If you are going to invest in lithium, this is what you need to know
At Tesla’s Battery Day last week reference was made to lithium being so abundant that “there is enough lithium resource in Nevada to supply the entire US market”. The immediate market reaction for many lithium stocks was negative, but some perspective needs to be pointed out in this nascent industry. Under the Radar Report's resources analyst Peter Chilton makes some observations:
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Is lithium a viable recourse?
It may well be that lithium is an abundant commodity, but that does not mean it is necessarily economic to extract. Only resources with good grades, favourable metallurgical qualities and low cost of extraction will be viable.
Lithium extraction is a capital intensive business, involving the mining itself, the processing plant and associated infrastructure. There has to be a sound return on this capital.
The metallurgy of some lithium deposits can be difficult, which can mean that a development ends up being unattractive. There has already been a high failure rate.
The lithium product from a mine or extraction process is normally an intermediate product. This product in turn has to meet high specifications for it to be further processed to battery grade lithium carbonate or lithium hydroxide. Not all lithium resources will be capable of achieving this.
The current market for lithium is around 300ktpa on a lithium carbonate equivalent (LCE) basis, having grown from 200ktpa five years ago. This market has the potential to grow 15-fold towards 5mtpa over the next 10 to 20 years as the demand for batteries ramps up. There are many different markets for lithium and a range of substantial battery producers outside the US. These include China, Europe, Japan and Korea. Buyers will want diversity of supply and technical expertise. Lithium producers in countries such as Australia and those in South America should not be disadvantaged by an emerging lithium extraction sector in the US.
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