There is Lithium and then there is Lithium
Lithium stocks are all the rage these days. But….buyer beware.
Broadly speaking, there are two types of lithium batteries.
First, there is the type with a short lifetime. Take some video with your camera, the battery runs low, and you have to recharge it. Do some work with your re-chargeable drill, the battery runs low, and you stop to recharge. No big deal. We are quite used to batteries like this. These lithium batteries are made using lithium carbonate material. This is the type of lithium that is extracted from the salt salar formations in parts of South America. The market is littered with companies of all market cap sizes touting their South American projects. Carbonate material can also be found in some deep wells. Again, the market has no shortage of companies touting their brine well projects.
Second, we are witnessing the electrification of vehicles. The batteries that power Teslas, however, cannot be the same as the ones that power your electric drill. A car battery must have a longer life between charges. This charge longevity can only come from batteries made using lithium hydroxide. The most economic source of lithium hydroxide is spodumene rock. But, here is the problem. There are not many companies with hard rock lithium projects. The ones that do exist are still a ways off from any type of mining scenario. And once the rock is mined, there is a processing component to the story that will allow for the lithium hydroxide extraction. It is possible to take the lithium carbonate from a South American type project and chemically convert it to lithium hydroxide. But, the cost is prohibitive. Lithium pricing is dominated by China. Right now the price of lithium hydroxide is less than the price of lithium carbonate.
Take the case of NYSE: LTHM. This US based operator has a South American project and it converts some of the carbonate to hydroxide. But, its profit margins are squeezed accordingly. Is this stock worth $23? Probably not. It is being held aloft because of the current lithium battery craze.
Take the case of Piedmont Lithium (NYSE:PLL). This is a screw up of epic magnitude. The company raised a huge sum of money to pursue its North Carolina hard rock project. Plus it carries a 37% interest in a Quebec, Canada hard rock project. The Quebec project is still a ways off from a mining scenario. The North Carolina project is a “shit show”. It seems the Company overlooked one critical element. They forgot to reach out and embrace the local County Commission. Years ago when I was chasing a rare earth project in Lincoln County, New Mexico I was called on the carpet by the 6 person Lincoln County Commission. They wanted details on what I thought would be water usage, dust creation, noise levels, highway traffic density. This 6 person group had the power to make me or break me. In the case of Piedmont, the overlooked local Commission now has imposed a series of mining moratoriums that now extend into summer 2022. On the PLL website, there is an aerial view of the area of the planned mine. There are houses and small acreages located very near to the planned site. These local residents have no desire to live beside a mine. It is plainly evident why the Commission has slapped a moratorium on the project. Is PLL worth $51? Not a chance. The lithium craze is keeping it aloft. People who are just looking at the PLL story at face value are buying the shares. They have no idea that the project is under moratorium. This detail has been downplayed and smoothed over by PLL and their propaganda machine.
Lastly take the case of Lithium Americas (TSX: LAC, NYSE:LAC). This is a high flying stock. They have a South American project that is based on brine wells and lithium carbonate. They also have a project in northern Nevada near a geological formation called the McDermitt caldera (an ancient volcano site of 16 million years ago). The lithium is embedded in a claystone formation that geologists call hectorite. Preliminary testing suggests an acid leach process will be required. The economics of the process have not been detailed yet. But, here is the rub – the lithium to be extracted will be carbonate. Is LAC worth $30? Not a chance, I say. This stock is caught up in the lithium craze.
This blog obviously has nothing to do with astrology, astronomy or market cycles. I am writing this post to help people avoid getting tangled up in the lithium craze.
Bottom line – you want a hard rock lithium story. It has to be close to being an operating mining scenario and the company must have plans to process the rock to extract the lithium hydroxide. Moreover, the company must be fully permitted by all levels of government right down to any local Commissions. Anything else is just chasing a dream….. Buyer beware.
