The next big investment bubble - obscure metals By Dominic Frisby Aug 21, 2009
Lithium extraction in Chile's Atacama desert It's a lovely feeling when you own a stock and the chart goes vertical. It's not a common occurrence and it's one that seems to be reserved for small caps, particularly those in the technology and mineral exploration sectors, which explains the draw they have for speculators. But I notice in recent weeks that one entire sector has gone ballistic – lithium. Just about every company that is exploring for this reactive silvery-white metal has seen its stock price double. Why?
Lithium stocks are taking off Lithium stocks have been taking off recently. There's Western Lithium (CA:WLC), which has some exciting lithium properties in Nevada and a great management team. Look at the chart - from just over 50c to C$1.25 in a year. What a good stock this was to own.
here's New World Resources (CA:NW), run by a team of dynamic exploration geologists, which is operating further south in Bolivia. The markets don't seem to care about the associated political risk. It's been a five-bagger, as you can see below.
for rare earth metals (more on these in a moment) the story has been even more exciting. This is Quest Uranium (CA:QUC), who have some exciting rare earth metals properties in Canada. The price has shot up from 4c to C$1.50 in four months!
Why the sudden interest in lithium? So why the sudden interest in lithium? The metal has a wide variety of uses, one of the most famous being as a treatment for depression (psychological not economic). But lithium's most exciting use is in rapidly advancing battery technology, be it in computers, mobile phones or electric cars (as covered recently in MoneyWeek: Electric cars: on the road to a cleaner, greener future. If you're not already a subscriber, claim your first three issues free here). I subscribe to the Peak Oil theory (Are we about to hit Peak Oil?) that the world's oil reserves are running out. I think that alternative energy represents one of the great investment opportunities of the coming years. Author John Rubino, who foresaw both the boom in gold and the collapse in real estate as early as anyone, agrees. In his latest book, Clean Money: Picking Winners in the Green Tech Boom, he declares that green tech will be the next great bull market. It's also a subject we're covered in depth in MoneyWeek. See: How green energy could power your profit growth But the problem with alternative technology is that, despite extensive research, it's all too easy to pick a company whose technology is flawed in some way - perhaps they get overtaken by a rival, for example. So even although you get the sector right, you still lose money. But virtually every company involved in the rapidly-developing market of advancing battery technology will be using lithium. So buying lithium miners becomes a great 'picks-and-shovels' play on the clean tech boom (in the great Alaskan gold rush it is said that those who sold picks and shovels to the prospectors made more than the gold prospectors themselves). The same 'picks-and-shovels' argument applies to rare earth metals (there are 17 rare earth metals in total, with names such as neodymium, dysprosium and ytterbium). These are also finding more and more uses in modern technology, such as superconductors, magnets, hybrid car components and refining catalysts. But some 97% of rare earth production is controlled by the Chinese, which puts a huge premium on anything that has potential beyond their grasp (in fact, my colleague Eoin Gleeson tipped a rare earth metals stock, Lynas Corp, in MoneyWeek back in April, shortly before a Chinese metal firm took a big stake in the group – it's up 140% or so since, so well done if you managed to buy into that one).
LYC Price at posting:
43.9¢ Sentiment: LT Buy Disclosure: Held
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