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2011 - 2020 Decade of Lithium Bull Market

|Includes: AONEQ, BHP, CF, F, FMC, GLD, GM, GOLD, HMC, KOL, Global X Lithium ETF (LIT), MOS, NSANY, NTR, NTR, PALL, RIO, ROC, SIVR, SLV, SQM, TM, TNH, TSLA

Unlike the Rare Earth REE stocks, we don't have to wait for production to get earnings with lithium miners. The lithium producing companies (NYSE:FMC), (NYSE:SQM) & (NYSE:ROC) already are highly profitable and if you look at the lithium etf chart of (NYSEARCA:LIT) you will see a pattern of rising stock prices for the lithium sector as a whole (Classic Secular Bull Market). A simple but good strategy in the Secular Bull Markets in any sector would be to buy and add stocks in the entire sector on all down days for any of the given stocks in the group. If you played this strategy in the fertilizer Secular Bull Market of the fertilizer sector a decade ago, you would be sitting on some hefty gains today, and I am expecting same kind of fortunes to be made in the Lithuim Secular Bull Market.

Treasure interred in the salt

September 30, 2010
 

Electric cars have transformed interest in the Andes' salt flats, writes Richard Reynolds.

 

The climb from the coast to the Salar de Atacama in the Andes in northern Chile goes through desolate landscape. Nothing lives here; it is just rocks, sand and hills. But the Salar, or salt flat, holds treasure under its sun-baked surface.

The salar, which is 170 kilometres long and 2400 metres above sea level, is filled with a vast quantity of brine. It contains various salts, only one of which is of any great value.


Lithium is the key ingredient in rechargeable batteries. Lithium-ion batteries are used in most portable electronic devices made today, but its real potential is in the electric car or plug-in hybrid. A mobile phone uses about 30 grams of lithium, while an electric car will use about 14 to 20 kilograms.

"We are going to see the first all-electric cars produced in quantity later this year or early next," said Tim McKenna, a vice-president with Rockwood Holdings (ROC), the US owner of a lithium mining operation in the Salar de Atacama.

The first two electric cars out the factory gate will be the Chevrolet Volt (NYSE:GM) and the Nissan Leaf (NSANY.pk).

''For two years a California company has produced an electric vehicle certified for highway use, but it is very expensive and is produced in limited numbers,'' McKenna said. ''Technically, the Volt is not a true electric car, since it does have a small gasoline engine to recharge the batteries after 60 kilometres of driving. Mercedes Benz (DAI), Toyota (NYSE:TM) and BMW also plan to introduce electric or plug-in hybrid vehicles next year.

"We expect sales demand to pick up slowly at first, as happens with new technologies," McKenna added. "But the potential is large down the road."

The company predicts total demand will increase to about 80 million tonnes by 2016, up from about 10 million tones in 2003.

Deutsche Bank says worldwide car production in 2020 is likely to be about 80 million units and it expects as many as 10 per cent of these will be electric hybrids or plug-in electrics. But if just 1 million electric and 1 million hybrids are sold each year (less than 3 per cent) the demand for lithium will triple.

Carlos Ghosn, chief executive of Renault and Nissan, has reportedly said that there will shortages of the vehicles in just a few years. His companies are building capacity to produce 550,000 electric and plug-in hybrid cars by 2013.

Rockwood (ROC) is the world's largest producer of lithium products required for the batteries in those cars. McKenna speaks about his diversified company with enthusiasm and particularly about lithium.

"Close to $US1 billion [$1.03 billion] of our $US3 billion in revenues comes from lithium," he says. "But we are excited about the future."

Lithium is not used solely in batteries. It is also used in pharmaceuticals, ceramics production and various other industrial processes.

Other companies are behind many new lithium mining operations (Toyota has invested heavily in one in Argentina) to meet an expected surge in demand. More than 75 per cent of the world's lithium is found high in the Andes, in Chile, Argentina and Bolivia. All three countries are eager to exploit their riches.

