May 15 marked the day the lithium exchange-traded fund, Global X Lithium & Battery Tech (LIT, Financial), hit a new 52-week high at $29.36 during early morning trading. The fund, which tracks the largest and highest liquidity companies in the market that focus on exploration and mining of lithium, has been on a run since mid-November of last year. A big reason for the move in lithium could be related to the big move for increasing production of lithium batteries by several companies, most notably Tesla (TSLA, Financial).
The advent of electric cars has catapulted the need for more lithium and with it, the limited supply to meet increasing demand has become an attractive economic catalyst to the latest move in lithium. In addition to this, we have also seen a global trend to remove society from the teat of fossil fuels in exchange for more environmentally friendly means of power creation. Just last week, the industry took on a major spotlight after Germany reported that on April 30, 85% of its energy came from renewables.
Based on the attention renewable energy is receiving as a whole, it is no wonder lithium is being shown in a wider spotlight in consideration of a new trend in industries like that of the automakers. Tesla is not the only one who will help put further demand on the lithium market. General Motors (GM, Financial), BMW (XTER:BMW), Honda (HMC) and even Ford Motor Co. (F, Financial) are targeting this space. In fact, Ford revealed it might have figured out a way to charge a battery in less than five minutes without putting any undue strain on the battery itself.
This demand has helped the players in lithium flourish in recent months. Just take a look at one of the largest lithium companies in the space, Sociedad QuĂ Âmica y Minera de Chile S.A. (SQM, Financial). According to its most recent filing, 2016 revenues from lithium sales amounted to $514.6 million, representing 27% of its total revenues. In fact, over the last three years (2014, 2015 and 2016), the company has realized continued growth of its lithium revenues with the most recent increase from 2015 to 2016 being the most drastic; adding to the growing demand for lithium.
At the end of 2015, lithium sales were $223million, which means the company realized an increase of roughly 131% in lithium revenues year over year. But this does not mean there is a monopoly on the industry and, quite to the contrary, many junior miners are emerging, where market analysts could be leaning toward a healthier merger and acquisition climate for lithium companies.
Liberty One Lithum (LRTTF, Financial), for example, has just completed its final tranche of a 4.2 million Canadian dollars ($3.08 million) raise that was previously announced this year. The company recently filed the specifics of this raise on SEDAR. The junior lithium miner has a key focus in the prolific region of the U.S. in the northern Utah Paradox Basin, which has shown promise due to previous oil and gas operations that ultimately supported the potential of lithium brines in the area. The basin is located in an area with historic fluid analysis ranging from 81 to 1,700 parts per million lithium, in saturated mineral brine. In proximity to Liberty’s claim, the Cane Creek potash mine may be a gauge as to what this locale might offer for future production. The Cane Creek mine has been in operation for over 50 years and has been able to readily recover lithium from similar brines in numerous locations across the world. Of course, Liberty will need to conduct more testing in the area to determine the recovery techniques that will need to be used. Now that the company’s procured a few million in funding, this could be the logical next step for the junior.
The Paradox Basin has been attracting much more attention in recent weeks. Scientific Metals (SCTFF, Financial), for instance, entered into an arm’s length agreement to acquire interest in the area. In a press release, it too highlighted the fact the Paradox Property is close to that of Intrepid Potash’s (IPI) Can Creek Operation. Due to the successes of that property, the company has found promise in what the Paradox Basin could offer. In a press release, Scientific Metals’ President Brian Kirwin said, "We believe the Paradox Property could prove to be a substantial lithium asset with minimal work expenditures and substantial cost savings due to the extensive existing historic drill holes. Multiple historic high-grade lithium results in the area are extremely encouraging."
The company also completed a petrolithium joint venture with MGX Minerals (MGXMF, Financial). Through this agreement, MGX can acquire up to 50% of Scientific Metals’ property in the Paradox Basin. To the benefit of Scientific Metals, this venture will allow the company to benefit from MGX’s exclusive nanoflotation technology.
Thanks to the ETF catching traction over recent weeks, investors are beginning to take notice of stocks in this sector; mining in particular. FMC Corp. (FMC, Financial) takes a significant allocation by the lithium ETF as a whole and has been in a bull trend since late November 2016. Wells Fargo raised its rating on the stock to outperform from market perform on May 15 and currently has a $85 target price on the company’s stock. With recent earnings results pointing to growth from both its agricultural solutions segment (up 1% versus first-quarter 2016) and its lithium segment (up 45% versus first-quarter 2016), the company’s guidance has indicated the lithium segment, in particular, could see a forecasted revenue figure of as much as $365 million.
Near-term guidance for its lithium segment points at roughly 27% growth compared to the prior year, ranging from $19 million to $23 million. In a recent press release, Pierre Brondeau, FMC president, CEO and chairman, said, "FMC delivered another solid quarter. In Ag Solutions, we improved profitability in an environment that remains challenging. Lithium earnings increased by 45%t, as significantly higher pricing on lithium hydroxide and other specialty products took effect."
Disclaimer: The author owns ZERO shares in any companies mentioned within this article. The author is affiliated with MAD MEDIA PUBLISHING LLC a company which has an exisiting marketing & awareness contract with Liberty One Lithium (LRTTF, Financial) to provide marketing & awareness . The author has not been compensated to write this article.
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