Lithium, Commodity of the 21st century- by HPAn excellent posting by HP today on Talison and lithium today. People like Yasch will be interested in this.
I especially like his point about how a hardrock producer such as TLH also has the advantage of giving auto sector companies in the world an available supply 24/7/365, as it will also have its hardrock greenbushes operations to deliver on any notice for assembly line production needs, along with brines to bring lithium at a lower production costs over time. Another important mark i believe is that, even though bay street/wall street still are not aware of Talison as the world's largest lithium supplier and assume its only the big 3 (SQM, FMC, Rockwood who develop lithium as a byproduct of potash), it'll definitely be on the radar of major investors by the end of the year since, by that time it will pull away from be the distinguished leader based on 2011 increased production and increase in sales/profits (which is very difficult for institutions to ignore).
THURSDAY, 10 FEBRUARY, 2011
The commodity of the 21st century - M & A in the Lithium sector!
If you are a reader of this blog, then you already know how high I am on the birthing of the Lithium industry for Electric vehiclesin the 21st century. All indications are that, by 2020, auto companies will be manufacturing more EVs and hybrid Electric vehicles, than gas powered cars. Certainly, that is the case for China, India and Europe. America will trail this world changing development. It will eventually be brought into the lithium economykicking and screaming, but resigned to what the rest of the world is already doing.
Rather than placing bets on which of the hundreds of labs around the world will develop the best battery, best technology or the most stable catalyst in its uses, I have been placing my money on the producers of lithium, specifically, the small and mid tier group that for the past two years have staked the best lithium properties around the world.
Larger producers such as SQM of Chile produce lithium only as a by-product of their massive potash operations, and refuse to sign agreements with auto companies, preferring instead to have buyers purchase supply from the spot market, a no no for auto companies due to assemply line production needs for an uninterrupted supply. SQM, along with FMC and Chematall, three of the big four, are already priced fairly high, because of their exposure to large investors, whose analysts project them as the only opportunities in the sector. The illustration here is over a year old. Talison has now become the front runner in lithium production, with almost a third of worldwide production.
The potential for lithium production to satisfy the auto industry of the next decade is indeed, massive, but investors should not forget the many, varied uses for this 21st century resource.
Chemical uses forLithium include:
Batteries
The two main lithium battery types are:
Primary (non-rechargeable): including coin or cylindrical batteries used in calculators and digital cameras. The lithium battery has a higher energy density compared to alkaline batteries as well as a low weight and long shelf and operating life.
Secondary (rechargeable): the main applications are powering cell phones, laptops and other hand held electronic equipment. As with the primary battery, the lithium secondary battery has a higher energy density and lighter weight compared to NiCd andNiMH batteries.
Lubricants
Lithium is used as a thickener in grease ensuring lubrication properties are maintained over a broad range of temperatures.
Aluminum Smelting
The addition of lithium during aluminum smelting reduces the bath temperature which reduces power consumption, increases the bath electrical conductivity and reduces fluorine emissions.
Air Treatment
A number of lithium-based chemicals are used in air treatment. This includes lithium bromide as an absorption medium for industrial refrigeration systems and lithium chloride for humidity control and drying systems.
Pharmaceuticals
Lithium is used in the treatment for bi-polar disorder as well as in other pharmaceutical products.
Other Chemical Applications
Lithium chemical compounds are also used in a range of other applications including:
butyl lithium as a catalyst for polymerisation of synthetic rubbers
aluminum-lithium alloys
lithium niobate and tantalate in electronics
concrete additive
water treatment
specialty inorganics
. As billions of smart phone devices are being manufactured this year and beyond, what material do you think is being put into them for rechargeable energy storage. What material do you think is going into the massive Chinese electric bike market (75 million and climbing rapidly at this writing)
Technical applications for lithium include
Glass and Ceramics
There are three distinct markets for lithium in glass and ceramics:
Glass: including container glass, flat glass, pharmaceutical glass, specialty glass and fiberglass. These glass products may be designed for durability or corrosion resistance or for use at high temperatures where thermal shock resistance is important. The addition of lithium increases the glass melt rate, lowers the viscosity and the melt temperature providing higher output, energy savings and molding benefits. Major producers of technical glass products are located in Germany, France, Japan and the United States of America.
Ceramics: including ceramic bodies, frits, glazes and heatproof ceramic cookware. Lithium lowers firing temperatures and thermal expansion and increases the strength of ceramic bodies. The addition of lithium to glazes improves viscosity for coating, as well as improving the glaze's colour and luster. The major ceramic production centres include China, Italy, Spain and Mexico.
