Lithium's Prospects

Includes: LACDF, LEXG, SQM
by: Brian Ganch

As gas prices reach a staggering $4 per gallon, with early predictions in the $5 range for summer, many consumers who have been reluctant might now be considering the electric alternatives to keep their wheels turning. Lithium-ion batteries, the technology in hybrid electric cars and consumer electronics, are just one part of the lithium market but could be where the most growth and potential lie.

Lithium is used in a wide range of applications, from nuclear weapons to medicine. As of 2010, the most common use for lithium was as flux for glass and ceramics (29% of lithium usage in the USA), with the battery industry trailing closely (27%). The most notable use of lithium-ion batteries is in purely electric and hybrid electric vehicles, but lithium also powers cell-phones, iPods, iPads, laptop computers, and other consumer electronics. Some of its other uses can be seen in high-heat lubricating greases, air purification, certain optical devices, and in the manufacturing of high-performance airplane parts from lithium-aluminium alloy.

In the pharmaceutical industry, lithium has been used to treat different disorders since the 19th century. Administered as a type of chemical salt, lithium has proven to be an effective mood-stabilizing treatment for bipolar disorder.

In lithium's multitude of applications, where is its big potential? Many analysts are predicting a surge in demand as more of the world's leading car manufacturers begin mass production of electric, plug-in hybrid, and hybrid vehicles that use rechargeable lithium-ion batteries. Reported in an article by Automotive Business Review, global sales projections for rechargeable batteries are estimated to reach $21.4 billion by 2017.

In a report published by the United States Geological Survey in 2012, it states that "Worldwide lithium production increased in 2011. Sales volumes of two major lithium producers in Australia and Chile were reported to be up approximately 20% through the third quarter of 2011 compared with those of the same period of 2010, and lithium production in China was estimated to have increased by more than 30% from that of 2010."

Lithium-ion batteries (Li-ion) are a relatively new technology with most of its initial development taking place in the 80s and 90s. It still has a long life of improvement to look forward to as demand grows.

With this new technology comes new problems. Recently the Chevrolet Volt was in the news for having a lithium-ion battery that could catch fire after an accident. It was determined that there was no discernible defect in the Volt's battery, but there are some challenges facing the development of these batteries. As consumers demand more mileage from their hybrid electric vehicles, more demands are placed on the battery.

There have been some safety concerns with lithium-ion batteries. Under high temperatures, these batteries can rupture, catch fire, or explode. If the battery short circuits, it risks catching fire as well. These risks tend to be more prevalent in the smaller batteries used in phones and laptops, while the larger batteries contain safety devices to prevent disturbances that can lead to failure or fire.

Aside from the safety concerns, which are continually being addressed and fixed, lithium brings plenty of benefits to the market. As the lightest metal and the least dense solid, lithium batteries are much lighter and more powerful than other rechargeable batteries such as nickel-metal hydride (NiMH). Li-ion batteries can come in a variety of shapes and sizes, allowing them to fit perfectly into the devices they power. And one of the most important aspects of Li-ion batteries is that they do not undergo the same "memory effect" as nickel cadmium (NiCd) batteries do. This memory effect describes the process of how the battery can lose its total charge capacity due to repeated recharges of a battery that has only partially discharged. The battery seems to remember the smaller capacity, leading to shorter and shorter battery life.

A few of the big players in the lithium mining industry include the Western Lithium USA Corporation (WLCDF.PK), the Lithium Exploration Group (OTCPK:LEXG), and Sociedad Quimica y Minera (SQM).

Western Lithium is a lithium mining corporation focused on developing their Kings Valley Project in Northern Nevada, with hopes of initially producing 27,700 tonnes per year by 2014. With a market cap. of 25.68M, WLC last closed at $0.255 and has a 52 week range of 0.20 - 1.34.

The Lithium Exploration Group, with their Valleyview project in Northwest Alberta Canada, is a mining corporation headquartered in the U.S. They recently acquired an investment of $1.5 million to help move the company's Valleyview project to its next stage. Lithium Exploration Group has a market cap. of 36.80M with a 52 week range of 0.45 - 10.68 and last closed at $0.72.

The largest producer of lithium in the world, Sociedad Quimica y Minera, is based in the country with the world's leading number of lithium reserves, Chile. SQM produces lithium carbonate that is used in everything from batteries, to ceramics, to medicine. Sociedad Quimica y Minera is a large cap. company at 15.36B with a 52 week range of 43.00 - 67.75 and last traded at $58.36. With lithium poised to be the fuel of the future, smartly placed investments could lead to nice returns for investors.

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

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