The Lithium Trend Report 2017

An Underappreciated Investment is Set to Soar in The Coming Years!

Dear Reader,

Lithium. We hear so much about it as it is an essential component of our everyday lives. From smartphones to electric-powered vehicles, lithium powers the technologies that we utilize in both personal and professional pursuits. It’s no stretch to say that without this soft, light-weight metal, our advanced societies would be irreproachably harmed.

As with anything so valuable, demanded, and necessary, there are distinct supply concerns. For lithium, it’s not so much the actual quantities available. Geological surveys apparently tell us that we have plenty to power our needs for the foreseeable future. Rather, it’s where this natural inventory lies. Most lithium is mined in places like China, Bolivia, and Chile. A few years ago, lithium deposits were discovered in Afghanistan.

That poses a number of logistical challenges. First, lithium deposits may be located in areas that are geologically difficult to extract. Second, there are shipment costs associated with importing commodities from far off locations. But most critically is the geopolitical component. We certainly don’t have a stable relationship with Afghanistan. Even if we did, could we trust government bodies to abide by contracts and agreements?

The flash point for cultural-based or other forms of conflict is easy to recognize. Thus, lithium mining is a very delicate process, both literally and metaphorically. It’s true that rare earth minerals (REMs) are much more scarce, as the name implies. But don’t mistake relative abundance with lack of value. Lithium and REMs are essential ingredients of society today and for the future.

The New Crude Oil of the 21st Century!

Crude OilIndeed, lithium could be the new crude oil of the 21st century and beyond. One of the lingering suspicions of the “War on Terror” is why the U.S. military industrial complex decided to invade Afghanistan. The country didn’t really feature into our everyday lexicon since the 1980s.

That was when the Soviet Union had invaded Afghanistan. Immediately, the U.S. military industrial complex laid out plans to arm the Mujahedeen, or Arabic for “those engaged in jihad.” The combination of American weaponry and the tenaciousness of the Afghanis helped defeat the Soviet invasion.

Back then, the Mujahedeen were “freedom fighters.” The critically-panned movie “Rambo III” included a credit to the brave Mujahedeen who were fighting for their independence against the Soviets. All great stuff. But today, the Mujahedeen are “Muslim terrorists.” Although there is undeniably a profound evil with Islamic radicalism, it’s curious that the U.S. government suddenly has a problem with Afghanistan now.

However, the lithium discovery brings a lot of clarity to the situation. No, we were not fighting for the independence of the Afghani people — we had already done that by proxy nearly 40 years ago. Instead, we were there for an entirely different reason. Power brokers within the government clearly had the foresight to recognize lithium as an essential component of our industries, and decided to get in early.

Admittedly, at first glance, this sounds like a wild conspiracy theory. However, the painful truth is that such geopolitical modulations is how the real elites make their money.

Wars have ceased to be fought for ideological purposes. Now, the corporate agenda running in cahoots with the federal government have determined where and what capacity to invade. Some of the most powerful bloodlines on this planet — such as the infamous Rothschild family — have made their enormous wealth through what is essentially insider trading.

There is absolutely zero doubt that the U.S. invasion of Afghanistan was so much more than an ideological struggle as was portrayed by the mainstream media. The Taliban was not only our friends, we funded their entire operations! During the 1980s, this was considered mundane information. It was the central strategy of our Middle Eastern policy, and it was celebrated in pop culture through the Rambo movies.

In the fog of the 9/11 tragedy, it was impossible to see the true reasons why the military industrial complex was so eager to jump on Afghanistan. Lithium answered everything.

Lithium is Everything

Electric CarAs mentioned before, lithium is in everything. The text that you sent to your friend via your smartphone requires lithium to process. The last minute sales report that you’re typing on the plane back to headquarters will get nowhere without lithium. Eventually, when fossil fuel-operated vehicles are a thing of the past, you will not be able to get anywhere without lithium.

And just like so many people — including the Rockefellers — made a mass fortune in crude oil when it became a fuel source, lithium investments can also potentially soar. We’re still very early into exploring the true potential of the metal so the returns can be quite lucrative.

I don’t want to sound like a used car salesman. Clearly, there are risks inherent in every investment vehicle. Because of its relatively light volume compared to traditional or mainstream investments, the trajectory of lithium is far from guaranteed.

That being said, let’s take a quick look at the history of the automobile as a constructive lesson. The concept of the automobile goes back to the 18th century; however, it wasn’t until the latter half of the 19th century that the first gasoline-powered combustion engine was invented. Mass-produced cars weren’t a phenomenon until the early 20th century. But in order for this wide-scale development to occur, a fuel source had to be standardized.

Today, it sounds like an obvious statement that the automotive industry wouldn’t exist without crude oil. But back in the pioneering days of the automobile, there were actually multiple alternatives as to what is the most desirable fuel source. Industrial leaders of the time were deciphering their top pick among gasoline, steam, or electricity.

Electric Car Revolution

It’s actually an underappreciated fact that the electric car revolution did not start with Elon Musk’s Tesla Motors Inc. (NASDAQ:TSLA). Like much of what happens in science and other fields, the technological advancements of today are really the physical manifestation of ideas thought up long ago. We’re more the engineers to the physical theories that the true pioneers of science and industry proposed in a very different era.

