Companies developing lithium

resources and other advanced

materials are providing a spark

in an improving resources sector. Potash

and gold stocks are also stronger, and

commodity prices are rising. But the

question is: ‘How long will it continue?’

Lithium is the standout. Several

lithium stocks have soared this year

amid expectations of rising demand

for lithium-ion batteries made by Tesla

Motors, and other car manufacturers

developing next-generation electric cars

with longer battery lives.

Promising graphene explorers, such

as Talga Resources, are also attracting

greater interest, although they are yet

to deliver the same returns as lithium

stocks this year.

Graphene promoters say the metal

is the thinnest and strongest ever

developed – and that it has a vital role

in developing lighter, more energy-

efficient products.

Lithium carbonate’s average

contract price is expected to rally from

about US$5000 per tonne in 2014 to

more than US$7500 per tonne in the

second quarter of 2016, according to

lithium producer Orocobre, providing

good margins for companies in

production. It expects further price

growth this year, as demand for battery

storage technology grows.

Demand for lithium batteries is

being driven by a continued increase

in their use in consumer and portable

electronics; rising demand for

advanced batteries of this type; growth

in hybrid and electric vehicles; and

increasing use in mass-energy storage

systems where lithium is becoming the

preferred technology.

Lithium producer Galaxy Resources

expects accelerating demand from China.

It notes China’s target of five million

electric vehicles on its roads by 2020,

and says the country is becoming the

global leader in lithium battery demand

across multiple segments.

Orocobre estimates that about

36 per cent of lithium demand is

for rechargeable batteries, followed

by ceramics and glass. It says that

Growing demand for more efficient battery storage catches the market’s attention.

Lithium producers brighten resource sectorBY TONY FEATHERSTONE

FEATURE ARTICLE

Demand for lithium batteries is being driven by a continued increase in their use in consumer and portable electronics; rising demand for advanced batteries of this type; growth in hybrid and electric vehicles; and increasing use in mass-energy storage systems where lithium is becoming the preferred technology

2 • Australian Resources and Investment • Volume 10 Number 2

Volume 10 Number 2 • Australian Resources and Investment • 3

FEATURE ARTICLE

the world has a limited number of

economically extractable lithium

resources, and that new supply is

constrained. Lithium demand is

expected to outstrip supply in 2016,

leading to higher prices.

In a recent company presentation,

Orocobre pointed to several battery

megafactories starting in the next few

years, run by the likes of Tesla and

South Korea’s LG Chem, which will

drive continued demand for lithium

compounds – a key battery component.

Beware the risksInvestors with longer memories will

recall hype about a range of so-called

exotic metals over the years, and

chronic wealth destruction. Rare earths

prices, for example, rocketed in 2010

when the Chinese Government slashed

its export quota. China supplies almost

all of the world’s rare earths.

Rare earths are a group of 15 metallic

elements used in devices such as smart

phones, disk drives, flat-screen TVs,

hybrid vehicles, rechargeable batteries

and wind turbines, among others. The

boom was short-lived, as the rare earths

price bubble burst, and commissioning

and production problems in larger

producers weighed on investor sentiment.

Inevitably, the rare earths boom

encouraged explorers with lower-grade

prospects to reposition themselves as

rare earths stocks and raise capital

through share market floats. Investors

who bought near the top of the rare

earths boom, and others like it, learnt

a painful lesson about buying into

mining hype.

Lithium’s promising outlookThe latest crop of advanced-materials

producers and explorers may have more

sustainable prospects, but investment

risks in lithium producers are high.

The World Economic Forum

describes advanced materials as one

of five technologies that will shape

the ‘fourth industrial revolution’,

which is just starting. (The other

technologies are artificial intelligence,

neurotechnology, 3D printing and

precision genome editing.)

Lighter, stronger and more energy-

efficient materials, such as graphene,

could drive a new generation of products

that require less power and make

renewable energy more viable. Several

Australian universities have increased

their focus on advanced-materials

research as industry seeks lighter

products and less reliance on fossil fuels.

A handful of companies worldwide

dominate lithium production, and

Chinese companies are particularly

strong. China’s Chengdu Tianqi

Industry Group took over the large,

high-grade Greenbushes mine, about

250 kilometres south of Perth, in 2012.

Neometals and Mineral Resources

announced in July 2015 that their

jointly owned subsidiary, Mineral

Resources Limited, had entered into

an agreement with Jiangxi Ganfeng

Lithium Co., China’s second-largest

lithium producer, for the Mt Marion

Lithium project in Western Australia.

Ganfeng now controls 43 per cent of

the deposit, and minority partners

Mineral Resources and Neometals hold

30 per cent and 27 per cent respectively.

Ganfeng is taking all of Mt Marion’s

production, expected to be 5000 tonnes

per year, through an offtake agreement.

Australian mining players benefiting from lithium interest South America–focused miner Orocobre

is developing the Olaroz Lithium project

as a joint venture with Toyota Tsusho

Corporation and Jujuy Energia y

Mineria Sociedad del Estado. The project

is in Argentina’s Jujuy Province.

Orocobre has been among the

market’s best-performed small-cap

resource stocks, with an average annual

return of 37 per cent over three years

to April 2016. Its share price has more

than doubled in the past 12 months.

