5 Innovative Companies Changing the Lithium Game
LONDON, April 3, 2018 /PRNewswire/ --
FN Media Group Presents OilPrice.com News Commentary
In the twentieth century, the world ran on oil. Now, the future rests on a new mineral: lithium.
A crucial component in battery-storage technology, lithium will be needed in larger and larger quantities, as the world's fleet of electric vehicles (EV) grows and more and more renewable energy capacity is installed. Mentioned in today's commentary includes: Tesla Inc. (NASDAQ: TSLA), Sociedad Quimica y Minera de Chile (NYSE: SQM), FMC Corp (NYSE: FMC), Albermarle (NYSE: ALB), Rio Tinto (NYSE: RIO).
Renewable energy sources like wind and solar depend on large lithium batteries to store energy and provide reliable output. In 2016, renewable energy accounted for nearly two-thirds of net new power capacity, adding 165 GWs worldwide.
The International Energy Agency (IEA) estimates [https://www.iea.org/publications/renewables2017 ] future renewable energy capacity additions will outpace coal, and grow by almost 90 percent from 2017 to 2022. This means opportunities for growth in the lithium tech and mining sectors could be immense. The last two years have been good ones for lithium miners, who saw their valuations go up and up, thanks to concerns over under-supply. In January 2018, some lithium stocks took a tumble after a bearish report from Morgan Stanley threw some cold water on estimates for future growth. But those concerns have subsided, and now stocks are surging again.
Here's five stocks to look at in the lithium sector:
#1 Tesla Inc. (NASDAQ: TSLA)
The key innovator in the electric vehicle (EV) sector, Tesla is now under greater pressure to deliver in 2018 after an underwhelming 2017. The company rolled out its Model 3 in 2017, an electric sedan that was designed to bring the company into the general consumer market. The famously-profligate firm blew through $3.5 billion in cash getting the Model 3 on the market, but production has been slow. While firm stats are tough to come by, Bloomberg estimates only about 10,000 Model 3s rolled off the assembly line in the last few months of 2017. Tesla CEO Elon Musk wants to sell 50,000 Model 3s per year, but right now he's being outpaced by his competitors, who have rushed Tesla copy-cats to market. Volkswagen, the world's leading car manufacturer, has placed $24 billion in battery purchases, exceeding the $17.5 billion allocated by Tesla. Still, the Tesla sock has been bouncing back [https://www.marketwatch.com/story/tesla-stock-pops-the-most-in-more-than-two-months-2018-03-12 ] , and came in as the No. 2 performer on the NASDAQ in early 2018. Morgan Stanley predicts that Tesla will overcome bottlenecks and reach production goals in 2018 and lift the stock to $380 from its current $340 level.
#2 Power Metals Corp. (PWM.V [https://finance.yahoo.com/quote/PWM.V?p=PWM.V ]; PWRMF [https://finance.yahoo.com/quote/PWRMF?p=PWRMF ])
Most lithium mining, particularly the big projects down in South America, is done through salt-brine evaporation. The process is slow, expensive and potentially damaging to groundwater aquifers, which presents problems to long-term viability. Some companies have shifted away from salt-brine towards hard rock lithium mining. One such company is Power Metals Corp [https://finance.yahoo.com/quote/PWM.V?p=PWM.V ]., a small firm that sits on a potentially vast deposit of lithium in the snow-covered rock of Ontario, Canada. Through an exciting new innovative method presented by their JV working interest partner, Power Metals is aiding in the development of a cheaper and easier method of lithium extraction than salt-brine evaporation, PWM is drilling into "pegmatite," unique crystal rock formations loaded with high-grade lithium spodumene. The company has three resource properties, and its major finds are coming out of Case Lake in Ontario, Canada. The industry standard for average cutoff grade on hard rock lithium deposits sits at 1 percent lithium. Power Metals' Case Lake deposit is well above average, with surface samples which are really impressive. See Power Metals' own press releases of January 2018 to get details. However, these high-grade samples are only one part of this equation. The other is the fact this deposit is located right at the surface and should be very easy to get at. This all equates into a rich opportunity. Hard rock lithium mining used to be regarded as the tougher, more expensive option [http://www.visualcapitalist.com/a-cost-comparison-lithium-brine-vs-hard-rock-exploration ] when it came to lithium production. But PWM's position in Canada could change that. PWM's properties all have excellent access to public transportation routes; it can get its lithium to market rapidly, unlike remote mining operations in South America. More importantly, the easier it is to get to, the cheaper it is to operate. And in this game, it's all about low cost. Plus, the environment in Canada is highly conducive to profitable lithium exploitation. Miners like SQM have to pay the Chilean government 20 percent to 40 percent in royalties. Ontario's mining royalty is a flat 10 percent - with no royalty on the first $10 million CDN of sales per year for the first three years of the life of a new mine. PWM's prospecting team is led by Dr. Julie Selway, the "Queen of Pegmatite", who is the world's foremost scientific expert on lithium extraction from pegmatite formations. PWM is gearing up for a massive upcoming drill season: the total funded drill program is set for over 15,000 meters for 2018 alone! This is by far one of the largest drill programs for lithium explorers out there. Right now, the company has a market cap of only $57 million. Its situation compares with the early days of Canadian miner Nemaska Lithium [http://www.mining.com/web/high-grades-light-up-canadian-lithium-explorer ]. Nemaska rode its success to a $1.9 billion valuation. PWM and Nemaska's early stage are extremely similar from a geology standpoint, and Nemaska went on to prove up its resource; however PWM has a higher average lithium grade so far. This should attract institutional investors from Nemaska to the Power Metals' story.
