Rio Tinto Limited set to gatecrash the lithium party

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The Australian newspaper is reporting that Rio Tinto Limited (ASX: RIO) is planning on mining a giant lithium deposit in Serbia in order to satisfy predictions for big increases in global demand.

According to The Australian, Rio has just committed another US$20 million to the project to take its total investment to US$70 million.

The powerful miner’s ambitions are bad news for the dozens of micro-to-small-cap ASX-listed lithium miners that have hit the ASX boards recently hoping to cash in on some investors’ wild enthusiasm for all things lithium. These include Capital Mining Limited (ASX: CMY) Pilbara Minerals Ltd (ASX: PLS), Altura Mining Ltd (ASX: AJM) and Neometals Ltd (ASX: NMT).

Other more established players include Galaxy Resources Limited (ASX: GXY), General Mining Corp Ltd (ASX: GMM) and Orocobre Limited (ASX: ORE).

The growth in lithium companies is a result of the tripling in the lithium price over the course of the past year largely on the back of publicity over new orders for Telsa’s latest battery powered car.

The problem for investors in get-rich-quick lithium miners is that the cashed-up big miners like Rio Tinto can muscle in on the lithium scene as soon as the price looks like it’s set for a sustainable rise.

As a consequence supply can quickly catch up with demand and the vast amounts of capital required to fund the micro-cap miners turns to dust before they ever see positive operating cash flows.

Investors in the lithium miners then should be aware that share prices can fall quicker than they climbed.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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