Lithium: The Energy Commodity Of The Future

| About: Pan American (PALTF)

The world was recently buzzing over the release of Apple’s (OTC:APPL) newest cellular phone, the iPhone 4S. Investors have reaped large profits from Apple’s soaring stock prices over the last decade. But in a fiercely competitive mobile market, picking the winners is not always easy.

But one thing every mobile phone needs, regardless of the model or brand, is a battery to power it. The iPhone 4S, like most mobile devices, created with a built-in rechargeable lithium-ion battery.

Lithium batteries have become widespread in powering modern devices, such as cellphones, cameras, and laptops, which are ever more common in our increasingly wireless world.

Lithium has seen an explosion in demand over the last four to five years,” says Andrew Brodkey, President and CEO of Pan American Lithium Corp (TSX-V:PL.V)(OTC:PALTF). The company holds rights in eleven lithium and potash-bearing brine projects covering over 20,000 hectares in Chile.

The company is positioning itself to profit from the world’s increasing appetite for Lithium.

Lithium is widely considered a best option to powering portable devices. It is the lightest of all solid elements. Not only this, but Lithium has won out over other options due to its high electrochemical potential as well as its ability to be recharged and fit into smaller spaces.

Chemical & Mining Co. of Chile Inc. (NYSE:SQM), which has cornered 26% of the Lithium market share, echoed this sentiment during the recent release of positive second quarter results. According to the company, increased revenue was attributed in part to

healthy end demand for lithium applications, such as rechargeable batteries and lubricating greases…supply constraints in the lithium market have also created unique opportunities for SQM in recent months. As a result, our sales volumes increased…We anticipate that these tight market conditions should continue through the second half of 2011, and annual sales volumes could increase by as much as 20% compared to 2010.

As companies are seeing demand for Lithium picking up, analysts forecast the trend to continue.

“Consumption of lithium-carbonate is about 100,000MT per year. This figure is projected to double or triple by the end of the decade, and is expected to be up to 500,000MT by 2025,” Brodkey explains.

The real kicker will likely be the growth of battery-powered vehicles.

The need for lithium for car batteries will dwarf all other demand from portable devices. The beginning of this trend have already begun to take place. GM’s plug-in Volt, which has received good reviews, utilizes a lithium battery. The car gets 93 miles per gallon for normal, everyday use. Toyota (NYSE:TM) has its own version, the Prius. Battery powered vehicles are going mainstream and are no longer a futuristic concept. If the trend toward battery vehicles continues, demand for Lithium will surge.

The problem is that Lithium is a relatively rare element. Of the productive lithium deposits, many are in decline, older, and uneconomic. On top of this, a specific form of Lithium is needed to produce batteries, known as Lithium Carbonate (Li2CO3).

Brines in or under salars (dry lake beds) are the most economically viable mining sites for the production of Lithium Carbonate. These salty brines usually contain lithium, potassium, and other light metals dissolved in solution. This form of mining—the pumping and recovery of metals from brines--is about one-half of the cost of the recovery of lithium from traditional hard-rock mining deposits. Lithium salars are most prevalently found in geographic areas of South America, and China, in areas that are less politically and economically stable, with generally with poorer infrastructure.

Bolivia alone is believed hold 50% of the global lithium reserves in one location, but production has never materialized due to the country’s difficult political situation. Currently roughly 70% of the world’s lithium carbonate production originates from Chile and Argentina.

“Chile remains the best country for mining companies in South America,” Brodkey points out. “The country’s regulations and laws are clearer, more stable, and more favorable from an economic standpoint, than anywhere in the region.”

The exploding demand and supply constraints lead car manufacturer Mitsubishi to project a supply shortage by 2015.

Brodkey points out that the profit motive behind lithium mining is alluring. “At today’s long-term contract prices for lithium carbonate, margins from the recovery of lithium from low-cost brine operations can be up to 100 percent,” he notes.

This leaves plenty of room for companies like Pam American Lithium to profit from production.

With most analysts agreeing that lithium will have a large and growing role in powering our future, Brodkey hopes to snag a piece of the pie and take part in the production needed to meet this demand. “There is plenty of space for junior lithium exploration companies like ours to thrive,” he explains.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.