Western Lithium Stands to Profit from Electric Car Stimulus

The lithium market is buzzing as GM, Nissan (NSANY) and other car manufacturers get set to roll out a new series of electric cars that will greatly increase demand for the obscure silver-white alkai metal. GM has announced plans to construct a $43 million plant in Michigan to build lithium-ion batteries for its Chevrolet Volt electric-powered car, which captured headlines with its claim of 230 miles per gallon.

Adding to the lithium mania is Washington’s support in the form of $2 Billion in stimulus funding:

New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea. Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders –and I know you don’t either. It is time for America to lead again.

- President Obama

For those with concerns that fuel efficiency alone is not enough to entice America’s automobile consumer, consider the company Tesla Motors. While their roadster is the first production automobile to use lithium-ion battery cells and travel more than 200 miles per charge, it is also capable of doing 0-60 in under 4 seconds. Not only will the Tesla Roadster leave most sports cars in its dust, the car recently set a distance record in April 2009 when it completed the 241-mile Rallye Monte Carlo d’Energies Alternatives with 36 miles left on the charge. While the Roadster’s price tag may be out of reach for the average consumer at just over $100,000, Tesla has taken more than 1,000 reservations for the car and expects to begin production of an all-electric and more affordable sedan starting in late 2011. While Tesla remains a private company whose stock you are unlikely to get your hands on, their success bodes well for the future of lithium battery-powered cars.

Lithium prices have nearly tripled over the past decade with 22% compound annual growth since 2000 for use in laptops, cell phones and other electronics. While this demand is expected to continue rising, the recent lithium mania has been ignited by the fact that electric cars require about 3,000 times the lithium needed for an average cell phone or 100 times the lithium used in a computer battery. This huge spike in demand should propel lithium prices much higher over the next few years. Investors are eager to get ahead of the curve and are scrambling to find the companies that stand to benefit most from this new demand.

While most investors turn to the world’s largest lithium producer, Sociedad Quimica y Minera de Chile (ADR) (NYSE:SQM), only a small percentage of their revenue is derived from lithium sales. SQM generates the bulk of their sales from iodine and specialty fertilizers for the agriculture sector.

My preferred way to profit from the coming lithium boom is through the company Western Lithium (CVE: WLC or WLCDF.PK), which owns the largest known lithium deposit in North America. The near surface lithium clay deposit is located in Nevada, USA and was initially discovered by the US Geological Survey and Chevron (CVX) USA in the 1970s. Engineering work completed by Chevron, and later by the US Bureau of Mines in the 1980s, is now being advanced by Western Lithium.

The company’s flagship Kings Valley property has a National Instrument 43-101 resource estimate for the initial stage of development and in total hosts a historically estimated 11 million tonnes of lithium carbonate equivalent (LCE). The project has a well developed local infrastructure and Nevada has a long history in the metals and industrial mineral mining industry. The company plans a scoping study during Q3 of 2009, a pre-feasibility study with results from additional drilling during 2010 and projected production by 2013. A chart with the world’s largest lithium deposits is below.

Western Lithium is well-funded and debt free with CDN$7.3 million cash on the books. They recently completed a $5.5 million private placement in May of this year and have a market cap of CDN$70 million. As you can see below, the stock has broken out recently on heavy volume. While some might view the stock as overbought, I believe lithium mania is only getting started and that Western Lithium will outperform its peers both in the short and long term. Despite the recent spike in price, shares are selling at a premium of just 20% to their highs which were put in well before the recent flurry of bullish news. The last time the stock made a move like the current one, it continued to produce a gain in excess of 800%!

We might not know for sure “Who Killed the Electric Car?,” but it appears to be making an impressive resurrection.

Disclosure: I am long Western Lithium and sent a trading alert to premium members about the company last week. I expect the company to do very well over the next few years and have no plans to sell my position anytime soon.

Comments

[Iowa Corn:]

Lithium batteries are far more expensive than lead/acid or lead/carbon batteries.Meanwhile,le... batteries already have production in place & need no retooling of industry production lines except for minor replacement of electrodes.The technology & set up is already here.Since cost will be a factor,lead/carbon is at least 5-10 x cheaper than lithium/ion.Note too,that while Nevada has a supply of Lithium,the majority would come from our "friends" in Chile,Bolivia,& The Congo.Think about it.

Aug 16 09:34 AM

[Tom Santamaria:]

My prefered stock in this field is CSGH.ob. It is the 2nd largest source of Lithium material used in batteries in China.
It is working with a number of battery producers to establish China as the number #1 Electric car producer in the World.

It is still only selling around 5x eps projected 2009 eps after a strong breakout type rally last week. Over the last couple of year the growth has already establish a exceptional trend even without output for electric cars and has a outstanding balance sheet.

I believe the time is ripe to buy this stock before it doubles to a more reasonable 10 x eps.

Aug 16 09:48 AM

[jerrydd:]

Iowa corn is so wrong on his figures.

I now buy LiFePo4 batteries for less, $.30wthr, than i can buy many sealed lead batteries for EV's. So your statements about how much more expensive are just plain wrong.

Prove carbon lead costs less or even where to buy one? Only a few experimental ones have been made.

I like lead batteries and my EV's use 6vdc traction batteries, built for EV's and very cost effective in a built as an EV. But soon even they will be priced more than Lithium batts/kwhr and since Lithium weights 1/3rd less, they will win.

Lithium battery factories are already here though more being built for the coming wave of EV's, plug in Hybrids.

As this new deposit of lithium story shows there is plenty of Lithium out there, it's just, until last yr, no one bothered to look for it. It's fairly common and we already have many thousands of gas, oil wells tapped into brine pools, many of which must contain lithium.

