Are our Lithium companies at risk from South America?

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Welcome to Finance and Fury, the Say What Wednesday Edition

Today’s question from Zed “I recently noticed that Australia seems to be opening lots of lithium mines as the demand for Electric Vehicles rises and we turn away from oil. Is Australia at risk of their lithium mines being undercut by competition from South America in the near to medium future?”

Today:

  1. Demand for Lithium
  2. Who is providing it?

What is Lithium?

  • Alkali metal
  • Used in rechargeable batteries
  • The supply is increasing

Where Lithium comes from?

  • Lithium from brine (70%)
  • It can take over a year to extract the Lithium through evaporation
  • Lithium from hard rock (30%)
  • Hard rock drilling and extraction through traditional methods
  • Lithium can potentially be recycled

Who are the producers?

  • Bolivia, Argentina, Brazil, and Chile
  • South America produces a lot of the Lithium
  • Australia holds more than 2.7 million MT of identified lithium reserves
  • Chinese companies own more than half of the world’s production

What are the Issues?

  • Oversupply dropping prices
  • Australia has a low cost of production
  • Perhaps there is lithium hoarding happening?
  • Long-term issue is the alternatives to lithium-ion batteries
  • The Ryden dual carbon battery, sand battery, and sodium ion battery

Looking to invest in companies in this space:

  • They lack the circle of competence
  • Price takers rather than price makers
  • Lithium miners have dropped by 50% in prices
  • A look at 3 ASX companies – Pilbara minerals, Galaxy Resources, and Orocobre Limited
  • Price is based around fair values

Summary:

  • Australian mining of Lithium isn’t in too much risk from South America
  • Long-term risk for Lithium is the global demand dropping from alternatives
  • Very speculative – prices determined from supply and demand

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