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Lithium, a key ingredient in rechargeable batteries, has seen a spike in demand over the past few years, driven mainly by a rise in electric vehicles, mobile consumer devices, and grid-tied energy storage systems amongst a number of applications that require lithium-based rechargeable batteries. The increasing demand for these products is not merely a blip on lithium's demand chart, yet only the beginning of a long-term trend that will firmly establish lithium as a strategic metal.
Electric Vehicles, Mobile Consumer Devices and Grid-Tied Energy Storage
Sales for pure electric, hybrid electric and plug-in electric vehicles have recently taken flight in North America and other developed parts of the world. Aside from the not surprising exception of China who continues to disappoint and lag behind in environmental programs, the rest of the world has stepped up into a game-changing scenario which could lead to mass adoption of electric vehicles over the coming years. Major investment is now flowing into the electric vehicle design market with rebate programs and financing being offered, along with funding for the infrastructure required to maintain the surging progression.
With a never-ending list of consumer electronics becoming wireless, mobile devices continue to increase their hunger for power, resulting in more lithium being required than ever before. Additionally, as the standard of living improves, a massive wave of demand for these power-hungry consumer products from emerging economies results in the cost of technology decreasing.
Considering the size of announced and completed grid-tied storage, this aspect of the market could represent significant new volume for the lithium industry. The vast reduction in cost of solar energy equipment has caused mass adaptation of solar power and how it is used, effectively developing it into a peak shaver and more competitive than any other traditional source of electricity.
The ultimate game changer for solar power exists in lithium ion batteries. Solar power has not only become a peak shaver, but will soon have massive amounts stored in lithium battery banks. Based on a solar PV production model, solar power will have the ability to be distributed to households as and when required. Currently, California, Japan, and Germany all offer heavy incentives for residential solar PV powered battery systems and it is only a short matter of time before others follow suit. Furthermore, in order to stabilize the grid due to high concentrations of renewable energy production, there have been a number of projects in the MW scale that are storing wind and solar energy.
The optimistic news and forecasts surrounding the boom within the lithium industry seems to have forgotten to mention the positives for up and coming lithium brine producers. Seeing the price for various forms of the white metal having held strong in the face of the fall out in the global commodity market, besides having junior lithium mining companies continuing to raise capital in one form or another, even with the decimation of the Toronto Venture Exchange and the extensive number of mining companies that have all swelled up and rolled over, the positives for the lithium brine producers are just beginning.
The Puna Plateau referred to as the 'Saudi Arabia of Lithium'
Witnessing strong prices and increasing demands, with expected double digit growth over the coming years, and no apparent direct alternative for lithium brine, it is essential to focus on the Puna Plateau. Coined as 'Saudi Arabia of Lithium', Puna Plateau is located in the Andrean Mountains, reaching elevations of 4,000 metres and spanning 1,800 kilometres across Argentina, Bolivia and Chile. Comprised of three (3) major salt lakes, Salar de Atacama, Salar de Uyuni, and Salar de Hombre Muerto, this 'lithium triangle' houses the largest proven deposit of lithium, making up approximately 70% of global reserves and an attractive area for both junior exploration and large mining companies.
Argentina Positioned as the Upcoming Global Lithium Powerhouse
It is common knowledge that the present government of Bolivia has no internal capabilities to bring their massive deposits to technical grade lithium carbonate equivalent (LCE). Even if a new government were to establish and open the lithium to foreign companies it would still likely take a decade for production from Bolivia's vast lithium deposits to begin. That said, Bolivia is highly unlikely to ever play a role in the global supply of lithium, even though there have been recent alignments with some Asian partners.
In October 2012, the Chilean government issued an auction process for a lithium mining concession that resulted in several issues with lithium giant SQM. Although SQM submitted the highest proposal for the concessions, they also had a pending lawsuit against the government which should have prevented them from being included in the auction. The whole process became derailed and uproar caused the auction to stop with a result of no company being awarded the process.
The incapability, from Bolivia and Chile, sets up Argentina to become a giant in the production of lithium. Being more dependent on the provincial government than their federal government, with an accepting "Mining Friendly" stance, Argentina is positioned well to become the global powerhouse of lithium mining.
Orocobre Limited, Rodinia Lithium, Lithium Americas Corp
Orocobre Limited, (OTCPK:OROCF) soon to be lithium brine producer, landed a deal that would see the Province of Jujuy (Argentina), become a partner in their lithium brine project, along with Toyota Tsusho (Japan). Jujuy Energia y Mineria Soiedad del Estado (JEMSE) holds 8.5% ownership through Class B Shares in the Project Company. On September 5, 2013, the company provided a construction update stating that they were committing a total of $121M USD of the $229M USD budgeted on the "Olaroz Lithium Project". Since then, Orocobre Limited shares have nearly doubled, climbing to the $2.24/share range, while in April 2013, it was trading around $1.15/share.
Rodinia Lithium (OTC:RDNAF),another upcoming lithium brine producer, located south of Orocobre in Salta, Argentina, has not been so lucky. Their share price, like many TSXV companies, has dropped significantly from an average price of $0.16/share to the present level of sub $0.04/share. Rodinia is presently working away at finalizing an updated resource estimate, expected in C Q4 2013, and then report on their Feasibility Study (FS) in C Q1 2014. The preliminary economic assessment (PEA) has shown manageable capital costs of $144M - $220M USD with very robust project economics and a pre-tax average annual cash flow of $89M - $150M USD. The company needs to demonstrate that they can meet the dates set out to announce the resource estimate and FS while being able to preserve cash, considering their stock is too low to issue any additional shares. On a positive note, the company has an excellent track record of raising capital in difficult market conditions while still being able to avoid shareholder dilution.
Lastly, Lithium Americas Corp (LHMAF), an advanced explorer in both the Jujuy and Salta Provinces of Argentina, has been busy since they completed the $45M IPO on the Toronto Stock Exchange, May 2010. They went on to complete an extensive drilling program which resulted in the Company identifying the third largest lithium brine resource in the world, completing a definitive Feasibility Study identifying the Company's Cauchari-Olaroz project as one of the lowest cost lithium projects in the world, and obtaining all necessary government permits to commence project construction. With so much work completed on the Olaroz project, it has nonetheless still been a challenging environment to raise capital for new mining projects, even though lithium prices have remained high. It could be that Lithium Americas is holding out for a merger or acquisition partner, or it may feel that it should receive more value for the work completed and for their shareholders. In a press release on May 8, 2013, the company stated that they were having various discussions with potential partners, but a formal agreement has yet to be announced by the company. While Lithium Americas continues financing discussions, their stock has slowly drifted to an all-time low, much like Rodinia Lithium. Now trading at a mere $0.30/share, when in January 2011, it was trading at a record high of approximately $2.50/share.
With lithium demand on the cusp of a major breakthrough and only blue skies ahead, these lithium juniors exploring in Argentina could see a significant upside from their current positions. On the same note, today's tough market environment could mean that the ultimate upside potential for these projects may never get recognized, at least not under their present banners. Orocobre appears to be on track to become the next producer in Argentina, while Lithium Americas searches for their financing partner, and Rodinia Lithium continues to de-risk their assets and bring their project to Feasibility within the coming months.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.