Plus other batteries are viable like Hot Sodium batteries for trucks, taxi's, trains, utility peak shaving or alum or zinc/air for cars, trucks. More costly because of Nickel, Cobalt prices but good, Ni-cad, NiMh.

I or my EV group, the EVDL list use all these and keep track what works and doesn't. There are now robust Lithium batteries like A123, Kokam that can go toe to toe with a gasoline car while doing it with 1/3 the energy and they are USA made electrons, not imported oil.

We can't afford bad companies batteries like Valance who batteries almost never work or Exide who's last 1/2 as long as others or others who talk a big game but no product like EEstor, Axion and most others. Be careful in the battery world as there are some gems, but many more frogs, hopping away with your money.

And soon when the batteries get put in EV's, the good from the bad will be very apparent and many will not survive.

I'm just waiting for a little more cost drop and maturing of the battery management systems and I'll go Lithium myself.

Aug 16 11:43 AM

[romorris:]

Give us a cost comparison to get lithium from clay versus brine and your article would be invincing (one way or the other).

Aug 16 11:51 AM

[romorris:]

Give us a cost comparison to get lithium from clay versus brine and your article would be convincing (one way or the other).

Aug 16 11:55 AM

[FIFOkid:]

Right now given the crazy momentum in the sector it is pretty easy all a junior miner has to do right now is to issue a press release and have the word lithium contained in it or have the word contained in its stock name and it will go higher. After these spetacular runs of those stocks (CLQ is up 20 fold from the low) I feel it is suicide to chase performance on speculation and hold these names long term knowing not one of those juniors has any cash flow nor the cash on their balance sheets to develop a property in a stingy debt market.

If I had to pick a junior name at this point with lithium exposure I would probably opt for Globestar Mining since they have never bothered to promote its lithium asset however, I feel the company may be forced to promote it given its poor operational results of its recently opened copper mine which was supposed to operate at only 40 cent cash costs.

Aug 16 11:57 AM

[Alan Young:]

Jason, why didn't you tell us to buy WLC *before* it ran up 50% in 3 days (.70 to 1.15)? Buying now would be chasing. At the very least, wait for a pullback to the gap at .82 (CND).

Aug 16 12:47 PM

[Jason Hamlin:]

I wasn't aware of the company before it ran up. Wish I would have been. Timing is a tricky thing and it might be wise to wait for a pullback. However, I think most investors are just starting to look into lithium plays and that we have a few more weeks of mania buying before any significant profit taking/pullback. Time will tell.


On Aug 16 12:47 PM Alan Young wrote:

> Jason, why didn't you tell us to buy WLC *before* it ran up 50% in
> 3 days (.70 to 1.15)? Buying now would be chasing. At the very least,
> wait for a pullback to the gap at .82 (seekingalpha.com/symbo...).

Aug 16 03:27 PM

[Jason Hamlin:]

Yeah, good point.

While brine is *usually" cheapest, followed by clay, it all depends on the quality of the material...

Until the 1990s, most came from a hard-rock compound called pegmatite, mined in North Carolina and used in glass and ceramics. That's the form found in Canada. The preferred current source is brine, from salt flats. Some, like Western Lithium's, is in wet clay.

Brine is considered the cheapest to mine and process; pegmatite, the most expensive. But brines aren't equal: Their lithium concentrations vary widely as does the presence of contaminants, notably magnesium, which must be removed. It can be cheaper to develop a good rock or clay source than low-quality brine.


On Aug 16 11:55 AM romorris wrote:

> Give us a cost comparison to get lithium from clay versus brine and
> your article would be convincing (one way or the other).

Aug 16 03:33 PM

[Mad Hedge F...:]

fghh. If we do move from a carbon to a lithium based economy, what are the implications? Will we all become mellow? Politicians, industrialists, and environmentalists who see battery powered vehicles as the wave of the future are overlooking the fact that 50% of the world reserves of lithium are found in impoverished, landlocked Bolivia. This is a country that until now was best known for killing off famous foreigners (Che Guevara, Butch Cassidy and the Sundance Kid), and being the source of a new form a venereal disease. Lithium ion batteries are four times more efficient than the current generation of nickel cadmium batteries, and are essential for electric cars to finally become economically viable. But now that the country finally has something the world wants, nationalism is rearing its ugly head. Local politicians see their country as the Saudi Arabia of the highly corrosive, toxic, reactive metal, and are already discussing ways to restrict access. Will La Paz become the headquarters of OLEC, the Organization of Lithium Exporting Countries? The only other supplies are to be found in Chile, Argentina, Australia, China, and Nevada. Will American oil company executives be programming their cell phones with the 591 country code? Should the US invade to insure supplies? Iraq worked didn’t it? The best way for opportunistic investors to play this is to buy Sociedad Quimica Y Minera (SQM), Chile’s largest producer of lithium.

Aug 18 01:25 AM

[jerrydd:]

Mad Hedge,

Ni-cads are not 4x's as eff as Lithium batteries, both have about the same electrical eff. Weight wise Lithium is about 1/2 the weight but Nicads and safely be discharged much lower and last several decades vs Lithium which life remains to be seen.

You political rant on Bolivia is not a good one. They have been exploited by everyone and the locals are fed up with getting screwed. While they seem to have 50% of the reserves, they have no where near that in real life as new finds will be found everywhere in the near future just like the one in this article.

There is plenty of Lithium and plenty of energy other than fossil fuels, we just need the equipment to catch, make them.
It's just it far more profitable for home size RE than for big energy so big energy is against RE, EV's as it cuts deeply into their profits.

Aug 18 09:06 AM

[Beacon Asse...:]

Thank you for the article. It sounds that this company is one to watch and the chart break out today suggests you are on the right track.

Disclosure: We hold the stock as a small position (0.4%) in our model Beacon Master Portfolio.

Aug 20 01:14 PM