Lithium opportunities grow as investors urged to maintain caution

TORONTO (miningweekly.com) – The increase in lithium prices has tempted more companies to enter the space and take advantage of the growing market interest, said Disruptive Discoveries Journal newsletter writer Chris Berry at the recent Prospectors and Developers Association of Canada conference.

“A lot of companies have changed their names and focus to get into the lithium game,” he said. “And they’ve started saying some things that, quite frankly, stretch the truth a little bit.”

But Berry warned that the current climb in lithium prices should not be the main investment focus, adding that the 2009 bubble offered an important cautionary tale. “Parabolic moves either always crash or revert,” he said. “Whether that’s back to the original long-term trend or not remains to be seen.”

The real contest related to production, economics and market share. That included the positions of “insurgents” like Galaxy Lithium, Western Lithium, Nemaska Lithium, or the “incumbents” like SQM, Albemarle and FMC.

Another contest, but one further down the lithium chain, was between companies entering or already established in the electric vehicle (EV) space. That included Google, Apple and Tesla, and traditional automakers, such as General Motors, Chevrolet, Hyundai, VW, BMW and more.

“How these companies jockey for position and work together, or work against each other, will be where the opportunities are created,” said Berry.

Growth in EVs would track macro developments, including a greater demand for vehicles overall. Berry noted this was reflected in energy demand for vehicles, which had doubled over the past 30 years and was expected to double again in the next 30 years.

Oil was likely to remain the dominant form of vehicle energy in the decades to come, but its share would be eaten away as EVs became not only more affordable and efficient, but also more desirable among consumers.

A central driver for EV uptake was likely to come on increased urbanisation rates and efforts to reduce emissions. Berry cited China’s pollution problems and how Chinese recently unveiled thirteenth five-year plan stressed sustainability, cleaner sources of mobility, and growth.

Addressing the cost of EVs and energy storage, Berry highlighted the ongoing decline in purchase prices and operating expenditure. For example, on a kilowatt-hour basis, lithium-ion batteries had fallen in price by about 14% a year since 2006.

“Lower prices mean wider adoption, which ultimately means more lithium demand going forward. That’s typically the way this works,” said Berry.

The energy and mobility revolutions expected from these developments was predicted to begin in earnest around 2021/22. That would push the three main demand drivers for lithium – consumer devices, EVs and energy storage systems – forward at a quicker pace.

Currently worth about $18-billion, these drivers would reach between $80-billion and $90-billion in the next ten years if the prices kept falling and the predicted demand materialised.

The big question for investors now related to the cost of production and whether a company, particularly a junior, would be able to compete and secure market share. “Ultimately, that’s the only way these juniors are going to compete in an oligopoly, which is what lithium is,” cautioned Berry.