There’s a lot of hot air written about the prospects for the lithium sector as speculative companies look to raise capital in order to profit from misplaced investor excitement over the sector. For example the ASX is reported to now have more than 60 listed companies engaged in the lithium sector thanks to the seductive story of rising demand for the metal that’s required to manufacture the batteries to power electric cars.
Bulls argue that electric cars will dominate the roads of developed economy countries within 15 years fuelling explosive demand for the battery-making ingredient and likely to make early investors filthy rich. While bears claim the market is already over-supplied and that lithium prices (that are already opaque) could actually fall in the years ahead. There’s also the argument that electric cars fail to take off as unexpected.
It’s probable that the majority of the lithium-focused companies on the ASX will fail, but these three could be worth watching.
Orocobre Limited (ASX: ORE) is a lithium miner that posted a strong quarterly production report today that saw investors bid shares 11.7% higher to $3.72. For the quarter ending September 30 2018, Orocobre produced 2,293 tonnes of lithium at its Olaroz Argentinian tenement. In total it sold 2,144 tonnes at an average price of US$14,999 per tonne, compared to a cost per tonne of US$4,640. The group also announced plans to expand production at its Argentinian operations. If lithium demand and prices do take off, it looks well positioned to capitalise.
Kidman Resources Ltd (ASX: KDR) is worth watching as it has actually signed a deal with the company that feeds most of the hype around lithium in electric car king Tesla Inc. In May 2018 Kidman announced the three-year take or pay deal for lithium hydroxide produced at its WA-based refinery. Today it also announced an offtake deal with Mitsui in a move that sent the shares up 16%. Kidman is also involved in a joint venture with Chilean lithium miner SQM to develop the Mt Holland project in Western Australia. Investors should beware though as it posted no revenue and an operating cash loss of $2.1 million for the quarter ending September 30, 2018.