What is lithium? What do I look at, for lithium mining? Is lithium a good investment? All of these questions can quickly come up when focusing on a market where macroeconomics of supply and demand suggest that there may be a pending deficit in the commodity coming in the near term. Lithium, a soft, silver-white metal, is highly reactive & flammable and based on the unique profile of its makeup, it makes for a light metal that can be perfect for power production.
To this end, lithium has become well known for its use in batteries that are now common in all types of electronics devices. More prominently as of recent years, lithium has been included in several other industrial applications as well, such as use in heat resistant glass and ceramics, alloys used in aircraft, power plants for electric vehicles, as well as lubricating greases.
The excitement surrounding the metal also has investors looking to take advantage of its positive attributes and favorable price/demand economics. As an investment, lithium makes for an enticing play based on the growing need for energy efficient technologies. Lithium batteries have become much more effective than traditional batteries (nickel-metal hydride) and are beginning to realize a bump in demand from the automobile and electronics industries.
Due to limited supply, this has made the metal (and industries related to it) attractive to the potential of an investment in this market. For those looking to invest in lithium, there are a number of options in the marketplace and several key things to pay attention to when it comes to mining, in particular. While physical exposure is not possible unless you, yourself actually have land in a prolific lithium rich claim, investors can buy a number of companies that are engaged in some aspect of lithium production.
First, you will want to pay attention to where the company is located and headquartered. Many of the largest or most successful lithium mining companies have headquarters that are outside of the United States. All markets have exposure to lithium stocks as these are listed on the Nasdaq, NYSE, and even the OTC as a foreign issuer (denoted by the letter “F” at the end of a stock symbol as its fifth letter). Due to requirements on how these companies report, they need to file what’s called a National Instrument 43-101 report.
Essentially, this report is a Canadian mineral resource classification set up for companies in order to disclose information about mineral properties. Foreign and domestic companies listing on stock exchanges overseen by the Canadian Securities Administration (CSA) are mandated to follow the rules and guidelines set forth in the NI 43-101. It’s used for showing information pertaining to specific mineral properties.
NI 43-101 reports have several key requirements designed to protect investors. The most basic requirement is a "qualified person" must approve the report. Other requirements include standardized assessments and sample preparation of a property as well as include a technical report along with any data referenced from it. Without this report, relatively speaking, a company cannot give definitive information on what they hold, specifically, for their own projects.
So, if a company has yet to reveal the outcome from a NI 43-101 report, it may be prudent to keep this in mind and look at the surrounding area of the company’s target property in order to determine the potential economics of that locale as you look at a lithium mining stock if it’s in its early stages.
What can geography reveal about target locations? Many say “mining is a 50% geology and 50% market story.” The geological analysis takes into account the intricacies of the mineral bodies held within a deposit; basically how it’s situated, shaped, directionality, etc. Further to this, when looking at junior miners, many times you’ve got to pay attention to the larger mining companies to look for potential (especially if a NI 43-101 report is not out there yet). So, comparable economics are important to factor in as many juniors in regions that the seniors are in, may come up on a target area that could warrant further investment or even a buyout from these larger mining companies due to what a junior may have “dug up.”
Take, for instance, areas in the US. Many had targeted Nevada directly due to its proximity to Tesla’s new gigafactory. The fact of the matter is that in order to extract lithium, there’s usually a brining process used in order to produce the metal (among other things). This process is highly water-intensive and in a dessert region like that of Nevada’s prolific Clayton Valley, it can become costly both from the resource itself but also the accessibility to the target region (i.e. how easy it is to deliver water to and from a location).
William Feyerabend, a Certified Professional Geologist, a member of the American Institute of Professional Geologists, and a Qualified Person as defined under National Instrument 43-101 has said that the Utah area “closely resembles the known lithium-rich Clayton Valley in Nevada in several key categories that raise the probability of striking a significant hit.”
Several Utah areas have shown to be lithium rich, based on historic operations. For instance, the Honey Comb Project reported surface sampling assays between 1,500-1,700 ppm lithium from a rhyolite dome in 2011. Significant lithium concentrations ranging up to 1700 ppm have been measured in brines in and surrounding Utah’s Paradox Basin properties as well. As disclosed in Intrepid Potash's 2015 Annual Report, its Cane Creek Operation produced 93,000 tons of potash in 2015 through solution mining and solar evaporation ponds. Considering that world-class lithium brine mines range in grade from 150 ppm to 1,200-ppm lithium and employ proven solar evaporation concentration techniques, the Paradox Basin has been targeted by several lithium mining companies.
Of course outside of the US, miners are searching far south of the border in South America’s “Lithium Triangle.” Many lithium miners find climate and economics favorable to lithium recovery and junior as well as senior miners are focused on this region. As stated before, it’s important to pay close attention to previous surveys & projects in the area to determine potential feasibility of a project if formal reports have not been published.
The allure of investing in junior miners in particular has much to do with speculation on the idea that they will “strike white gold” and either become a major producer themselves or get bought out by a larger producer. Keeping this in mind, make sure to do your own “digging” so to speak, when it comes to identifying potential in lithium mining stocks as this industry continues to captivate investors.
Disclosure: The author was not compensated to write this article and is not affiliated with any company mentioned within this article.