Miners Take on More Risk for Exposure to Lithium

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Galaxy Resources Share Price Struggle

Galaxy Resources Ltd [ASX:GXY] was one of the best-performing stocks last year. In 2016, the lithium explorer climbed 314.8%. But 2017 has been a struggle so far. The stock has traded down 28%.

Investors who can weather the volatility may be thinking they’ll be handsomely rewarded.  As demand for electric vehicles takes off, so too will demand for lithium. But it’s not just investors taking on risks to expose themselves to lithium.

Miners are looking to jump into expensive operations to gain exposure to future lithium demand. As reported by The Australian Financial Review:

A reinvented Galaxy is now the only major West Australian lithium miner that has not flagged plans to become involved in converting spodumene concentrate from a mine in the state into one of the lithium chemicals used in lithium-ion batteries, demand for which has been super-charged by the adoption of electric vehicles and energy storage systems.

But these conversion plants cost a pretty penny, as Canaccord Genuity analyst Reg Spencer points out:

With talk of everyone wanting to build their own refinery, what everyone is a little naive about is that the experience in operating these plants is in China and they are highly capital intensive — the average capital intensity of a converter plant is about the same as the mine itself. You need the expertise and the finance.

Be cautious..

Yet this is what explorer Kidman Resources Ltd [ASX:KDR] hopes to do. They’re planning to develop a mine and concentration plant in WA to convert 220,000–300,000 tonnes of lithium concentrate.

You should be cautious about jumping into such as situation. Explorers in general are an uncertain bunch. They require capital up front, with the possibility of potential returns at a future point in time. That’s not saying all explorers are duds. However, you do need to be extra careful about which miners you invest in.

This is something Money Morning’s resource analyst Jason Stevenson can help you with. A number of Jason’s active investments in his advisory service, Resource Speculator, are up 52.4%, 57.6% and 100%.

If you’re looking to match these returns, check out Jason’s free report, ‘The Top 10 Australian Mining Stocks for 2017’.

Jason reveals 10 cheap, top-quality Aussie mining stocks that look set to soar this year.

To get your free copy of Jason’s report, click here.


Härje Ronngard,

Junior Analyst, Money Morning

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