Lithium miners on the ASX have taken off today, with a number posting double-digit share price gains.
Galaxy Resources Ltd (ASX: GXY), Pilbara Minerals Ltd (ASX: PLS), Altura Mining Ltd (ASX: AJM), General Mining Corporation Ltd (ASX: GMM), Neometals Ltd (ASX: NMT), Orocobre Limited (ASX: ORE) have all seen their share prices rise by more than 6% today.
Latin Resources Ltd (ASX: LRS) saw its share price jump 33% today after it was named as ‘a major low-cost lithium producer’ in an email to a popular share forum’s subscribers.
4 companies, Galaxy, Pilbara Minerals, Altura and General Mining have also seen their share prices explode over the past year – rising 1,188%, 1,450%, 1,400% and 1,160% respectively – and it’s all to do with the hype of the expected future demand for lithium.
As you are probably aware, lithium-ion batteries power almost all smartphones, and lithium batteries are also widely used in renewable energy and perhaps the best-known electric car on the planet, the Tesla.
Tesla exclusively makes electric cars powered by rechargeable batteries, and the company has just released its latest model – at a much lower price point that its previous models (US$35,000) – and already has 400,000 orders for the car.
The company says it will build 500,000 cars a year by 2018, a massive ramp up from its existing production levels of 80,000 to 90,000 cars a year. By 2020, CEO Elon Musk says the company is aiming for one million cars.
And that’s just one car company. Several others are rushing to compete with Tesla, and all will require rechargeable batteries. Guess what those batteries will likely contain?
Yep, you guessed it – lithium – hence the soaring share prices of the ASX-listed lithium miners. Tesla alone will require the current entire worldwide production of lithium ion batteries – and as a result is constructing the Gigafactory – named because it expects to output 35 gigawatt-hours (a gigawatt hour is a billion watt hours).
The company is also making batteries for home use too with renewable energy and its Powerwall batteries are already available in Australia.
That’s why multiple miners around the world are rushing to get their lithium projects into production, or expand them to produce even more lithium each year. Lithium prices have exploded as a result, tripling in the past 6-8 months as the chart below shows.
While every man and his dog appear to be jumping on board the lithium companies, there are valid fears that demand is being overestimated, and or that supply will rapidly overtake it, with prices subsequently crashing back to earth.
Investors only have to look at Australia’s junior iron ore miners to see what happens when commodity prices crash.
According to the US Geological Survey, China, Chile and Argentina all have larger reserves than Australia. Bolivia also has substantial lithium resources, so there is the potential for many other countries to accelerate their lithium production.
And that’s the main problem with investing at such an early stage in speculative lithium explorers/developers. The key will be their ability to maintain low breakeven costs, and until they are actually producing at full capacity, no-one really knows what those levels are.
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