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Lithium: The one commodity with a profitable future

Today's Financial News - Posted January 20, 2009

Soon the main market for lithium won’t be cellphones, iPods and laptops… but the next generation hybrid vehicles. Those who invest in these 2 companies now could see triple-digit gains in the next two years.

By Laura Cadden, TodaysFinancialNews.com

Baltimore (TFN): Much of our popular technology is powered by lithium carbonate.

The compound has been used in the creation of heat-resistant glass, ceramics and alloy for aircraft.

It also sees effective use as a mood stabilizer and treatment for ALS (Lou Gehrig’s disease).

But it’s the rechargeable power needs of modern technological devices that made this lightest of all minerals a serious commodity for investors.

Lithium’s value has climbed with the sale of each laptop, PDA, cell phone, and iPod it inhabits.

But that’s just scratching the surface…

Whether the motivation is gas prices, a desire to lower one’s carbon footprint, or a reluctance to further enriching nations in the Middle East, demand has increased for hybrid vehicles.

The ONLY practical option for rechargeable vehicles is the lithium-ion (Li-ion) battery.

Now, I say that knowing that Toyota has delayed the installation of Li-ion batteries due to some safety concerns it’s working on resolving. The corrosive quality of lithium gives it the potential to short-circuit in batteries and catch fire.

And there are aging issues with Li-ion batteries and the technology to recycle them is not in place.

These challenges have researchers at hundreds of companies competing to perfect their version of the battery.

But what makes Li-ion batteries so perfect for cars is that they are lightweight and can store more than twice the amount of energy (110 –130 watt hours per kilogram) when compared to its biggest competitor, nickel-metal-hydride (NiMh) batteries.

They also lose power at a slower rate than other batteries between uses.

In August 2008, Mitsubishi Motors Corp. announced it was partnering with GS Yuasa to complete a manufacturing plant for lithium-ion batteries.

The company anticipates that demand will increase fivefold to meet the needs of electric vehicles.

The new facility is slated to open in the spring – the same time the company expects to launch its Mitsubishi I-MiEV electronic compact car.

Nissan will use Li-ion batteries for the 65,000 hybrids they hope to manufacture by 2010.

Most of the next generation hybrids like GM’s Chevy Volt and Saturn Vue Green Line, and Mercedes’ hybrid version of its S-Class sedan, are planning to use Li-ion batteries.

About the element

Though not uncommon, lithium appears in low concentrations and is typically interwoven with other minerals.

The largest commercial deposits currently mined are in Chile and Argentina. China, Russia, Australia and the U.S. are working to pickup production.

And the amount of lithium carbonate required for a car battery is about 100 times that needed for a laptop.

Bottom line?

  • Lithium demand will skyrocket as more and more hybrids roll down the assembly line.
  • Current processing potential is limited, making it vulnerable to market disruption.

And limited supplies could mean big profits for lithium miners and processors.

How to play this soon-to-be strategic commodity

In current market conditions, it is possible this renewable technology cannot be explored to the degree anticipated.

But in the longer term, investing in this evolution could bring triple-digit gains in just a few years.

The best way to play it?

New manufacturers are cropping up daily with ever-improved versions of the Li-ion battery. The competition is fierce and it’s difficult to know who will come out on top.

Instead, for our first pick, we are going directly to the source…

Sociedad Quimica y Minera de Chile (ADR) (NYSE:SQM) is based in Chile and is a leading producer of lithium carbonate. The company also sells specialty plant nutrition products, iodines and derivatives and other industrial chemicals.

This past October, the company reported a revenue growth of 56% for the first 9 months of 2008 when compared to the same period in 2007.
Website: http://www.sqm.cl/aspx/en/Default.aspx
Market Cap: $7.04B
P/E: 16.42
Forward P/E: 13.58
Recommendation: Buy shares under $30 and hold for the long-term.

Our second selection is a supplier of the battery manufacturers…

Polypore International, Inc. (NYSE:PPO) is a U.S.-based manufacturer of mono- and multilayer membrane separators for lithium batteries – including those used in hybrid electric vehicles (HEVs).
Website: http://www.polypore.net/
Market Cap: $316.83M
P/E: 7.07
Forward P/E: 9.28
Recommendation: Buy shares under $8.25 and hold for the long-term.

Both these companies have good fundamentals and great potential. We urge you to check them out and see if they are right for your portfolio.

ADDITIONAL RECOMMENDED READING: The TFN Complete Guide to Lithium Stocks


Next Article: Hey Detroit… the check’s in the mail

Posted by Laura Cadden · Filed Under Investment Strategies 

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7 Responses to “Lithium: The one commodity with a profitable future”

  • Suzy Bird Says:
    February 25th, 2009 at 10:42 pm

    Have you looked into the barium ultra-capacitor that EEstor ( privately held) is working on?
    Zenn Cars-(ZNNMF.pk) hopes to upgrade their all electric car soon with the new battery. Zenn thinks it will be able to go 250 miles ,max speed 80 & recharge in 5 -that’s FIVE minutes. Barium is commonly found so to mass produce this battery will lower the cost. Lockheed Martin has the military rights & Zenn the auto.
    Interesting stuff–check out http://www.theEESTORY.com

  • WILLIAM TERRY Says:
    March 3rd, 2009 at 5:31 pm

    ? ARE THERE ANY OTHER LITHIUM MINING COMPANIES IN THE OTHER PARTS OF THE WORLD, I.E. USA? WL TERRY

  • john Says:
    March 17th, 2009 at 9:22 pm

    need application and how much we need to invest in lithium battery stock

  • Colin Says:
    March 21st, 2009 at 6:33 am

    As a UK citizen residing in the UK need to establish a US$ a financial base.
    a. Create a US$ Bank Account
    b Trade in the shares market mentioned in “TFN”
    c Need a Broker
    d Interested in Lithiumas an investment.

    Can you assist me please on advise ,if that is not possiable for Legal reasons ,please advise me on what to read.or where to obtain the information.
    Thank you.

  • RICHARD CARR Says:
    May 1st, 2009 at 2:12 pm

    GEMTLEMEN: LOOK AT JOHNSON CONTROL IND. [JCI]. THERE IN THE PROCESS OF BUILDING ONE OF THE LARGEST LITHIUM BATTERY PLANTS IN THE U.S.

  • William Dryden Says:
    June 28th, 2009 at 10:56 pm

    “110 –130 watt hours per kilogram”

    What is GM doing wrong then? Their 16kWh battery pack weights 400 lbs. That looks more like 88 wh per kg. There are lead acid at 50 wh per kg and NiMH at 70+ wh per kg. Considering the cost of lithium, are they really worth it?

  • Jason H Says:
    August 14th, 2009 at 11:09 am

    My bet is that Western Lithium will outperform SQM and PPO. They have the largest deposit in North America and a tiny market cap. Full article and analysis…

    http://www.goldstockbull.com/articles/western-lithium-to-profit-from-electric-car-stimulus/

Your comments are welcome