This Lithium Bull Market Will Run For Years

This Lithium Bull Market Will Run For Years

It’s not news, but right now, we’re in a lithium (and cobalt) commodity bull market. This could run for years.

Here’s why…

The lead times on getting a mine up and running are so long. You can’t just switch on a mine.

There are enormous time lags between studying the resources within a lease, gaining approvals, arranging finance, and then building out the necessary infrastructure to extract and process the ore.

Lithium and associated ‘battery metals’ are going to be a happy hunting ground for speculators for a long time to come!

And if we go over some of the events that have happened this year, it’s not hard to see why…

2017: The ‘Tipping Point’ for Electric Cars

Here’s a timeline of key things events around electric cars and lithium since the beginning of the year…

In January, major Chinese lithium player Gangfeng took a 19.9% stake in an Argentinian lithium project ­­­— with production not due until 2019.

In March, global giant lithium producers Albermarle and Tianqi announced an expansion of their big Australian spodumene mine. It’s called Greenbushes. They wanted to double its yearly production.

They also predicted demand for lithium-ion batteries would rise 8% a year until 2022, and said they would consider mergers and acquisitions in the lithium market.

In May, German company Daimler announced it was building a European ‘gigafactory’ and would spend at least 500 million euros. In India, the government announced that it wanted every car sold in India to be electric by 2030.

In June, the aforementioned Chinese firm Tianqi announced it was considering spending an additional $300 million on its new plant in Western Australia because global demand for lithium hydroxide was proving so strong.

In July, Volvo announced that all its cars from 2019 onwards would have an electric motor. It was the first traditional car market to go ‘all in’ on the EV revolution.

France also announced it would ban petrol and diesel cars by 2040. Britain followed the same path a few weeks later.

Also in July, major Chilean lithium player SQM did a deal with Aussie ASX junior Kidman Resources and agreed to pay $US110 million to help develop its Mt Holland lithium project.

In August, Australian lithium miners revealed at the Diggers and Dealers mining conference that major carmakers were becoming worried about supply. This meant they were considering investing in mines directly.

Rio Tinto upgraded the status of its lithium and boron deposit in Serbia to its next most likely growth project. There are only two more of these in Rio’s portfolio for the next five years.

September saw Chinese automaker Great Wall Motors take a 3.5% stake — around AU$28 million — in Aussie lithium player Pilbara Minerals Ltd [ASX:PLS]. It also agreed to an off-take arrangement to secure supply.

Major global mining investor BlackRock revealed it had become a major shareholder in several lithium companies.

A report also suggested the Chinese government is considering banning petrol cars completely at some point. Porsche revealed its first electric car will be available in 2019.

BHP said 2017 will be considered a ‘tipping point’ for electric cars. And Inventor James Dyson said his group would spend two billion pounds to develop its own electric car.

Wow. You can see just how fast events are moving here.

And this list is by no means exhaustive. I haven’t even mentioned the most famous electric car company in the world: Tesla. Its stock is up 540% over the last four years.

This is real money being put down by the players closest to the action.

I give these events above greater credence that most demand and supply numbers around both electric cars and the commodities needed to make the batteries.

Those types of numbers are highly variable, depending on who you read, and are often subject to revision.

But what you see above is real capital being put on the line by real titans of industry. These guys don’t invest unless they are truly confident it’s a good investment.

Even a small increase in electric vehicle
puts supply under pressure

Now, you might think the news around electric cars is hype. After all, global electric vehicle sales are currently less than 1% of total auto sales.

But even a conservative estimate of growth to 4.5% will put lithium supply under huge pressure.

Nor is lithium solely dependent on electric car uptake. The rise in renewable energy creates further demand for battery systems to store the power.

It’s worth taking a peek to see the potentially enormous rollout of ‘gigafactories’ all over the world. See this graphic here…

Source: Galaxy Resources

This bull market has already started

There’s also no doubt that lithium stocks have run hard again in the last few months.

You might think you’re too late.

You’re not.

I’m going to quote lithium expert Joe Lowry here to sum up the basic case: ‘There is much more risk associated with new supply than the growth in demand.’

What he means is that all these projections for electric cars are one thing, but actually getting these mines going is quite another.

Because so many of the stocks in this sector are explorers, any stock showing promising lithium reserves is hot at the moment.

But here’s the thing: A lot of these companies have nothing more than a lease, some test results and a plan.

They’re years away from producing lithium — even if they can raise the money and meet the onerous hoops every miner has to jump through just to get going.

I’ve followed a lot of these stocks over the last 18 months — and most of them are still exploring and drilling.

That makes them vulnerable to wild swings as sentiment and lithium prices gyrate.

It’s also NOT the same as having a producing mine ready to meet the huge upsurge of demand brewing right now.

I think the opportunities around this space will remain abundant.

I just added one to the buy list of my advisory service, Small Cap Alpha.

If you would like to get on board this trend, go here now.


Callum Newman
Editor, The Daily Reckoning Australia