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An Investor's Guide to Lithium Part 1: Digging into Supply

How You Can Get a Piece of the Lithium Gold Rush

Written by Keith Kohl
Posted October 16, 2015

Was it sodium? Maybe potassium?

Back in 1817, scientists in Sweden weren't sure about the compound they'd discovered. It was similar to compounds they'd seen before but showed a few new characteristics. Plus, it wasn't found in plants or animals like potassium and sodium — it was found in rocks!

It prompted Johan August Arfwedson, who discovered the odd compound in petalite rocks, to name it “lithion,” derived from the Greek word “lithos,” or “stone.”

It really doesn't get any more literal than that, dear readers. Yet the element Johan discovered that day is about to drive the world's next energy revolution.

More important, however, is that we are staring at a ground-floor investment opportunity that individual investors like us rarely come across...

Harvesting Rocks

First, let's take a quick look at how lithium has moved to the position it's in today.

You see, even though it was discovered in Sweden, the lithium we know today was commercially produced in Germany first; and it wasn't until 1821 that electrolysis was used to remove pure lithium from the other minerals in those stones. It became known as the lightest of all elemental metals.

In 1923, the element was being mass-produced using electrolysis by German Metallgesellschaft AG.

Naturally, the most common source of lithium back then was rocks, which included the petalite it was first discovered in, as well as spodumene and lepidolite rocks.

These rocks were ground, mixed into a liquid, and put through electrolysis to remove the lithium from the other minerals. In fact, the method is still used today.

Fortunately, a much better way of extracting lithium has been making waves recently...

Harvesting Brine

Right now, approximately 70% of the world's currently known reserves are in the “Golden Triangle” of lithium between Argentina, Chile, and Bolivia.

And every one of them uses salt brines to extract that metal.

In brine processing, much of the work is already done by nature. The natural heat and movement of groundwater releases the minerals from the rocks, so lithium producers need only separate the metal from the other minerals and set it out to dry.

We're talking about a huge amount of the world's lithium resources, too. Roughly two-thirds of the world's lithium is found in brines like this.

Of course, also keep in mind that lithium brine extraction costs companies millions of dollars less than hard-rock mining!

And make no mistake; in order to supply Elon Musk's ambitious Gigafactory, companies are hurrying to develop brine projects in Nevada in the hopes that Tesla will come calling when looking to meet its supply requirements.

Now, despite the fact that some countries like Australia and Africa still mine from rock, usually silicate ore, there's a clear winner in this race.

Well, perhaps it's more of a rush than a race.

The Lithium Gold Rush

Look, it's become obvious by now that lithium is necessary for all of the rechargeable batteries we use today. It powers all of our devices, and its fastest-growing market is that of electric vehicles.

Yet it's also a major factor in glass. When put in the mix, lithium actually helps to remove impurities by lowering the melting point of glass, ultimately making the glass much stronger and increasing its longevity.

It's also used to purify air in spaceships and submarines. The chemical reaction between lithium carbon dioxide creates lithium carbonate and oxygen, both of which have some pretty important uses.

So as you might've realized by now, it's not just Tesla who will need massive amounts of lithium in the future. In fact, a recent estimate by Roskill, a market reporting and consulting company, claims that the global demand for lithium will rocket to about 300,000 tonnes of lithium carbonate by 2020.

SignumBOX, a market intelligence company in Chile, claims that demand could rise above 400,000 tonnes by 2025.

And all of this supply will be needed within a few short years!

Remember, the current lithium demand is still below 200,000 tonnes — the world only consumed about 170,000 tonnes last year.

This practically guarantees that we're going to see a ton of demand growth going forward. Yet it's crucial that individual investors like us understand the lithium revolution is happening right now!

Going for Gold

Right now, the site of the lithium gold rush is Argentina. While Chile was the world's second-largest producer of the commodity last year, the country's government is not allowing new mines to be opened.

Bolivia is in a similar situation, where social backlash has stymied new lithium projects.

Argentina, however, has no such restrictions and is actively working to develop its estimated 850,000 tonnes of lithium carbonate reserves.

In fact, lithium is one of the few commodities that are actually in a steady uptrend! Here's a look at how lithium carbonate prices have increased compared to the Bloomberg Commodities Index:

chart11016

Source: Visual Capitalist

That trend isn't expected to stop — or even slow — anytime soon!

So where do you find that investment diamond in the rough when it comes to tapping into Musk's growing thirst for lithium? Truth is, we're starting to get a clearer picture of where he's looking.

Some of you might remember a while back, when Bacanora Minerals Ltd. was the first to secure a supply contract with Tesla.

Bacanora recently pointed out a crucial bit of information for anyone entering into the lithium market, with CEO Peter Secker saying, “The meta number in everybody's horizon is 2020. We need to be in production well before 2020 in order to take advantage of that growth.”

In other words, the market will already be past a major turning point within the next four years.

Don't get me wrong, dear reader; lithium's demand growth won't stop there. However, the ground-floor investment opportunity will be long past by then.

Fortunately, you don't have to wait much longer to capitalize on the same companies that have already doubled many of my readers' initial investments.

Thing is, these domestic lithium players have only just started what will turn into an unprecedented run. It's the reason I've been busy dotting the i's and crossing the t's in my newest investment report, which will give you every last detail behind these lithium stocks.

As a member of Energy and Capital, you will get the first crack at this report at absolutely no charge to you... so keep a sharp eye for it to hit your email inbox next Thursday morning.

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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