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The lithium daylights: Tesla, BMW, Nissan, Honda et al can't get enough

European Metals Holdings and Cadence Minerals have both surged today as evidence mounts of electric car adoption reaching a tipping point

Electric cars charging up
Electric cars are on a charge

Ten years ago, unless you were a geeky sort who looked at labels on laptop batteries, the term lithium was probably unfamiliar to you.

Star Trek fans, aware that dilithium crystals were used to power the starship Enterprise’s warp drives, might have made a decent stab at guessing it was a mineral used in energy production, but for the rest of us it could just as easily have been a product used in soap powder or the name of a country conquered by the Roman Empire.

The extraordinary rise in popularity of the mobile communication device (no, not the Star Trek communicator, but something very like it), initially in the form of smartphones and later in the form of tablet computers, brought lithium to the attention of the mining world.

With demand rising, the race was on to find new sources of the mineral that is used in the batteries that power those devices.

The rapid growth in the use of smartphones is tailing off, but just as it is doing so, the next revolution that will significantly boost demand for lithium is upon us: electric cars.

Japanese companies such as Honda and Nissan have been producing electric cars for some time, plus there is the high profile example of Tesla Inc (NASDAQ:TSLA) in the USA.

More recently, German car giant BMW announced it would produce an all-electric version of the iconic Mini in Oxford as part of its electrification strategy.

By 2025, BMW expects that of the cars it sells each year, between 15% and 25% will be electrically powered.

Today, GKN PLC (LON:GKN), a British metal basher with a long history, proved it is keeping up with the times by announcing it is turning its attention to electrified drivetrains as more car makers shift away from traditional diesel-engine vehicles.

READ GKN boosts investment in electric vehicle technology as it reports rise in first half profits

READ GKN in strong position with electric vehicle innovations but challenges lie ahead, analysts say

It’s also worth mentioning in passing the UK government’s decision, announced today, to ban all new petrol and diesel cars and vans from 2040; green lobby groups have carped that 2040 is about 15 years too late, but market forces (in the form of the increasing popularity of electric cars) might make the ban irrelevant anyway.

So, it looks like the electric car revolution is underway, and lithium producers are set to benefit, but who are these producers?

The UK-listed lithium plays

Most lithium miners are listed outside of London. The three largest, Albemarle, FMC and Sociedad Quimica y Minera de Chile (SQM), all have US listings, while Canada probably has the most lithium-focused listed companies.

Albemarle Corporation (NYSE:ALB), FMC Corp (NYSE:FMC) and SQM (NYSE:SQM) ,may be the biggest producer,s but it is worth noting they are not pure lithium plays; they derive around 5-15% of their revenues from the mineral.

For investors wanting to go “all in” on lithium, junior explorers could be the way to go.

In the UK, direct exposure is limited to three juniors, all of which have potentially large scale projects in development.

Dual-listed Bacanora Minerals (CVE:BCN, LON:BCN), up 25% year-to-date and worth C$156mln, has completed a pre-feasibility study (PFS) on its Sonora clay project in Mexico where it plans to ramp up to 35,000t of lithium carbonate in two stages and 50kt of potash for fertiliser.

The feasibility study is expected to be completed this summer. The study is budgeted to cost approximately US$7mln and will reflect the recent rises in the price of lithium and also higher reagent input costs.

A pilot plant is currently producing lithium carbonate to be distributed to potential off-takers in the third quarter this year. Based on PFS estimates the project will be significantly lower cost than a traditional hard-rock asset.

Cadence Minerals Plc (LON:KDNC), formerly known as Rare Earth Minerals, is worth £54mln and has a 17.1% stake in Bacanora and also an interest in a European project, Cinovec (9.8%), owned by European Metals Holdings (LON:EMH 16.75p). 

Cinovec, in the Czech Republic, is at a fairly early stage although EMH has completed a scoping study to produce 19.4kt of lithium carbonate.

The electric car revolution is about more than lithium, however; demand for cobalt is also set to soar and Cadence has this covered as well.

It recently signed a deal on a cobalt-nickel project in Austria, perfectly positioned to supply directly those Bavarian car manufacturing giants.

“The driver is electric vehicles,” said Cadence chief executive Kiran Morzaria. “There are going to be strategic requirements to have the source of your product more local.”

READ Cobalt price surge may be signpost to boom, as electric vehicles begin to suck in supply

Cadence Minerals was up almost 24% this morning while European Metal Holdings was up 14%, but Bacanora seems to have been overlooked in the lithium love-in so far.

The small cadre of London-listed lithium plays may soon be swelled by Cornish Lithium, which as the name of the company suggests, is planning to explore for lithium in a region of Britain famed for mining – albeit tin mining.

READ Cornish Lithium seeking £5mln to prove concept that could transform English energy industry

Led by experienced mining analyst Jeremy Wrathall, the company has bought up the rights to drill in areas where it thinks the mineral could be extracted in significant quantities from hot underground brine.

The idea is to drill into large scale regional faults where the company believes brines containing lithium are still moving. The brine would then be pumped to surface and processed using one of a series of newly developing technologies that allows for the rapid extraction of lithium from brine.

If Wrathall is on the money with his hypothesis about the presence of lithium in the brine, then Cornwall could once again become the mining powerhouse of Britain.

Quick facts: Bacanora Lithium Ltd

Price: 24 GBX

Market: AIM
Market Cap: £53.52 m

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