Orocobre said in April that it had

produced 2332 tonnes of lithium

carbonate for the first quarter of

2016, in line with guidance of around

2400 tonnes. It looks like one of the

more promising ASX-listed lithium

companies, given its more advanced

operations and large resource.

The growth in hybrid and electric vehicles is increasing demand for lithium batteries

4 • Australian Resources and Investment • Volume 10 Number 2

FEATURE ARTICLE

Galaxy Resources soared from a

52-week low of two cents to 40 cents,

delivering spectacular returns for its

true believers. It fully owns the Sal de

Vida Project in north-west Argentina

in its so-called ‘lithium triangle’.

Argentina is one the world’s largest

lithium producers.

Galaxy also has the James Bay

lithium project in Quebec, Canada, and

the Mt Cattlin project in Ravensthorpe,

Western Australia.

Galaxy says Mt Cattlin is the world’s

only lithium mine to begin production

since recent large gains in lithium

prices. It expects significant cash flows

from Mt Cattlin, with first delivery

expected in July/August 2016.

The market’s other lithium producer,

General Mining Corporation, soared

from a 52-week low of four cents to

58 cents in April 2016. It has an

exclusive right to earn a 50 per cent

equity interest in Galaxy’s Mt Cattlin

and James Bay projects by providing

$23 million of developing funding over

three years. General Mining’s exposure

to Mt Cattlin is capturing the interest of

institutional and retail investors.

Lithium developers share in gainsEarlier-stage lithium companies are also

delivering stunning share-price gains.

Pilbara Minerals has soared from a 52-

week low of three cents to 60 cents in

April 2016. It fully owns the Pilgangoora

Lithium-Tantalum project in Western

Australia’s famed Pilbara region.

Pilbara Minerals says Pilgangoora is

the world’s second-largest spodumene

tantalite resource, and that a recently

completed pre-feasibility study confirms

the technical and financial viability

of a two-million-tonne-per-annum

development. A definitive feasibility

study, currently underway, is expected

in the third quarter of 2016.

Pilbara Minerals is targeting plant

construction from December 2016 and

plant commissioning from December

2017, and it believes that it can become

a low-cost producer of lithium and

tantalum at its Pilgangoora project,

which is 120 kilometres south of Port

Hedland in Western Australia.

Another emerging lithium explorer,

Neometals, has also delivered strong

gains. Its share price soared from a

52-week low of seven cents to 40 cents

as the market paid greater attention to

its part-owned Mt Marion project.

The well-run Neometals expects

to commence crushing at Mt Marion

in the second quarter of 2016, with

first shipment in the third quarter. A

parallel drilling program will lead to the

announcement of a new resource and

reserves in the second half of 2016.

Altura Mining, another lithium

explorer, is also attracting market

attention. Its shares have soared from

a 52-week low of one cent to 25 cents

in April 2016. Altura is involved in

the Pilbara through its Pilgangoora

Lithium project.

It commenced lithium exploration in

the area in 2009, invested $6 million

in drilling and other studies, and

defined its resource in 2012. Altura

says its project is a top-five hard-rock

lithium deposit by global standards: its

total resource has 372,000 contained

tonnes of lithium, 70 per cent of it in

the indicated category, which complies

with the Joint Ore Reserves Committee

(JORC) Code. All drilling is completed.

Altura expects to complete a

definitive feasibility study at Pilgangoora

Lithium by June 2016, and to

commence plant construction in the

fourth quarter of 2016. First production

from the project, which is thought to

have a straightforward ore body, is

expected in the third quarter of 2017.

Altura has a letter of intent with

Lionergy, a China-based downstream

lithium production and investment

company, to supply 100,000–150,000

tonnes of spodumene concentrate

annually. Lionergy invested $3 million

in Altura via a share placement.

Early-stage explorers to watchEmerging lithium companies, such as

Lithium Australia, Dakota Minerals,

Ardiden and Metalicity, have rallied

this year, albeit off low bases. They are

less advanced than ASX-listed lithium

companies in production or getting close

to first delivery of the commodity, and

some have lower grades.

But these companies have interesting

prospects if lithium prices remain high

in the next few years as demand for

battery storage technology grows.

Their strong price gains could

encourage other lithium hopefuls to

launch initial public offerings (IPOs),

raise capital and list on the ASX this

year. If successful, they would break

a near-total absence of exploration

companies in the IPO market in the past

two years.

A rush of lithium offers, however,

could also signal that the market for

this commodity is becoming overheated,

given the potential for existing lithium

producers to increase supply to meet an

expected rise in demand, thus limiting

price gains and making it harder for

aspiring lithium producers.

Tony Featherstone is a former managing editor

of BRW and Shares magazines. This column

does not imply any stock recommendations

or offer financial advice. Readers should do

further research of their own or talk to their

advisers before acting on themes in this article.

All prices and analysis current at time of print.

A rush of lithium offers, however, could also signal that the market for this commodity is becoming overheated, given the potential for existing lithium producers to increase supply to meet an expected rise in demand

*See page 66 for our special Batteries and Technology feature

for more lithium news