Specialty Applications: including induction cook tops and cookware. Lithium's extremely low co-efficient of thermal expansion makes these products resistant to thermal shock and imparts mechanical strength.
Metallurgical
Lithium is used in mould fluxes for steel casting. The addition of lithium to continuous casting mould fluxes assists in providing thermal insulation and lubricates the surface of the steel in the continuous casting process. Lithium is also used in the production of iron castings, such as engine blocks, where it reduces the effect of veining, thereby reducing the number of defective casts. Producers of continuous casting steel are located around the world, including in the United States of America, China and Europe.
Electricity production for national grids (or international grids as the case may be in Europe) whether from current sources but especially from wind, solar or any other intermittant energy production source, will require massive storage, and Lithium, in its various forms, utilizing various catalysts, is the material that will store it.
Merger activity has already begun, with the takeover of Salares Lithium last summer (a promising Canadian Junior with a huge resource in Chile) (which I owned) by Talison Lithium of Australia, which has been in the business for over 25 years producing lithium from its massive hard rock (spodomen) deposits at Greenbushes Australia. Talison thereby acquired the large Salares 7 brine project in Chile.
This takeover by Talison was, in my humble opinion, a very smart move on their part, as they move to consolidate even more of thie lithium pie in the future. Unlike others, they will have both spoodomen and brine producing properties, and their own processing plants.
A front running producer of lithium from spodomen, taking over a junior with ahuge lithium brine resource in South America, is, in my opinion, the canary in the coal mine (so to speak) of future merger activity in the sector. Lithium from spodomen is usually more expensive to produce than it is from brine deposits. (unless, of course, you have the richest spodomen deposit on the planet like Talison does at Greenbushes) However spodomen mining has one big advantage over brine, and that is, a continuous, healthy supply line to customers, that can be guaranteed and uninterrupted. The Auto industry needs uninterrupted supplies for its assemply lines.
The Atacama desert on the Puna Plateau (Chile and Argentina) is the driest place on the planet, and has some of the richest brine deposits. The combination of dry weather, sun and rich deposits of lithium (with a byproduct of potash) is what makes this place unique on the planet. There are also huge lithium deposits in Bolivia, China, and Afghanistan however Bolivia has a backward, leftist government that wants to develop its deposits without outside help from western companies, and it has a huge problem with high concentrations of magnesium (a pollutant in lithium deposits) which makes production much more expensive. It will be decades before they might be considered a player, if at all. Ditto for Afghanistan (Do I have to explain why).
Talison (as you may have already deduced, my top pick in the sector) currently has 75% of the Chinese market and is ramping up its production in 2011 by 100% at itsGreenbushes operation to keep up with a huge increase in demand.. They currently have over 300 customers worldwide and have a 25 year head start on other producers. Also, lithium is the only business they are in, unlike SQM, FMC or Chematall.
There are a number of promising juniors with large lithium brine projects in various stages of discovery or development. Western Lithium (WLC.v orWLCDF.pk) (No current position) is one of those promising juniors with a large stake in Clayton Valley Nevada.
Rodinia Lithium (RM.v or RDNAF.pk) (position held) is another. It also has a large deposit in Clayton Valley along with three very promising brine properties in South America. Their Salar De Diabillos, in Salta, Argentina, on the Puna plateau, being the most promising. Today in fact, Rodinia announced they are moving forcefully to develop Ðiabillos as they just concluded a bought deal with a Chinese battery company, and are now flush with cash for development. I think that these two companies are prime takeover targets.
Auto companies, auto parts companies and battery companies, have bought into promising juniors, such as Magna international buying into Lithium Americas,
Dr. Jon Hykaway, of Byron Capital Markets, has developed much expertise in lithium production and developments and you should put him on your reading list. He was instrumental in developing Byrons lithium index. Another expert in the field, Mr. R. Keith Evans, should also be on your reading list if you are an investor in this booming market.
In the 1800's it was railroads. in the early 1900's it was automobiles and airplanes, (steel, rubber etc) In the 50's plastic, in the 70's computers, in the 90's the internet and today folks, the game changer is electrification and Lithium.
Do your due dilligence before investing, but dont miss out on this once in a lifetime investment opportunity.
You owe it to yourself, and to your Retirefund.
Happy investing
HP