Jason Hamlin
The lithium market is buzzing as GM, Nissan and other car manufacturers get set to roll out a new series of electric cars that will greatly increase demand for the obscure silver-white alkai metal. GM has announced plans to construct a $43 million plant in Michigan to build lithium-ion batteries for its Chevrolet Volt electric-powered car, which captured headlines with its claim of 230 miles per gallon.Adding to the lithium mania is Washington’s support in the form of $2 Billion in stimulus funding:
“New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea. Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders –and I know you don’t either. It is time for America to lead again.”
– President Obama
For those with concerns that fuel efficiency alone is not enough to entice America’s automobile consumer, consider the company Tesla Motors. While their roadster is the first production automobile to use lithium-ion battery cells and travel more than 200 miles per charge, it is also capable of doing 0-60 in under 4 seconds. Not only will the Tesla Roadster leave most sports cars in its dust, the car recently set a distance record in April 2009 when it completed the 241-mile Rallye Monte Carlo d’Energies Alternatives with 36 miles left on the charge. While the Roadster’s price tag may be out of reach for the average consumer at just over $100,000, Tesla has taken more than 1,000 reservations for the car and expects to begin production of an all-electric and more affordable sedan starting in late 2011. While Tesla remains a private company whose stock you are unlikely to get your hands on, their success bodes well for the future of lithium battery-powered cars.
Lithium prices have nearly tripled over the past decade with 22% compound annual growth since 2000 for use in laptops, cell phones and other electronics. While this demand is expected to continue rising, the recent lithium mania has been ignited by the fact that electric cars require about 3,000 times the lithium needed for an average cell phone or 100 times the lithium used in a computer battery. This huge spike in demand should propel lithium prices much higher over the next few years. Investors are eager to get ahead of the curve and are scrambling to find the companies that stand to benefit most from this new demand.
While most investors turn to the world’s largest lithium producer, Sociedad Quimica y Minera de Chile (ADR) (NYSE:SQM), only a small percentage of their revenue is derived from lithium sales. SQM generates the bulk of their sales from iodine and specialty fertilizers for the agriculture sector.
My preferred way to profit from the coming lithium boom is through the company Western Lithium (CVE: WLC or PINK: WLCDF), which owns the largest known lithium deposit in North America. The near surface lithium clay deposit is located in Nevada, USA and was initially discovered by the US Geological Survey and Chevron USA in the 1970’s. Engineering work completed by Chevron, and later by the US Bureau of Mines in the 1980’s, is now being advanced by Western Lithium.
The company’s flagship Kings Valley property has a National Instrument 43-101 resource estimate for the initial stage of development and in total hosts a historically estimated 11 million tonnes of lithium carbonate equivalent (LCE). The project has a well developed local infrastructure and Nevada has a long history in the metals and industrial mineral mining industry. The company plans a scoping study during Q3 of 2009, a pre-feasibility study with results from additional drilling during 2010 and projected production by 2013. A chart with the world’s largest lithium deposits is below (click on the chart for an enlarged image).
Western Lithium is well-funded and debt free with CDN$7.3 million (US$6.7 million)) cash on the books. They recently completed a CDN$5.5 million (US$5.0 million) private placement in May of this year and have a market cap of CDN$70 million (US$63.8 milllion). As you can see below, the stock has broken out recently on heavy volume. While some might view the stock as overbought, I believe lithium mania is only getting started and that Western Lithium will outperform its peers both in the short and long term. Despite the recent spike in price, shares are selling at a premium of just 20% to their highs which were put in well before the recent flurry of bullish news. The last time the stock made a move like the current one, it continued to produce a gain in excess of 800%!
We might not know for sure “Who Killed the Electric Car?,” but it appears to be making an impressive resurrection.
DISCLOSURE: The author is long Western Lithium
Jason Hamlin owns the Gold Stock Bull. The Gold Stock Bull Portfolio is up 115% year-to-date in 2009 with a record of 29 profitable trades and 14 losing trades. Click here for more information or click here to get started right away.
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