As we all know the lithium market – that “white gold” – is the new hot thing. So much so that we’ve microcaps like Western Yilgarn (ASX: WYX) rising 50% because people on the next property over found the right sort of rock that might have lithium in it. No, really. There’s a frenzy going on here and one of those truths about metals frenzies is that there’s a lot – a lot of anything – out there and eventually enough will be found to supply the demand. Those who are close to production might well be OK. Atlantic Lithium’s (LON: ALL) project looks good, as long as those bribery claims don’t stick. Kodal Minerals (LON: KOD) equally looks good except they can’t, quite, get the paperwork sorted. One wag – well, at least one – is because they’ve not found the right person to bribe – but of course that cannot be true because bribery is illegal these days.
The people currently producing in volume, SQM, Albemarle, Piedmont, they’re clearly doing fine. Yes, the lithium price is down 50% over the past 8 months but it’s so far up above production cost that net margins – net – of 50% are being achieved. Enjoy that while it lasts, obviously.
It’s necessary to understand the lithium market
Now, we have some experience in metals markets, also with mineral reserves and such concepts. There really is no shortage of lithium out there. There is a shortage of people currently producing it. Add capital and effort to some rock and there will be plenty of lithium – in time. What this means is that lithium – whether anyone tries to trade the spot price, or producing miners, exploration set ups, whatever – is a trading opportunity, not a long-term investment one. The price of the basic and underlying element itself is highly volatile. So, there are no tuck away and forget investments here. There are only trades.
By comparison, think about trading in the gold market if the per ounce price went from $200 to $2,000 in three years, then from $2,000 to $1,000 in 8 months. That’s not exact but it’s a good enough outline of the lithium market. We’d be overjoyed to trade that volatility, especially with the gearing that equity in miners gives us, but we’d very definitely not tuck stocks away into the pension fund for the 20-year view.
Bolivia has just changed the global lithium market
This has all just been made worse. Or, of course, better, depending on where you stand. The last great known but untapped lithium resource is – but note what is being said here. Known – we know it exists, where it is, how to process it, we know everything about it. It’s also 21 million tonnes of Li. This is not something that has to be explored for. That great untapped is up in the highlands of Bolivia. Vast dried up salt lakes, exactly the same geology that produces the Chilean and Argentinian fields. Bolivia has about 30% of all the world’s known – again, known – resources. But it’s been producing only 600 tonnes a year, even after vast investment by the local government there. This is about to change: “Today [June 29] we signed two important agreements with Uranium One Group JSC, from Russia, and Citic Guoan, from China,”
I know one of those two and I’d count my fingers after shaking hands with them. But this is still the right decision. Because they’re going to just allow folk to go mining that lithium, with the appropriate royalty payments. Instead of the idiot socialism of the Morales government which was trying to insist that batteries must be made upon the altiplano, that cars should be made at 12,000 feet.
OK, so we can celebrate an outburst of sensible government policy in one of the poorest countries in the world, that’s great. But it does make a heck of a difference to that white gold. The world’s biggest resources of lithium are now open for business. That’s going to lower that global lithium price. Not immediately but give it three years (about right for this process of DLE) and there will be much more material entering the global market. That has obvious implications for the price.
Lithium is for trading, not investing
The point we really want to make here is encapsulated in an old joke we might have told before. Bert wholesales Jim with some tinned herring. “’Ere, Bert, the wife and I had some o’ that herring, it were terrible” “Jim, I told ya, that herring was for trading, not eating”.
The lithium market is not in absolute and all-time shortage. Effort and capital will increase supply, as will outbreaks of political good sense. Lithium and lithium stocks are for trading, not buying not investing.
