Lithium is an essential component in most of the technologies used today, from cellphones to computers to electric vehicles. The entire planet is striving to become less dependent on fossil fuels and more energy efficient, fueling the development of more and more electric vehicles and increasing the demand for lithium at a lightning-fast rate.
Despite this growing demand, investors were very wary of lithium stocks in 2018, due to oversupply concerns reported by Morgan Stanley early in the year. However, lithium industry bulls are confident that the demand for the light metal will increase just as fast, thanks to an influx of electric vehicles and higher lithium battery consumption.
At present, the majority of the world’s lithium supply comes from Australia, Chila, Argentina and China. However, lithium stocks in the United States received a major opportunity in late 2017 when President Donald Trump signed an executive order to reduce foreign dependence on 23 metals and minerals that are “critical to the national economy and national security.”
The order called for an immediate ramp-up of domestic production of these minerals, with a heavy emphasis on lithium, providing a significant opportunity for lithium stocks mining in the US. This was very encouraging to lithium miners with projects in the US, as a majority of lithium is produced elsewhere.
Now that the competition is no longer welcome to supply domestic lithium demands, there is a huge opportunity for lithium stocks with US projects.
Let’s take a look at the lithium stocks set to succeed in the US, as well as the supply and demand forecast for lithium in the coming years.
Abundance Of Undeveloped Lithium Reserves In The US
US lithium resources, which include reserves plus lithium that can’t yet be economically mined, currently sits at about 36 million tonnes of lithium carbonate LCE, with a majority of that resource remaining untapped. Despite having an abundance of undeveloped lithium reserves in the US, the country has been importing 50% of its lithium from other countries where 90% of the world’s lithium is produced.
As mentioned, the 2017 executive order changed that, offering lithium stocks a massive opportunity to capitalize on the lithium supply shift in the US. There are a few companies that already have projects underway in the US and a number of other companies are eyeing the untapped reserves.
At present, the only producing lithium mine in the US is Albemarle’s long-running Silver Peak Mine in Nevada. North Carolina-based Albemarle Corporation (NYSE:ALB) is a global market leader in lithium compounds and is one of “the Big 3” in the lithium game.
Despite its success over an extensive period, the Silver Peak Mine has failed to increase production between 2012 and 2016 and has reported a decrease in lithium grades, which may mean the project has nearly run its course. This means that Albemarle will have to make some decisions soon, by looking for new resources in Clayton Valley, closing Silver Peak and focus on its other operations in Australia and South America or partnering with a junior miner.
There are a number of other lithium stocks in the Clayton Valley in Nevada, one of which hosts a resource of 3.287 million tonnes of LCE.
Vancouver-based Cypress Development Corp. (TSXV:CYP); (OTCQB:CYDVF); (FSE: C1Z1) reported a Total Indicated Mineral Resource of 697 million tonnes at an average grade of 886 ppm Li or 3.287 million tonnes of lithium carbonate equivalent (LCE) at its Clayton Valley project. The project is located next to Albemarle’s Silver Peak Mine, making its a very appealing investment for the lithium giant.
Another one of the lithium stocks with a project in Nevada’s Clayton Valley is Pure Energy Minerals Limited (TSXV:PE) (OTCQB:PEMIF). The company’s Clayton Valley project is adjacent to Silver Peak and only a few hours drive from Tesla Motors’ (NASDAQ:TSLA) Gigafactory.
The preliminary economic assessment (PEA) of Pure Energy’s Clayton Valley Project shows a total Indicated Mineral Resource of 3.835 million tonnes of lithium carbonate equivalent (LCE) contained in 831 million tonnes at an average grade of 867 ppm Li. The PEA forecasts an average annual production of 10,300 tons of lithium hydroxide or 9,100 tons of lithium carbonate equivalent.
Pure Energy didn’t waste any time securing interest in the project’s reserve, signing a promising agreement with Tesla Motors Inc. in 2015 for the potential supply of lithium hydroxide from the project.
However, Tesla’s Nevada-based Gigafactory hopes to produce 500,000 electric vehicles per year by 2020, meaning it will need a lot more lithium than Pure Energy can supply. What’s more, Tesla will also be producing batteries, which will cause the company’s lithium demand to grow to 8,000 metric tons per year by 2020.
Lithium Americas (NYSE:LAC) is another force to be reckoned with in the region, with its Thacker Pass open-pit mine in Humboldt County, Nevada. The company has claimed that its is the largest known lithium resource in the US and the next large-scale lithium mine, with a reserve of 3.1 million tons of LCE at 2.358 ppm Li.
Standard Lithium Ltd. (OTC:STLHF) (TSXV:SLL) (FRA: S5L) is another Vancouver-based company with a project south of the border. The company recently expanded its California-based lithium brine project to meet the growing lithium demand. The company installed six additional evaporation pods at its Bristol Dry Lake property in California’s Mojave Desert to take advantage of the record-high evaporation rates to pre-concentrate brines and the project.
Piedmont Lithium (NASDAQ:PLL) is another emerging lithium company that has begun drilling at its flagship Piedmont Lithium Project in North Carolina. The company is confident that the project will become a world-class integrated lithium operation in North Carolina, especially because of its strategic location in the Carolina Tin-Spodumene Belt.
Electric Vehicles Pushing Lithium Demand
Lithium is the main ingredient in most batteries, making it essential for the production of everything from smartphones to electrical vehicles. The lithium demand is expected to increase significantly over the coming years as more and more electric cars come online as a way to reduce carbon emissions and reduce pollution.
Tesla Motors began the electric vehicle revolution when it launched the first all-electric sedan in 2012 and has since ramped up production to approximately 300,000 to 400,000 electric vehicles per year. Other major automotive companies are following suit, with General Motors (NYSE:GM), Volvo and Volkswagen (OCTMKTS:VWAPY) making major investments in developing electric vehicles.
According to The International Energy Agency (IEA), the number of electric light-duty vehicles could reach 125 to 220 million by the year 2030, depending on what steps are taken by governments.
Tesla signed a supply agreement with China’s Ganfeng Lithium in September 2018. The agreement will see the Chinese lithium stock supply Tesla with 20% of its annual lithium hydroxide production through 2020, with the option to extend the agreement another three years. Tesla also signed an offtake agreement with Australia’s Kidman Resources (ASX: KDR) (OTCMKTS:KDDRF) last year.
Apart from that, the only company Tesla has signed a supply agreement within the US is Pure Energy, which means further lithium deals should be in the cards for the American automotive and energy giant.
Lithium Supply Could Outpace Demand
Data from the US Geological Survey (USGS) shows that continued lithium exploration has boosted lithium resources around the globe, with Chile, China, and Argentina having the largest known reserves. Identified lithium resources in the US, from continental brines, geothermal brines, hectorite, oilfield brines, and pegmatites, account for 6.8 million tons, while identified lithium resources in other countries are approximately 55 million tons.
The Wall Street Journal projects that the supply of lithium will exceed demand for the next five years, causing a 35% oversupply by 2023. Meanwhile, Morgan Stanley expects the lithium price to drop to $7,000 USD per ton by 2021, nearly half of the current price. Despite the bearish predictions, experts in the space don’t believe the supply deficit will be quite that high, nor do they think the price will drop that low. In fact, some expect the lithium price to pick up steam by next year.
Regardless of the percentage, it is evident that an oversupply of lithium is expected in the short term, which will likely drive the price down slightly and push smaller lithium miners out of the market. It will be interesting to see which lithium stocks will be able to reach production and take advantage of the US lithium market.
According to market watchers, only investors who have a long-term focus and a higher-than-average risk tolerance should consider investing in lithium stocks.
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