One commodity is defying the global rout, and it's all about the future of energy

A Renovo Coupe production prototype vehicle in Las Vegas. The USD 529,000, zero-emission electric car is powered by a lithium-ion battery. Ethan Miller/Getty Images

While the big miners and energy producers are seeing their revenues shrink as prices for iron ore and oil keep falling, there is one commodity defying the trend.


It’s all about disruption in the energy market and the arrival of electrically-powered cars.

The increasing demand for more efficient and lighter batteries to power the latest gadgets and as a way of storing solar energy is also driving prices higher for Lithium.

According to analysis by Paragon Funds, demand for more efficient energy storage will continue for the next decade.

Lithium-ion batteries for consumer electronics such as smartphones, electric vehicles and electrical storage systems will see demand for Lithium grow at more than 10% a year. Paragon explained in a recent note to clients:

The major demand swing factor is from [electric vehicles] for whom the outlook continues to brighten. This is evidenced by the major car manufacturer’s commitment to rolling out EV’s and by the multi-billion dollar investment in Lithium-ion battery mega-factories by Tesla, Warren Buffett’s BYD and others. Tesla’s 50GWh Gigafactory (35GWh for EV production capacity; 15GWh for EES) will alone require ~25ktpa of Lithium at full capacity.

Most of the world’s supply of Spodumene, a hard rock mineral containing lithium, comes from Greenbushes in Western Australia. And another source in the US, Albemarle, mostly supplies its own needs.

Here’s Paragon:

As long as the market outside of China (namely Japanese and Korean cathode producers) depends almost exclusively on Chinese converters (converting mineral concentrates to Lithium chemicals), price risk remains to the upside. We would not be surprised to see medium-term Lithium Carbonate contract prices at US$9,000/ tonne + on a global average basis.

Undersupplied lithium markets should persist over the medium-term given the inability for any significant supply side response globally and the usual resource project development challenges.

“Undersupplied lithium markets should persist over the medium-term,” says Paragon.

Global average Lithium contract prices have risen to $US6,000 per tonne and more recently the domestic spot prices in China have hit $US14,000 due to changing industry supply dynamics.

As its plays in Lithium, the Paragon Fund has invested in Orocobre and General Mining.

“Orocobre’s Olaroz is the only Lithium-brine project that has capacity to meet rising demand over the long-term in a timely manner and with modest capital intensity,” says Paragon.

“When achieving nameplate production, ORE’s Olaroz is likely to be the lowest cost producer in the world. In our opinion, Orocobre continues to be the best pure-play to the Lithium market and the Lithium-ion battery revolution.”

Orocobre shares are trading at $2.54 today.

General Mining has 50% of Mt Cattlin in Western Australia (and the rest by Galaxy Resources), a Spodumene asset only a few months away from production start-up. Its shares last traded at 30 cents.

“Mt Cattlin will be a large-scale, high margin, imminent producer, with long mine life and exploration upside,” says Paragon.

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