- Money Morning Australia

Lithium: 2009′s Hot Commodity Making a Comeback


Written on 12 September 2012 by Dr. Alex Cowie

Lithium: 2009′s Hot Commodity Making a Comeback

For some reason, the resource sector likes to run with one new ‘hot commodity’ each year.

Back in 2009, lithium was the big new thing. Then in 2010, the rare earths bandwagon stole the spotlight.

In 2011 it was potash, and this year it has been graphite.

But a few years on, the lithium story has matured and is back in the spotlight for serious investors…

For one thing, lithium prices are on the march back up again. The world’s biggest producers, who all but control the market, have just increased their prices for lithium carbonate by around 20%.

The reason is that demand is rising strongly again. Lithium is an essential component of lithium ion batteries, which is what runs your mobile phone, iPad or laptop computer. Electric vehicles are a huge potential source of demand too.

The electric car revolution that got the market excited about lithium in 2009 is yet to take off in earnest. However, hybrid cars, whose batteries require a huge amount of lithium, are taking off in a huge way now.

That nerdy looking hybrid, the Toyota Prius, is now the world’s third best-selling car.

The lithium demand from batteries is growing at 20% annually, and is expected to keep at this rate for the next 10 years. This is the main reason the lithium producers are raising prices.

So I tipped an ASX listed lithium stock a few months ago. I’d watched it for years, but with the lithium sector warming up again it was a good time to take the shot. In just over 2 months readers are sitting on a 26.8% gain.

Sector Running Hot

Most of this gain has come in the last few weeks. The rally started around the time that some real fireworks went off in the sector, including a C$724 million takeover announced in the lithium sector.

Talison Lithium (TSE:TLH), which is listed in Canada but based in WA, received a C$6.50 per share cash takeover offer from Rockwood (NYSE:ROC). That price was 53% above that day’s closing price. Click here to see the chart. Shareholders have done very well!

I sent an update to Diggers and Drillers readers after news of this takeover, saying that:

‘Rockwood’s bid for Talison reminds me of BHP’s bid for Potash Corp (TSE:POT). Rockwood is a large-cap, multi-commodity company bidding for the dominant producer of a relatively obscure, but profitable commodity.

‘BHP’s bid put potash in the spotlight and the whole sector then rallied for months. However, there’s been surprisingly little Australian media on this lithium deal yet. But I think as word of this bid spreads, the takeover should focus market attention on lithium, and our lithium stock tip as the best in show. ‘

This isn’t the only takeover in the lithium space this year. Back in March, Galaxy (ASX:GXY) bought Lithium One (TSX:LI). The lithium sector isn’t very big, and these takeovers make the list of potential future targets very small.

In fact, the lithium stock I tipped will be the only new lithium brine producer to join the sector in the next few years, so is one of the few ways to play this move.

Even Rio Tinto (ASX:RIO) is getting in on the act. A few months ago, CEO, Tom Albanese said:

‘Lithium is going to be so critical to that future world of electric cars and hybrids … we’ve got a lot of interest from Japanese and Korean companies that want to be in the forefront of hybrid and lithium technologies, so I’m pretty excited about the project.’

With corporate activity taking place in the lithium sector, major resources firms showing an interest, and lithium prices rising — this sector is running hot at a time that most of the resource market is on its knees.

That’s the good thing about the resource sector; it’s a diverse place and even when things look bleak, there are normally a few hidden parts which are still working. Lithium is one of them.

2013: A Good Year for Resource Stocks?

This year I’ve focused squarely on gold, oil, and strategic minerals like lithium and graphite.

The lithium story is running hot right now, and the lithium stock I tipped a few months ago is riding the renewed interest in the sector. But more than that, it’s due to receive funding any week now.

Not many companies can secure funding in this market, so this puts it well ahead of the pack. With funding in the bank, it will immediately start building. All being well, production could be just a year away.

It looks like the lithium story has much further to run yet, but beside this there are more opportunities in the resource sector. So I’ll keep looking for more of these hidden opportunities for Diggers and Drillers readers over the coming year.

Dr. Alex Cowie
Editor, Diggers and Drillers

Related Articles

What You Must Do to Survive the Coming China Crash

Gold Up, but Gold Stocks Up More

Why Graphite is the High Tech Commodity of the Future



Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...
Share

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au


Comments are closed.



FREE INVESTMENT REPORT: The Top 5 Oversold Blue-Chip Stocks in Australia


These five Aussie stocks all have something very powerful in common…and it could see them bounce up in the coming weeks and months. For all the details download this report right now.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

Openx pos2

  • ^NDX4071.67+4.194 - +0.10%
  • ^FTSE6823.91+1.15 - +0.02%
  • ^AORD5648.900+14.400 - +0.26%
  • ^AXJO5651.200+13.600 - +0.24%
  • AUDUSD=X0.9346
  • USDJPY=X103.84

Openx pos3

Diggers and Drillers

After three years in the doldrums…

Aussie resource stocks
are now a raging BUY
 
The last time resource stocks traded this low we saw a two and a half year rally that saw them gain 124%...
 
Now they’re getting ready to do it again. Read on to discover why…and three tiny Aussie miners that could explode up many times higher than that in 2014…click here.

Openx pos4

Openx pos5

Openx pos6

Openx pos7

Openx pos8

More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

This morning the Australian dollar trading for 93 US cents. It hasn’t managed to regain parity since [Read More...]

The government plans to force internet and telco providers to keep your digital information (metadat [Read More...]

So much money is fleeing China…that it is distorting the global economy, particularly in the art mar [Read More...]

The police don’t serve to protect the public…they serve to protect the State from the public. That’s [Read More...]

Are baby boomers getting younger? If so, maybe investing in the medical marijuana business is a good [Read More...]

The government in China can do a lot of things, but it can’t bring animal spirits back. This has gra [Read More...]

Some small-cap investors punt away aimlessly for years and end up without much to show for their eff [Read More...]

Central banks see deflation (and recession) as enemy number one. Since 1980, they’ve used up all the [Read More...]

Civilisation (including the rules we associate with modern democratic governments) makes possible tr [Read More...]

This is ‘controlled monetary chaos’. Central banks are playing a massive confidence game with the ma [Read More...]

TESTIMONIALS

"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery