The Global Scramble for Lithium

NetworkNewsWire Editorial Coverage: Lithium stocks have rocketed over the last 12 months propelled by the unabated demand for lithium-ion (Li-ion) batteries. The world’s largest lithium producer, Albemarle Corp. (ALB), has delivered a 77% return over the last year. During the same period Sociedad Quimica y Minera de Chile (SQM) surged 150% and FMC Corp. (FMC) is up 95%. All three major producers trade near all-time highs but cracks are beginning to show. Respected investment bank, Baird, just downgraded Albemarle to neutral, stating that near-term execution is already priced into ALB’s stock and the shares are fully valued at current levels (http://nnw.fm/a9WRJ). Despite continued massive upside in the lithium market, the big three lithium producers may now be over-crowded and already reached full value. To profitably exploit market imbalance and burgeoning demand, rotation to prospective junior lithium miners like Standard Lithium Ltd. (TSXV: SLL) (FRA: S5L) (OTCQX: STLHF) and Nemaska Lithium Inc. (NMX-CA) may be imminent.

Demand for lithium is certain to surge as vehicles become greener and electricity becomes cleaner. Indicative of its importance, Goldman Sachs has identified lithium as “the new gasoline.” Worldwide sales of lithium salts are currently only about $1 billion a year, but the element has become a crucial component of Li-ion batteries that now power everything from electric cars to power tools to smart phones. Lithium demand has been projected to grow over 300% within the next eight years. However, with evermore electric utility companies expanding solar power capacity requiring high-density Li-ion energy storage, lithium demand could soar exponentially. As example, Duke Energy recently halted a proposed nuclear power plant in Florida and instead plans a $6 billion solar and battery infrastructure investment (http://nnw.fm/gp4RD). The unrelenting demand for rechargeable batteries and high-density energy storage has created an escalating dependence on lithium which has sparked a global search for new lithium fields.

Standard Lithium Ltd. (TSXV: SLL) (FRA: S5L) (OTCQX: STLHF) is in the thick of the hunt for new lithium sources. The company is intensely focused on further exploration and the immediate development of its Bristol Dry Lake, Brine Project located in the Mojave region of California. With the signing of its mineral lease agreement with National Chloride Corporation of America — a Permitted Brine Producer — for the exploration of lithium, Standard Lithium’s Bristol Lake project now encompasses approximately 25,000 acres of placer mineral claims and private property. The company’s geophysics team recently concluded a comprehensive gravity survey over the entire basin, and initial interpretation of the data indicates that the basin is deep and expansive.  Historical drilling and sampling to total depths of approximately 500 feet has produced brine samples with lithium values over 100 mg/L for the entire drilled interval.

For nearly 100 years National Chloride and others have surfaced mined the area to produce chloride for various industrial applications. Subsequently, the area has excellent mining infrastructure, which addresses the primary challenges in cost effective lithium mining and production – location, access and infrastructure. Standard Lithium’s location already has easy road and rail access, abundant electricity and water sources, and is permitted for extensive brine extraction and processing activities.  There is electric power and water on the property with a major paved road on the western edge and a rail siding nearby.

The strategic relationship with National Chloride, allows Standard Lithium immediate access to conduct exploration brine sampling and extraction, evaporation and processing activities, and enable a fast-tracked project development schedule. The project is in a friendly, clean energy development jurisdiction with proven near surface brines which provide for efficient geophysical exploration drilling programs. The company anticipates selective lithium recovery through a combination of membrane, chemical precipitation and solvent extraction. With a market cap of only $62 million, successful strategy execution could easily propel Standard Lithium to new heights as a significant low cost domestic producer of battery grade lithium materials.

To exceed objectives and market expectations, Standard Lithium has established a world class Scientific Advisory Council of lithium extraction scientists and process engineers that are in charge of the lithium extraction process testing work (http://nnw.fm/NmC1U). As Robert Mintak, CEO of Standard Lithium stated, “Standard Lithium has a very clear focus…we have the ideal team with a blend of experience, knowledge, technical agility and pragmatic problem-solving abilities, to develop optimal process solutions for Standard Lithium’s world-class assets.” There’s little doubt of Standard Lithium’s intent to produce low cost domestic lithium and capitalize on the immense global market imbalance.

The demand for Li-ion batteries will likely explode as grids modernize to handle the massive influx of mainstream electric vehicles, battery devices and ever more electric utilities that require more high-density energy storage systems. Investors need direct or indirect exposure to lithium and/or lithium batteries to profit from this energy revolution.

Another prospective junior miner, Nemaska Lithium (TSX: NMX-CA), is an exploration stage lithium miner focused on supplying the essential element to the battery industry through exploration and development of hard rock lithium mining and the processing of spodumene (lithium aluminum silicate) into lithium compounds. The company has yet to produce lithium and claims a proprietary process to produce lithium hydroxide and lithium carbonate for which patents have been filed. For the three months ended in March 2017, unaudited financial statements show a net operating loss of over $2 million for Nemaska, and, in a testament to escalating lithium demand, the company carries a lofty $430+ million market capitalization.

Of the three major lithium producers, Albemarle Corp. (ALB) is the largest and derives nearly 39% of its total revenue from lithium sales. Long a global leader in the specialty chemical business, Albemarle’s lithium business segment mines lithium and converts it into different forms along the value chain, like lithium carbonate and lithium hydroxide, or value-added specialties like butyl lithium and lithium aluminum hydride. With its acquisition of Rockwood Holdings in 2015, the company now controls one of the only operating lithium brines in North America and operates another lithium brine in Chile. ALB also holds a 49% share in Talison Lithium in Australia and is expanding production there in 2019 under a joint venture. Given Baird’s recent downgrade of the stock to neutral “with little opportunity seen for near-term upside” investors looking to deploy capital in the lithium market may want to consider other options at this time.

Sociedad Quimica y Minera S.A. (SQM) is part of the global scramble to secure supplies of lithium to feed battery producers and other end-users. Headquartered in Chile, SQM produces over 45,000 tons of lithium carbonate equivalent per year. With hints of shadowy connections, recent revelations show a Chinese state-controlled firm may bid for part of a controlling stake in SQM in conjunction with China’s attempts to secure continuous supplies of this vital raw material (http://nnw.fm/XKkK4). SQM plans to expand lithium carbonate capacity in Chile to 63,000 metric tons by 2018. Shares of SQM surged to all-time highs in 2017 and are now a frothy $56 per share. The company is inconsistent in paying dividends that yield around 3% and carries a hefty 42+ PE ratio.

FMC Corp. (FMC) owns and operates a 17,000+ tons per year lithium brine facility in Argentina, where political upheaval has sparked rampant inflation and social discord. FMC is a large diversified multinational chemical company servicing global agricultural, consumer and industrial markets, and lithium represents only a small fraction of company revenues. The company operates in three business segments: FMC Agricultural Solutions, FMC Health and Nutrition and FMC Lithium. FMC’s shares trade near all-time highs with a PE ratio over 56. Looking to boost lithium revenues, FMC plans to increase lithium hydroxide capacity to 30,000 metric tons per year by the end of 2019. As with most established lithium producers, shares of FMC trended much higher in 2017.

Investment risk in these three chemical conglomerates is mitigated since overall performance is tied to other chemicals and metals. However, each of these lithium behemoths are trading near all-time highs, may be crowded and fully valued, and don’t provide the pure play direct exposure to the lithium market that a junior mining company may offer.

In spite of its downgrade of ALB, Baird stated that it “continue(s) to believe lithium is in a multiyear growth cycle.” It’s estimated that in just eight years over 785,000 metric tons per year of lithium carbonate equivalent will be needed to meet global demand (http://nnw.fm/riS7f) compared to 227,000 tons of supply this year. Many other analysts are even more bullish expecting greater demand, larger lithium deficits and further price increases for this essential element. New sources of lithium are necessary to meet the insatiable demand. For the foreseeable future, well positioned lithium investors should be richly rewarded.

For more information on Standard Lithium please visit: Standard Lithium Ltd. (TSXV: SLL) (FRA: S5L) (OTCQX: STLHF)

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