Lithium is the core of the batteries we use daily.
All critical metals will continue expanding as the energy transition speeds up.
Here’s your “Lithium Investing 101” to help you venture into this growing theme.
Before you buy a single share of a lithium-focused company, these 5 concepts will set the stage for you.
These are the very basics that any experienced investor knows and uses to evaluate companies
You’ll be “in the know” if you start here.
So, let’s get to it.
1) Not all lithium is “created” equal
There are 2 main sources:
• Brine: dissolved in subsurface water, located under the saline crust of a salt flat) or
• Hard rock: in minerals such as spodumene.
And why does it matter?
I’ll tell you ⬇
2) Brine is an explorer’s dream come true
It can be markedly easier to find lithium in brine, shortening the exploration process dramatically and making it cheaper.
As a lithium explorer, your first clue is, -you probably guessed this from #1- finding a salt pan.
Of course, you must find out if there is a body of water underneath it, and if this brine contains lithium in an economically viable concentration.
Currently, the lower limit used -equivalent to cut-off grade in a mine- is ~ 250mg per litre (and dropping via innovation).
Putting a brine deposit in production is more of a chemical processing operation than a typical mine.
You will see a difference in the management selected to take the project forward, shortly after confirming the project’s potential.
3) Hard rock has its perks too
On the other side, hard rock lithium deposits can be harder to find, but once identified, can be put into production quicker, and the investment required is normally smaller, being a more straightforward mining operation.
If the company you are analysing identified a hard rock deposit, you can expect that they may need smaller capital raises.
This typically will mean less dilution to current investors, than a comparable company promoting a brine deposit.
4) Location, location, location
Most of the global lithium resources* -67%- are located in only one region, the so-called Lithium Triangle, an area comprising:
• Northern Argentina
• Northern Chile
• Southern Bolivia
These 3 countries have different risk/reward profiles.
Logically, even though Australia, Canada, and China are key players, if you want to position yourself well in this sector, you need to be exposed to South America.
Or pick a company that has at least partial exposure to the region.
Some examples are: $LAC $LKE $GLN
5) Buyers wanted
The price for lithium is mostly defined party to party, with contracts — so this means pricing can be opaque.
@benchmarkmin and others do a stellar job in tracking pricing.
Additionally, in 2021 futures contracts were launched by @CMEGroup and @LME_news
This market dynamic means companies nearing a DFS (definitive feasibility study), will enter into off-take agreements with 1 or more buyers, and agree on a price for future delivery.
You’ll need to pay attention to non-binding vs binding.
Contracts are for lithium carbonate or hydroxide, and prepayment for offtakes can fund a portion of the construction or act as collateral in securing debt for project finance.
Clearer pricing opened the door for larger institutions to participate, such as @Thematicafunds
And that’s it.
This sector will grow exponentially over the next decade.
I wholeheartedly believe it should be in everyone’s portfolio, in a proportion that makes sense for you.
If you still on the fence, try this thread for more macro reasons:
Imagine if lithium becomes the new oil, as @elonmusk expects.
1) Not all is equal
2) Brine is easy to spot.
3) Hard rock has its perks too.
4) Location, location, location
5) Buyers wanted, really. Truly.
Made you think? Like this tweet!
If this was interesting or useful to you, please retweet the start of the thread so more people can benefit.
Follow me @paola_rojas for more on metals, markets and tech.
Originally tweeted by Paola Rojas 🐝 (@paola_rojas) on October 28, 2022.
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