Rising Li Demand Creates Opportunity for Juniors

Source:

"Most automakers, battery companies want to purchase from several miners."

Lithium miners are reaping the benefits of a political and industry push to get more electric vehicles on the road, with shares in some Canadian-listed miners up more than 50% in the past two months.

Four major producers have long dominated lithium output and demand is likely to double in the next 10 years as automakers roll out hybrid and electric cars using lithium-ion batteries.

That has opened the door to numerous exploration companies and junior miners looking to capitalize on the trend.

But while lithium is fairly abundant, it is not easy to find a cost-effective deposit and process the highly reactive metal. That points to increased M&A activity for companies with promising reserves but only a distant chance of production.

"Lithium is an extremely active area," Byron Capital Markets Analyst Jon Hykawy said of deals in the sector, adding that most automakers and battery companies want to spread their lithium purchases over several miners.

"No one major firm is going to stop with one small junior prospect," he said. "They can't put all their eggs in one basket that way."

"You always protect your supply chain," said Ted Robertson, president of Magna's E-Car Systems. "To mine lithium, and have it in the form we need for these batteries, there are only certain people doing that today."

Global lithium output doubled to 92,000 tons in 2008 from 45,000 tons in 1997, and one major producer says demand will be over 200,000 tons in 2020.

"That's a major, major step forward in terms of demand forecast by a major lithium producer," Hykawy said. "It strongly suggests that there's more than enough room for the juniors to come to the market, to become major players."

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe