TALISON Lithium expects demand for the metal to triple, spurred by a new generation of electric and hybrid vehicles.
However, it warns that production costs and low prices could crimp global output as smaller rivals struggle to meet costs.
Smaller miners trying to tap growing demand for lithium might struggle to "fund themselves and to profitably operate in the current price scenario", chief executive Peter Oliver said.
Perth-based Talison is the world's biggest lithium miner.
Demand for the soft, silver-white metal has grown by 5.5 per cent a year over the past decade, driven mainly by its increased usage in batteries for mobile phones and hand-held computers.
However, its growing use in electric vehicles could see the market "double or triple in the foreseeable future", Mr Oliver said.
"The only question is the timing," he said.
Vehicle makers including Toyota, Daimler and BMW are testing a new generation of lithium-ion batteries that are cheaper and last longer than previous systems, allowing the development of a new generation of electric and hybrid vehicles.
China is racing to become a major player in the sector too. BYD's plans to market electric cars in the US and China tempted billionaire Warren Buffett to buy the stock.
Demand for lithium-ion batteries could more than triple to $US60 billion over the next 10 years, according to Sanyo Electric. Separately, JD Power & Associates estimates that hybrid and electric vehicles will account for about 7.3 per cent of global sales by 2020.
Lithium prices shot up to a peak of $US5500 a tonne in 2008 but weakened with the onset of the global financial crisis. Lithium now sells for about $US4500 a tonne in China, according to Mr Oliver.
South America is the world's biggest source of lithium but the metal is also produced in the US, China and Australia.
Talison, which recently expanded its Greenbushes mine in Western Australia, is in the early stages of going global. In September, it completed the acquisition of Salares Lithium, which is developing a lithium mine in Chile.
Shares in Talison traded on the Toronto Stock Exchange have doubled in value over the past year to $C6.60.
In Australia, Talison recently completed an expansion of its Greenbushes mine, boosting output by 20 per cent, and is planning a further upgrade next year to lift the mine's capacity to 62,000 tonne a year.
Mr Oliver said the company had ordered key equipment for the next phase of expansion at the mine, which is expected to cost about $US20 million to develop. Talison sold more than 250,000 tonnes of lithium concentrate in the fiscal year to June 30, mostly to Chinese battery makers.
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