Striking it Rich in the New Gold Rush
Will a Rising Lithium Tide Lift All Boats?
“Go ahead, throw it and buy whatever it hits, hand-over-fist!”
Don't worry, dear reader — that's a bit of investing advice I wasn't about to take.
I certainly understood the reasoning. My errant advisor yesterday was new to the lithium revolution.
And I've written so much about the topic lately that my fingertips twinge whenever I type the word. We haven't just covered the soft, silver-white metal itself, either, but rather many different aspects of this boom — including a few ripple effects it's having elsewhere.
But instead of taking his advice and randomly picking a lithium stock out of my hat, I can't help but imagine that there's a better way to go about it...
Forget the "Triangle." Meet the "Hub"
It's no secret that a vast amount of lithium reserves can be found in what's known as the lithium triangle.
Located in salt flats of Bolivia, Chile, and Argentina, this area contains the largest lithium reserves on the planet.
As you know, this highly sought-after energy metal is the key ingredient in lithium-ion batteries, used from laptops to cell phones. Rechargeable batteries account for nearly one-third of global consumption, after all.
What you may not know, however, is that the lithium triangle is a racket. Don't get me wrong; it's a great racket. When only a tiny group of producers are able to work together and set prices (perhaps OPEC should take notes), especially in a sector with such tremendous growth ahead, you can bet someone is going to make a fortune.
The good news for us, however, is that this supply dynamic is changing.
You can forget the triangle and meet the new "lithium hub."
Ever since the day Elon Musk announced the site for his first Gigafactory, Nevada's emerging lithium hub officially became ground zero for the boom.
People are taking notice, too.
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A Rising Lithium Tide...
A rising tide lifts all boats.
But if that holds true, then perhaps blindly tossing that dart against a map of Nevada is the way to go.
Can it be as simple as that? You would think so.
Well, that sightless investment philosophy I received earlier may have certainly paid off in the past...
Remember when Elon Musk inked his first supply contract back in August of 2015? Even though Tesla was helping two partners develop the Sonora Lithium Project in Northern Mexico, it should have been clear that Musk was ready to tackle potential supply issues.
The news sent shares higher for nearly every company with exposure to Nevada's emerging lithium hub.
After all, Musk has undoubtedly set his sights on the Silver State. And his $5 billion Gigafactory is expected to double the world's supply of lithium-ion batteries (for cars and homes) next year.
Of course, that bullish sentiment over Nevada's lithium players was boosted again after Tesla announced that pre-orders for its Model 3 have surpassed the 400,000 mark.
But the hunt for the right lithium stock isn't as easy as the "blind dart" approach... at least, not anymore.
First, don't get star struck.
It's easy to, believe me.
The “lithium triangle” contains more than 70% of the world's reserves of lithium. One company, SQM, controls roughly one-third of global reserves.
Just three companies account for 90% of global lithium production. Together, they control the supply; they set the price.
The Global X Lithium, an ETF whose top holdings include the world's largest lithium producers, would have earned you gains of 32.6% since mid-February.
What you could've also probably guessed by now is that dozens of new miners have flooded Nevada over the last few months, each hoping to strike it rich in this lithium gold rush.
The market is insatiable for Nevada lithium, but only a small handful will take their projects through to production.
Next Tuesday, I'm going to show you one that's closer than the rest of the pack.
Until next time,
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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