Lithium is a white-hot commodity

Lithium is a white-hot commodity
Tesla sold more than 25,000 of its mass-market electric cars, including the Model 3 (above), in the first quarter of this year.
PHOTO: Reuters

It has been declared the new fuel - lithium, a silvery white metal, is a key component of batteries found in electric cars and portable devices.

While crude oil prices have slumped over the past two years, the price of lithium has soared during the same period.

According to metal price checker Metalary, lithium price has more than doubled over the past five years, from US$4,220 (S$5,894) a tonne in 2012 to US$9,100 this year.

Lithium is traditionally mined in countries like Australia, Chile, Argentina and China, but investors here can also get a piece of this white hot commodity too.

Australian firm Alliance Mineral Assets listed on the Singapore Exchange's (SGX) Catalist board in 2014.

Its performance over the past year was impressive - its total return in a year is nearly 450 per cent as of March 29.

The mining company was founded in 2010 after a husband-and-wife team bought over the Bald Hill site in Western Australia. It has a 59,000ha mine, which is just slightly smaller than the size of Singapore.

Interestingly, the couple had planned to mine tantalum - a rare and corrosion-resistant metal used in automotive electronics, computers and surgical instruments.

But when prices of tantalum fell drastically last year - it is considered a conflict mineral thought to be financing conflict in the Democratic Republic of the Congo - the founders made the difficult decision to stop operations after their project could not break even.

In an interview last month, they told SGX that they then looked through geological reports of old exploration data to see if they could find higher grade tantalum deposits.

But they found something more valuable - studies showed that Bald Hill's most significant by-product was a 6.73 per cent lithium oxide spodumene concentrate, which can yield "premium" grade lithium.

Alliance's change in fortunes drew significant attention.

Last June, Lithco 2 - a subsidiary of Australian company Tawana Resources - agreed to partner Alliance for the exploration and exploitation of minerals in the Bald Hill Project, contributing A$20 million (S$21 million) to earn its 50 per cent share of the joint venture.

Alliance has also shined on the stock exchange.

Of the four industrial mineral stocks on SGX, Alliance has been the strongest performer in the year to date, generating a total return of 334.1 per cent (See report on right.)

Globally, many lithium investors are seeing their shares rally, reported the Financial Times last month.

GAINERS

Since the start of last year, Australia's Galaxy Resources and Pilbara Minerals have gained about 390 per cent and 50 per cent respectively; Lithium Americas is up 200 per cent.

The Global X Lithium Exchange Traded Fund, which tracks lithium miners, explorers and battery manufacturers, returned about 34 per cent over the same period.

Nonetheless, there could be the risk of a price bubble.

Analysts told the Financial Times that unlike traditional commodities, there is no spot market for lithium and that pricing can be opaque.

Mr Tjandra Pramoko, Alliance's chief executive officer, also told SGX they are "rushing" to take advantage of the higher prices before supplies increase.

The burgeoning supply is largely driven by the massive investment in lithium mining.

The "big four" suppliers of lithium are US-based Albemarle and FMC, Chile-based Sociedad Quimica y Minera and China's Tianqi Lithium.

Last month, Tianqi Lithium and Albemarle - the owners of Talison Lithium - approved an A$320 million expansion of the world's largest lithium mine, in South West Australia, to more than double the its capacity.

The project is planned to coincide with the completion of a A$400 million lithium processing plant in Kwinana, Western Australia, by Tianqi Lithium, which owns 51 per cent of Talison, reported The West Australian last month.

But the push for sustainable sources of energy will probably continue to drive the demand for lithium.

Investment research firm Morningstar estimated that lithium supply will struggle to keep pace with the growing demand in the coming years, resulting in a 105,000 tonne deficit by 2025.

Nearly 40 per cent of all lithium supply worldwide is used in the production of batteries, including those that power battery electric vehicles.

The global lithium-ion battery market is also projected to grow to US$77.4 billion by 2024 from US$29.7 billion in 2015, according to a report last year by Transparency Market Research.

Perhaps the best known reason behind lithium's growing demand is electric car-maker Tesla - it sold more than 25,000 vehicles in the first quarter of this year, a record that beat analysts' forecasts, the Silicon Valley company said last week.

At the start of this year, Tesla launched the mass production of its vehicle batteries at its US$5 billion Gigafactory in Nevada.

"We expect sales of electric and hybrid vehicles to push lithium demand growth 16 per cent annually over the next decade - faster than almost any major commodity over the past century - from about 175,000 tonnes in 2015 to about 775,000 by 2025," wrote Morningstar analyst David Wang last month.

linheng@sph.com.sg


This article was first published on April 6, 2017.
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