. That said, there is little doubt that China is powering the growth in lithium-ion battery manufacturing.

Look beyond China, however, the price of lithium has continued generally on an overall upward trend since 2015 (see chart below), with some dips in recent months. 

The difference in these numbers is important: it shows the divergence in lithium pricing.

And according to Deutsche Bank, even if the market triples, there are 185 years’ worth of reserves in the ground. 

Other companies helping to pave the path

Clearly, these events have implications for North American companies with a focus on lithium.

Canadian-based 92 Resources Corp (CVE:NTY) is one company that is exploring options within North America, with six properties in Canada across numerous provinces and territories. 

The company has its flagship Hidden Lake Project in the Northwest Territories but also recently announced that it had discovered lithium-bearing pegmatite at its Pontax Property in Quebec this summer.

READ: 92 Resources finds lithium-bearing pegmatite at Pontax

"The discovery this summer of lithium-bearing pegmatite with strong associated tantalum, situated wholly on the property, is very exciting and represents a solid target for focused exploration moving forward," said its president and CEO, Adrian Lamoureux.

LithiumOre Corp (OTCQB:ORRP) is a player that is tapping into the Nevada market — with 1,300 accepted lithium mineral claims, totaling 26,000 acres, located in Railroad Valley of Nye County, Nevada. The stock was rated a Buy by Riedel Research last week.

WATCH: LithiumOre poised to begin drilling at Western Nevada Basin Project  

David Riedel, CEO of Riedel Reseach, told Proactive Investors that lithium has become a "critical part of the most efficient battery technology" in industries ranging from electric vehicles to portable electronic devices.

"LithiumOre is positioning itself to be a very substantial player," he said. "We think it is a buy where it is today. It has a lot of upside."

He calculates demand for lithium is heading north of 50,000 tonnes annually and in a few years will be "probably triple" what it is at this time.

Looking south to possibilities

One World Lithium Inc (CSE:OWLI) is a company that is looking south, recently raising around C$1.24M, mainly to fund drilling at the Salar del Diablo lithium property in Mexico. The property covers a 290 square mile lithium in a brine prospect located in the Baja Peninsula of Mexico. 

The company is ready to start drilling there and is fully funded for this drilling program. The aim is to have drills in the ground in the first quarter of 2019. 

WATCH: One World Lithium project Salar del Diablo is fully funded and drilling is ready to begin

Neo Lithium Corp (CVE:NLC) is another company with eyes on the south — namely, its Tres Quebradas lithium ore body in Argentina. 

The company has one of the highest grade, lowest impurity lithium projects in the world. It recently completed its environmental base study (EBS) for its 3Q project in Argentina, which concluded there were no issues to impede its development.

READ: Neo Lithium reaches further milestone with environmental base study as it updated on operations

The demand for lithium is set to grow, with the electric vehicle trend a catalyst that will continue to propel this demand forward. 

The International Energy Agency has made a forecast that there will be 125 million electric vehicles by 2030 and says government policies will continue to be the linchpin for adoption.

Either way, eyes continue to focus on lithium as the rollout of EV continues. 

-- Rene Pastor contributed to this report --

Contact Katie Lewis at [email protected]

Follow her on Twitter: @kelewis

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