That means that investors should continue to follow this story to see if it reaches a similar conclusion.
#3 Sociedad Quimica y Minera de Chile (NYSE: SQM)
This major miner is one of the world's top producers of lithium. While SQM stock took a pounding in February after the Morgan Stanley report came out, dropping by 11.5 percent, the stock is swinging back [https://www.fool.com/investing/2018/03/05/heres-why-the-top-3-lithium-stocks-dropped-as-much.aspx ] . SQM benefited from skyrocketing lithium prices in 2015-2016. The price per ton shot up from $7,500 to nearly $20,000 on the back of rising demand and short supply. While Morgan Stanley predicted that supplies would vastly exceed demand by 2021, it's far from clear if that'll turn out to be the case. It's entirely possible that prices will remain high, and SQM fill find buyers for its stocks of lithium, much of it produced in Chile. One major customer is Tesla, the EV manufacturer that struggled with production bottlenecks in 2017. One such barrier was a shortage of lithium, and in February Tesla began working with SQM [http://autoweek.com/article/technology/teslas-scramble-lithium ] to secure a steady stream of lithium for future battery production. It all indicates long-term interest in securing lithium supplies, which bodes well for SQM, a leading miner and supplier of the precious mineral.
#4 FMC Corp (NYSE: FMC)
FMC Corp. doesn't depend on lithium for its bottom line: 88 percent of its revenue comes from selling pesticides. But the company's lithium sector witnessed a 20 percent increase in profits in 2017, helping to preserve FMC profitability almost single-handed [https://www.fool.com/investing/2017/12/31/3-lithium-stocks-to-buy-for-2018.aspx ]. FMC plans to expand lithium hydroxide production to 30,000 metric tons a year, tripling overall capacity to keep pace with demand. And now, plans are in motion to spin off the lithium division. FMC plans a $500 million IPO [https://seekingalpha.com/news/3334383-fmc-plans-500m-lithium-segment-ipo-fall ] this fall for stakes in its lithium business. The company expects revenues of between $420 and $460 million for its lithium business in 2018, compared to agricultural earnings of $3.95 to $4.15 billion. It's a win-win for investors. Even if the lithium play doesn't pan out, FMC has a diverse set of assets that will pay off for investors under any conditions. This makes FMC a solid bet for 2018.
#5 Albermarle (NYSE: ALB)
Like FMC, Albermarle is a diversified lithium miner that brings in consistent revenue. The company was a major earner in 2017, and its stock increased by 130 percent from 2016 to 2018. Profits from lithium drove the expansion: in 2017 revenue from lithium production increased 37 percent. Albermarle reported a solid fourth quarter [https://www.fool.com/investing/2018/03/17/6-key-things-about-albemarles-lithium-business-and.aspx ] , with a 23 percent increase in quarterly revenue from lithium production. The company brings in $289.6 million from lithium, about 33 percent of its total revenue stream. Despite the fall in prices and concern surrounding over-supply, Albermarle is pumping up production for 2018. Albermarle is planning on bringing back lithium production inside the United States: it recently acquired the Kings Mountain lithium mine, which was once in production in the 1990s. Some more good news came from Chile: Albermarle saw an increase in its production quota from the Chilean government, and it's now permitted to offload 145,000 metric tons of lithium until 2043.
Other companies to watch:
Rio Tinto (NYSE:RIO) like Anglo-American, is a giant of the mining world. The company runs dozens of different operations on four different continents and is deeply involved in the gems business. One Rio Tinto diamond mine in Argyle, Australia has produced 800 million carats of diamonds, including the world's largest supply of colored diamonds.
By. Meredith Taylor
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This news release contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this release include that prices for lithium will retain value in future as currently expected; that PWM can fulfill all its obligations to maintain its property; that PWM's property can achieve drilling and mining success for lithium, that the lithium extraction process being developed will be cost effective and can work much more quickly that other extraction technologies; that the process can be commercialized for large scale production; that PWM can use the newly developed process, if successful, to reduce its costs of production; that high grades found in samples are indicative of a high grade deposit; that high-grade lithium is in sufficient quantities at surface to keep drilling costs down; that batteries and EVs will continue to use large amounts of lithium; and that PWM will be able to carry out its business plans. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that the Company may not be able to finance its intended drilling program, aspects or all of the property's and the new process development may not be successful, mining of the lithium may not be cost effective, PWM may not raise sufficient funds to carry out its plans, changing costs for mining and processing; increased capital costs; the timing and content of upcoming work programs; geological interpretations and technological results based on current data that may change with more detailed information or testing; potential process methods and mineral recoveries assumptions based on limited test work with further test work may not be viable; competitors may offer cheaper lithium; more production of lithium could reduce its price; alternatives could be found for lithium in battery technology; the availability of labour, equipment and markets for the products produced; and despite the current expected viability of its projects, that the minerals cannot be economically mined on its properties, or that the required permits to build and operate the envisaged mines cannot be obtained. The forward-looking information contained herein is given as of the date hereof and the Company assumes no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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