lithium article

Worth noting.
By Kevin M. Nichols
A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)--The need for capital in the lithium resources sector is looking more compelling by the day, though with the caveat that consumers and governments could scuttle demand if support for battery-driven vehicles ebbs away.
The rise of hybrid and electric-powered vehicles has thrust lithium, a soft, super-light naturally occuring metal, into the spotlight as a key component in automotive batteries.
To be sure, the near-term outlook for the metal looks weak due to oversupply.
Still, the concentration of suppliers with often small capitalizations and limited balance sheets allied with a demand-driven outlook means financiers should eye opportunities to assist reshaping capital structures in the sector, including with project financing.
The process is already underway. Wednesday, Australia's Galaxy Resources Ltd. (GXY.AU) signed a binding share subscription and debt facility agreement for some $45 million in financing for a Chinese lithium project with Beijing-based Creat Group Co. Ltd.

Snapshot

Major players include Sociedad Quimica y Minera de Chile SA (SQM), or SQM, FMC Corp. (FMC) and Admiralty Resources (ADY.AU). Production is concentrated in Chile, Australia, Argentina and China, who together are responsible for a combined 84% of global production, according to the U.S. Geological Survey, which estimates global output will climb from around 25,000 metric tons last year to 55,000 tons by 2020.
Currently local governments own rights to the lithium mines for which there recently has been intense lobbying over mining rights.
Both China and Japan are lobbying Bolivian officials for rights to lithium-rich deserts of Salar de Uyuni, thought to hold nearly half of the world's proven lithium reserves.
Even with the current saturation of supply in the market, demand looks promising.
Consultancy The TRU Group Inc. expects lithium demand to average annual increases of 7%-8% over the next 10 years, with up to 40% of the expected demand coming from lithium batteries. Other applications include pharmaceuticals, air conditioning and glass.
Chile's SQM has a 30% global market share, which accounted for $137 million of its revenue in the 12 months to June, or 8% of its revenue and 10% of its gross margin over that period. Its net debt is a manageable 0.85x that period's earnings before interest, taxes, depreciation and amortization. The company expanded its lithium carbonate capacity by a third last year to 40,000 metallurgical tons annually.
U.S.-based FMC reports lithium revenue in its speciality chemicals segment, where margins were 20% in the year to June. The company saw lower lithium volumes in the second quarter but that didn't stop it from expanding manufacturing capacity by opening new plants in China and India last month. FMC is targeting 9,000 tons of lithium production this year and will look to expand to 16,000 tonnes by 2010.
Australia's Admiralty Resources will supply around 20% of the world's lithium when its Rincon Salar plant in Argentina is producing at full capacity.

Battery Cars Unproven

The governments of some of the largest car consuming and producing nations, including the U.S., U.K. and Japan, are encouraging investment and production with subsidies and tax breaks for companies that forge into hybrid and electric vehicle manufacturing. Most car makers eye such vehicles within their range by 2012.
Nissan Motor Co. (7201.TO), Renault SA (RNO.FR) and Mitsubishi Motors Corp. (MMTOY) all have ambitious plans for electric car production.
It to be seen, however, if the wider public will adapt to these technologies, given concerns are about the mileage range of such vehicles and their environmental credentials.
Also, there is a dispute over the amount of lithium available in the world.
In a March 2008 article (http://www.worldlithium.com/AN_ABUNDANCE_OF_LITHIUM_-_Part_2.html), geologist Keith Evans said that at current demand levels there is at least 1,775 years of lithium carbonate supply. Author Donald Garret's "Handbook of Lithium and Natural Chloride" puts the supply level at about a tenth of that.
For now, the market is highly concentrated and any benefit from global production of electric cars will flow to the few players.
And if it doesn't? Well, lithium can also be used in the treatment of depression...