Every time Apple finds its latest iPad offering oversubscribed with advance orders, it's music to this company's ears. Every time a hybrid or electric vehicle moves down an assembly line, it boosts this company's end-user market. But especially as wind farms and hydroelectric plants look for innovative ways to store the power they produce, this emerging world-class producer of the world's lightest metal is finding itself in the right place at the right time.
The common denominator here is lithium, which remains at the leading edge of high-tech battery solutions for everything from your laptop computer to your future energy grid. Now that Canada Lithium (OTC: CLQMF) has raised the capital needed to complete construction of the Quebec Lithium Mine near the Canadian province's city of Val d'Or -- with first production expected in early-2013 -- I encourage Fools to look at this small company with big looming capacity to plug into the market for the storage of power.
With much of my own attention focused on the likes of gold, silver, and copper, I must confess to having given lithium little consideration as a potential target for investment. But after a fascinating conversation with Canada Lithium CEO Peter Secker, and my deeper look into the lithium market that followed, I intend to follow this corner of the metals patch more closely going forward.
Let's begin with a crash course to get everyone up to speed. Secker explained to me that roughly 35% to 40% of global lithium demand stems from the manufacture of glass and ceramics. That segment requires only a simple lithium concentrate called spodumene, which sells for roughly $400 per ton. Spodumene, (which sounds so much cooler spoken in Secker's Australian accent), also refers to the raw lithium-bearing ore that Canada Lithium will then process into higher-grade spodumene (concentrate) of roughly 6% to 6.5%.
Another 25% of demand relates to the manufacture of lithium batteries, ranging broadly in scale from the tiny units in your cell phone to large battery banks capable of storing immense electrical capacity. For this technology-driven segment of demand, which is expected to grow rapidly to satisfy 45% of worldwide demand by 2015, manufacturers primarily seek lithium carbonate, a chemical compound with a current market value of about $6,000 per ton.
Remaining end-user applications for lithium include high-temperature greases, antidepressant medication, strengthening of fiberglass used for wind-turbine blades, and light-weight aluminum alloys used primarily in the aerospace industry. But it's the emerging demand for powerful grid-storage solutions that clearly has Peter Secker most excited about the future of lithium demand, and the location of Canada Lithium's mine does appear to present a strong competitive advantage that we'll explore below. Before we do, however, we need to take a quick peak at the supply side of the lithium market.
On a volume basis, global lithium supply is dominated by a handful of large-scale producers -- known as "brine" producers in South America (predominantly Chile and Argentina). These are essentially salt flats that yield their lithium content through an evaporation process in sprawling brine pools. Sociedad Quimica y Minera de Chile (NYSE: SQM ) is the world's largest producer, but it's worth noting that this lithium production is a byproduct of the company's primary target: fertilizer for the agriculture industry. Talison Energy in Australia is the leading hard-rock miner of spodumene. When Canada Lithium achieves commercial production in Quebec during 2013, its mine will produce lithium concentrate at just-under half the current annualized volume of Talison, but Canada Lithium will convert the majority of that concentrate (about 88%) into lithium carbonate to earn the value-added sales price of about $6,000 per ton. At about 20,000 tons per year, Secker estimates Canada Lithium's initial market share of global lithium carbonate production at a respectable 10% to 12%.
Plentiful power for a journey down the supply chain
Longer-term, Secker aspires to guide Canada Lithium further down the value-added stream of the lithium supply chain. Between Quebec 's cheap and plentiful electrical power courtesy of Hydro Quebec, and the emerging green-technology hub taking shape in Montreal, Secker sees a competitive advantage available through products like refined lithium metal (which commands an astronomical market price of roughly $60,000 per ton!).
In this way, Secker views his company's future more in the manner of a company like FMC (NYSE: FMC ) that offers a full array of value-added lithium products than he does as a conventional miner. Since refining lithium metal is energy-intensive, Secker views his access to low-cost power as a key competitive advantage, saying, "We don't want to be known as a mining company or a processing company. We want to be a fully integrated chemical company like FMC, and head downstream. And having hydro power here in Quebec is our biggest advantage."
Toward the end of our conversation, I asked Secker what he thought might take observers of the lithium market by surprise over the coming years. His reply provides both a fitting conclusion to our introductory gaze into the lithium market, and also a concise argument for why the location of Canada Lithium's forthcoming mine could play a substantial role in the company's long-term growth:
Up until now lithium batteries have been for laptops, cell phones, and more recently hybrid and electric vehicles. But I think the grid storage industry is going to take the world by surprise. A123 Systems (Nasdaq: AONE ) supplied a 32-megawatt battery that's running off a wind farm in West Virginia. BYD has just commissioned a 36-MW battery in China. AES (NYSE: AES ) is just designing a 400-MW battery that they want to put in Long Island, New York. And this is all about storage of energy and energy modulation.
One of the reasons Quebec is so interested is because of Hydro Quebec, which has about 37 GW of installed power. They don't consume anywhere near that, so at night they sell it down to the U.S. at somewhere between $0.005 and $0.01 per KWh. What they would like to do instead is store the night-energy somewhere near the U.S. border in massive batteries and then sell it for $0.02 per KWh during the day.
And if you look at Hydro Quebec and its patents, they either have the largest number or second-largest number of lithium battery patents in the world. They are doing huge amounts of research into how you store massive amounts of energy for subsequent use. Subsequent use can be 12 hours, or 36 hours, or 50 hours later. I think grid storage is going to be huge.
The more I learn about the emerging demand for grid storage solutions, I too get amped up by the prospect of alternative energy sources striking a more efficient link with existing grids; and all of this has this Fool looking with enhanced investment interest at the potentially powerful world of lithium.
- Add Canada Lithium to MyWatchlist.
- Add A123 Systems to MyWatchlist.
- Add AES to MyWatchlist.
- Add Sociedad Quimica Y Minera de Chile to MyWatchlist.
- Add FMC to MyWatchlist.