Commodity Plays on Electric Cars: Lithium

MONDAY, OCTOBER 12, 2009
COMMODITIES CORNER


Hybrids Drive Lithium Miners
By SHANE ROMIG | MORE ARTICLES BY AUTHOR
Lithium, the next big thing for car batteries, spurs mining plays

THE PUSH TOWARD ELECTRIC-CAR development in the U.S., Europe and Japan is fueling a mad dash to lock in lithium-mining rights high in the Argentine, Bolivian and Chilean Andes. Lithium is a key ingredient in the batteries that fuel electric and hybrid cars, and nowhere is there so much of the light, charge-holding metal as in the South American mountain range. What's more, as much as 90% of the world's known lithium brine -- in which the metal is in a relatively accessible dissolved state, rather than locked in stone -- is said to be in the region's salars, or salt lakes, in Argentina's Puna Plateau.
Already, well over half of the world's lithium output comes from mines in Chile and Argentina run by Sociédad Quimica y Minera de Chile (ticker: SQM); Chemetall Foote, a subsidiary of Rockwood Holdings (ROC); and FMC (FMC).While the U.S. has pledged $2.4 billion in stimulus spending on advanced battery technology, companies from Japan, Korea and China have been busy courting Bolivia's President Evo Morales to lock in supply deals from the Salar de Uyuni salt flats. In June, a consortium of Japanese companies, including Mitsubishi (MSBHY), Sumitomo (8053.Japan) and Japan Oil (9074.Japan) made a preliminary proposal to begin mining lithium, but Bolivia says it wants to see more domestic processing on-site before it will consider granting concessions. And in August, South Korea's state-run Korea Resources Corp., or Kores, said it had signed a memorandum of understanding with Bolivia's state-run miner, Comibol, to jointly study lithium-mine development.
THE RACE IS HOTTEST IN ARGENTINA. Dozens of junior exploration companies and speculative investors are betting big on the lithium-brine deposits there. New York-based research firm Hallgarten & Company analyst Christopher Ecclestone recommends taking a long, speculative position in two lithium leaders in the region, Orocobre (ORE.Australia) and Latin American Minerals (LAT.Canada). "They're pure-play," he says. Farthest along is Orocobre, which hopes to start construction on its Olaroz project in 2011. Latin American Minerals has locked in the rights to 93,000 hectares and is currently analyzing the results from a sampling program. Australia's Admiralty Resources prepped the massive Rincon project, but a Cayman Island-based entity controlled by the Sentient hedge-fund group snapped it up last year for the fire-sale price of around $27 million.
With expectations for booming demand, lithium users are banking on the South American miners. "While demand for refined lithium should continue to increase as electric-vehicle penetration improves, we expect supply to easily keep up," says Aimee Gordon, a spokeswoman for rechargeable-battery maker Ener1 (HEV). But some worry that a flood of new suppliers rushing to get lithium to market may pressure prices. (Lithium is not yet traded on a commodities exchange.)
In fact, Chile's SQM on Sept. 30 announced it was cutting prices for lithium carbonate and lithium hydroxide by 20% for new supply contracts to "accelerate demand recovery." That doesn't faze Orocobre's chief executive, Richard Seville, who says: "I don't think there is any risk of oversupply, as most of the projects [being talked about now] won't end up going into production."
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SHANE ROMIG is a reporter for Dow Jones Newswires in Buenos Aires.
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