Investing in Lithium: the iPhone Commodity
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Lithium! As a newsletter editor, I'm bound by law to type an exclamation point after lithium at least once anytime I talk about the topic.
That's because people are rabid about lithium and lithium stocks - and for very (seemingly) good reasons. With hybrid and zero emission vehicles in the news every day, it's hard to imagine that lithium stocks won't continue to experience fantastic growth forever and ever. Just take a look at this gorgeous new lithium powered car that hybrid car manufacturer Tesla motors is selling for $109,000.
I've seen one of these cars driving through Stowe, Vermont a few times, and when you see one zip by it's hard to argue against the idea that lithium is awesome.
Incidentally, Tesla is going public next Tuesday. It could be a huge sentiment-driven profit opportunity. I haven't done too much digging into the fundamentals of Tesla, but if you have any insight into this company, please send me an email at editorial@resourceprospector.com.
There's also big news about the iPhone - a device powered by lithium batteries.
The Wall Street Journal has had a story above the fold (or where the fold would be if it were a paper edition) for the past few days about Asian teenagers waiting in line for the new iPhone.
If you've bought a new cordless drill or even a fancy flashlight lately, you've probably seen the flashy new batteries that accompany them.
All of these items have the words "lithium ion" plastered all over them. Lithium isn't just some magical battery metal; it's practically a brand unto itself. And like any good brand, lithium is synonymous with a whole slew of positive feelings and ideas and newness. Lithium is independence from foreign oil. It's green technology. It's futuristic. It's smart. If you take another look at the Tesla Roadster, I think you'll agree it's also good-looking. It's a quality, high-tech battery material that somehow holds a charge better and longer than the lousy old varieties.
They say that oldest advertising hook in the world is: NEW! And lithium has NEW! in spades.
For many environmentally minded investors, it's a win-win situation to buy lithium stocks. You support lithium production which helps the environment, and you can make money while mother earth looks gladly upon you.
I've done lots of research on lithium, and as my wife can attest I'm something of an irritation at cocktail parties whenever the topic comes up. Get a few drinks in me and I'm apt to rattle off what I believe to be very interesting facts about lithium. For instance:
- Lithium is the lightest metal. It's so light that it floats on water. That's why it's the best metal to use for making a battery. Because when it comes to batteries, weight is a primary concern. Lead makes great batteries, but if you've ever picked up a lead pipe or changed the lead-acid battery in your car, you know that it's very heavy.
- In fact, a cubic foot (about the size of a cinder block) of lead weighs an astounding 708 pounds.
- Nickel makes even better batteries, but it weighs 541 pounds per cubic foot.
- But lithium is even lighter than aluminum, which is usually perceived as a super-light metal. Aluminum weighs 169 pounds per cubic foot.
- A cubic foot of lithium weighs just 33 pounds.
- But the real magic is that a cubic foot of lithium has more energy potential than 6 cubic feet of lead and 2 cubic feet of nickel.
Okay - without my wife here I'll have to restrain myself. You get the point: lithium is a pretty great battery material. Until they invent a new highly reactive metal that's lighter than lithium, I'm pretty sure it will be the material of choice for batteries for a long, long time.
So what's the catch?
Like any commodity story, this one comes down to supply and demand
The good and bad news is that there are billions of tons of lithium locked up in our oceans. Until someone finds an economical way of extracting minerals from the ocean, it will stay there.
The easily extracted lithium is found in only a handful of places - mostly in the central region of South America in countries like Argentina, Bolivia and Chile.
Bolivia is believed to have the best reserves, and unfortunately for foreign investors, Bolivia is a heavily nationalized country.
The lithium in this region is so easily extracted because it's highly concentrated already in a salt form that requires the least amount of processing. The mining process is to just scoop the stuff into trucks. They have thousands of square miles of salt flat deserts, and the lithium is just sitting on the surface.
So if prices spike, Bolivia will simply scoop more of it into trucks. They can ramp up production cheaply and without any delay.
If you're investing in a company that's NOT in this region, with harder to mine lithium reserves in an area with worse mineralization - then you really almost can't win.
This hearkens back to an issue of the Resource Prospector I wrote earlier this week about the importance of location for junior mining stocks. The issue was about gold stocks, but it's relevant to any commodity.
When it comes to small companies, you have to buy the ones in the best possible locations. I'd rather avoid putting my money into a company that has to compete with a nationalized operation that's able to get the highest-grade lithium out of the ground cheaply and quickly.
I've been doing some research on an undervalued commodity that should benefit from continued strides made in green automobile technology - but it will have to wait for another issue.
Good investing,
Kevin McElroy
Editor
Resource Prospector
p.s. My colleague, Ian Wyatt, the Chief Investment Strategist and editor of SmallCap Investor Pro, recently told his readers about a North American gold miner with the ability to get gold out of the ground for $450 an ounce. It's located in arguably the most advantageous place in the world when it comes to gold miners. That's a fixed cost that won't change much - so as long as gold stays above that price, they'll continue to reap profits. And if gold continues going up in price, this company stands to make even better profits. If you'd like to read more about this low-cost gold producer, I invite you to click here now.
