Demand for electric vehicles driving boom in lithium
Thursday, October 7, 2010 at 02:04PM
By Julie Gordon
TORONTO (Reuters) - 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 percent 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."
Early this year, Magna International acquired a 13.3 percent stake in junior miner Lithium Americas in exchange for a guaranteed 25 percent share of production, even though the Toronto-based company doesn't plan on having a single ounce of lithium to sell before 2014.
Shares of the Lithium Americas have risen 60 percent in the past two months on the Toronto Stock Exchange.
"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."
Magna, the world's third-largest auto parts manufacturer, recently created an E-Car division, which will build parts for hybrid and electric cars, as well as full electric cars.
The company uses about 8.9 kilograms (19.6 pounds) of lithium for each battery pack, along with other elements such as cobalt, nickel and iron.
"I would say that lithium, as the basic substance in batteries, will be the current technology being used over the next 10-20 years," Robertson said. After that: "My bet is we'll just refine the lithium compounds that are used in the batteries today."
Three diversified companies, SQM, Rockwood's Chemetall and FMC, account for 60 percent of global lithium carbonate production. The only pure-play producer is Australia's Talison Lithium, with about 24 percent.
Talison recently bought Salinas Lithium and used the Vancouver-based company to list on the Toronto Stock Exchange.
Looking ahead, companies with promising properties like Rodinia Lithium, Lithium One and Western Lithium could become takeover targets, said Hykawy.
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