One of Australia's biggest mining and energy investors says the lithium boom is reminiscent of previous boom and bust cycles in uranium, rare earths and graphite, and he warns that the majority companies vowing to supply the world with lithium will not convert the price boom into a sustainable business model.
Lithium Carbonate prices in China have more than quadrupled over the past year on the back of stronger demand from traditional consumers in the ceramics and glass industry, and on hopes that modern battery technology will dramatically increase demand for the commodity.
The price boom has seen scores of ASX-listed juniors switch from developing other mineral deposits to lithium over the past 18 months, but Todd Warren and the Global Resources team at Colonial First State Global Asset Management (CFSGAM) have not exposed any of the $2.5 billion they manage to Australian pure-play lithium miners.
"We see it not dissimilar to previous boom and bust cycles in various commodities, and certainly the 'commodities of the day'," he said.
"We have actually seen lithium have a run before and suddenly everyone has got lithium deposits that they are looking to exploit and I am here to tell you when you suddenly have got a couple of hundred lithium companies in the world, I can assure you that 99 per cent of them haven't made a real go of it.
"Do I think this time is going to be any different? No. We have seen the same thing in uranium, the same thing in rare earths and graphite, so I don't see this as being necessarily any different to that.
"The reality is you can go explore for a commodity but when you have got to permit, construct and then produce, things get dramatically more difficult."
But Warren's caution toward the growing flock of lithium juniors should not be mistaken for a lack of belief in the potential for lithium ion batteries to disrupt the energy sector.
He acknowledged there will be a minority of miners that do turn an early stage lithium project into a long-term business, and he has sought exposure to the potential battery boom via a battery manufacturer rather than an upstream commodity producer.
The battery manufacturer is Korea's LG Chemical, and Warren says the CFSGAM Global Resources team were attracted to the company for its diversified portfolio and its ability to ride future battery trends, not just the lithium boom.
"They have one of the better chemical businesses in the world so they are not purely at the whim of the success or otherwise of lithium, so that is a fact that provides them with good cashflows and they have an incredibly strong balance sheet, so you have a very strong stable business underpinning any other activity," he said.
"With their batteries business, what we like is you are not necessarily constrained now or in the future to lithium.
"If we are to cast our eyes well into the future, who is to say that lithium is the battery technology that is the leading technology at that time? It is today, but not necessarily in the future and if you are a battery manufacturer, you are not constrained to a specific commodity."
Lithium has traditionally been mined by extracting brine concentrates from beneath salt lakes, with such production occurring in southern Chile and Argentina.
Most Australian lithium juniors are trying to extract the lithium from spodumene; a hard rock lithium-bearing mineral.
While the Chinese price has attracted headlines, prices achieved for the commodity differ across geography and contract length.
Macquarie forecasts that annual demand for lithium carbonate equivalent - the industry benchmark - will rise from 55,000 tonnes in 2015 to 147,000 tonnes in 2021.
Deutsche believes global lithium ion battery consumption will grow from 130 gigawatt hours in 2016 to 320 gigawatt hours in 2020 and 530 gigawatt hours in 2025.
One of China's largest lithium producers recently said it was unclear how strong demand for lithium would be.
The question is are these guys across what is actually happening in planned lithium consumption. I'm not sure they are.....
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