In Bolivia perhaps half of all the world's lithium is in one enormous salt flat called Uyuni. So far it has been unable to find an international partner with lithium mining experience because of its strict requirements for Bolivian control and technology transfer.

Uyuni is also complicated by the fact it floods every spring, which would curtail most mining operations and requires more complicated infrastructure. Bolivia's President, Evo Morales, has said: "If we can't find a partner to work with we will simply do it on our own." But that seems unlikely, as neither the government nor any Bolivian company has the expertise.

The process for "mining" lithium in the Andes is unlike any other. "We pump the saltwater brine from about 50 metres below ground," Eduardo Morales, who runs Rockwood's Chilean operation, explains. "It is then sent to a series of 15 enormous evaporation ponds, starting here." He gestures to a pond with three large pipes pouring out water a greenish-blue colour.

"The sun does all the work. The only mechanical work is the pumps," Morales says. "It is a very green process." The sun shines 330 days of the year in the Atatcama desert, and there is less than one centimetre of rain a year.

From that first pond the brine is pumped to the next pond and the next. At various stages the other salts are precipitated off, a process similar to leaving a glass of salty water to evaporate until crystals begin to form.

But lithium is a unique salt in that it will stay in solution while the other, unwanted salts will not. At each pond the water is pumped to the next and whichever unwanted salt is left behind is removed.

In the end a brine containing 6 per cent lithium is left. It is then trucked to a factory where the lithium is extracted. The whole process takes 18 months, about five weeks per pond and a few weeks in the factory.

Lithium is also a metal with strange properties - it floats in water, but explodes on contact with it; it can be cut with a butter knife. But it has a special property, a valence electron, that makes it ideal for batteries.

The factory mostly produces lithium carbonate, a white powder that looks like a fine rice. It is this that is used in rechargeable batteries.

While there are so-called hard-rock lithium mines in Australia where the element is dug out of the ground, Rockwood insists it is a more expensive process and produces lower quality lithium - suitable for other applications, but generally not batteries.

Reed Resources plans to open Australia's third lithium mine next year.

Rockwood also has brine operations in Nevada and has received grants under the US stimulus program to expand there.

Chile is very supportive of mining companies, but has placed a temporary halt on selling more land in the Salar de Atacama because of the number of operations already there, but other salars are still available for exploitation.

"But we own more than enough land already to dramatically increase production if required," McKenna says.

At the factory giant rolling drums, various large tanks and tonnes of potash are used in the process. Then 300-litre bags are filled, one at a time and by hand, with lithium carbonate. The process employs only several dozen workers.

Apart from a few small indigenous villages in the foothills of the enormous mountains that ring the basin, nobody lives in the Atacama. Many of the residents have grown wealthy working for the mine. One traditional village that for centuries grew corn and other crops with water from a mountain spring is now filled with late-model four-wheel-drives.

There is little environmental impact from the mines, but there is one huge environmental issue for lithium - disposal. No one yet knows how to safely get rid of lithium-ion batteries once they need to be replaced - a car battery is expected to last about 10 years. The batteries run a real risk of starting fires as they corrode and water comes into contact with the lithium.

Current recycling technologies for small batteries use furnaces to separate the various elements, but this is expensive, up to $2500 a tonne, and there are toxic byproducts. It is unclear in most countries who is going to foot the bill. And, of course, many people will dispose of their batteries improperly, posing a serious risk at landfills. Most old phones end up in the rubbish with their battery.

"The problem isn't so much with the technology, which is being worked on extensively to develop better ways of dealing with old batteries," said Philip Rubin, a mining engineer at the University of Toronto. "It will be with developing effective systems for collecting the batteries and getting them to a recycling facility."

The future of lithium depends on the development of a new generation of cars and probably, at least indirectly, on the price of oil. While the cars are more expensive than traditional petrol or diesel vehicles, they last much longer, and are likely to cost less to maintain. Many governments are moving to subsidise the purchase of electric cars so that they can curb carbon emissions and other pollutants.

And car companies are betting that at least consumers will want to adopt a greener lifestyle. Lithium provides part of the answer.