But, as fate would have it, the gasoline-powered combustion engine would become the gold standard of the automotive industry, and that status has not been questioned until recently. Because of the decision to move forward with petroleum products, countries that have an abundance of crude oil reserves have become the target of — to be totally frank — western colonial imperialism.

That relationship works well when all parties are privy to the end goal; namely, making a whole bunch of money. And western powers during much of the 20th century enjoyed relatively unfettered access to crude oil. But when politics enters the fray — which it invariably does — the colonial-style relationship falls apart. Although it’s impossible to summarize the full details and nuances of the history of the crude oil markets, U.S. access to foreign oil has been a messy affair in the modern era.

Yet after pushing fossil fuel-based technologies to the limit, we have gone back full circle. After taking into consideration the environmental and geopolitical risks involved in our dependency on crude oil, we’re now earnestly seeking clean energy sources, namely electricity. Once again, the commodities that are necessary for electric-powered facilities are located in far-off regions. That will surely drive up the price of lithium and REMs considerably once the electric revolution begins in earnest.

Also, it’s incredibly surreal that the Middle East plays into this “next-gen” energy paradigm shift. There’s a real possibility that Afghanistan can be the 21st century Saudi Arabia. Long after the Millennial generation is dead and buried, we might see a total collapse of OPEC, and in its place, a profoundly futuristic and trend-setting Afghanistan. That might seem laughable now, but so too was the concept of putting a man into space.

I stress that very long-term, forward-looking statements are, by nature, speculative. Forecasts can go awry based on a number of unforeseen variables. However, with the general trajectory of society, it’s a reasonable idea to consider lithium as an investment opportunity. Remember: it’s not about what is, but what will be. As we move towards the digitalization of everything, lithium may literally become the gold standard.

Supply Demand Considerations

When considering any commodity as a potential investment source, its supply demand picture must be understood. There’s simply no point in piling into a sector only to discover that the commodity is neither rare nor highly demanded. Fortunately, lithium does not fall under any of those categories.

First of all, lithium is rare. According to the U.S. Geological Survey, only 32,500 metric tons of the “lightweight” metal was mined last year. To put that number into perspective, that’s a mere 19% higher than the global production of silver, which rang in at 27,300 tons. However, we use so much more of lithium that the supply curve could be negatively impacted.

For instance, a typical Tesla car battery has an enormous amount of the metal. According to Electrek, it’s “estimated that there’s about 63 kg of lithium in a 70 kWh Tesla Model S battery pack.” Converting to our American metric system, that equates to nearly 139 pounds. Based on the asking price of lithium, just that particular component of the battery could be valued between $600 to almost $1,300. And you thought buying a $200 car battery was bad!

Tesla, though, is steadily not becoming the outlier. More and more, our cars are becoming smarter and digitally integrated. Due to a combination of scientific innovation as well as environmental pressure, Tesla will be the head, not the tail. Essentially, even more copious amounts of lithium will be required to produce next-gen cars, and that may lead to a supply squeeze.

The statistical reality is impossible to ignore. At the start of this decade, global production of lithium excluding the U.S. numbered 26,300 tons. By 2014, that figure increased to 31,500 tons, or a nearly 20% bump up. That’s a fairly impressive rise for a relatively rare commodity. But it pales in comparison to the 82% leap in demand just in the U.S. alone! As both developed nations and emerging markets flex their muscle, that trend is more than likely headed towards a bullish direction.

Wall Street analysts have forecasted lithium as the next big commodity bull market, perhaps equal to that of gold, or even greater. It’s hard not to get excited about the potential. Sure, gold is definitely much more rarer than lithium, but the latter metal is used to a substantially higher degree. Industries are known to plate gold and silver particles onto electronic components as a conductor, but that’s usually the extent of our precious metal “exposure.” Lithium, as we have learned, goes so much deeper than that.

From a practical perspective, there’s no real alternative to lithium other than rarer — and more expensive — metals. There may be a way to replace lithium with silver as they both share similar properties conducive for technology. But silver is a heavy, dense metal. It just doesn’t make sense to put that material into an electric vehicle, particularly one designed for performance. Even there, extra weight bogs down fuel efficiency. Finally, it’s economically unfeasible to go this route.

It’s not just an issue of vehicle design, either. All of our modern consumer technologies necessarily incorporate the message of efficiency. In this world, bigger is definitely not always better. Our laptop computers, tablets, and smartphones feature sleeker designs and a less intrusive platform. No company brags about having the bulkiest phone — this attribute can only be achieved through the use of lightweight metals such as lithium.

To its credit as a potential investment opportunity, lithium has much in common with silver. As a precious metal, silver has intrinsic value. It was also used as official currency for much of the world until fiat currencies became the law of the land. I assume that most people buy into that aspect of silver’s investment potential. But silver is also used for multiple industries, as well as for health-related purposes such as water treatment. Because of its utilitarian value, silver continues to be demanded despite the drop-off from the film camera industry.

Silver is often described as a double-edged weapon, and that is also a fair description of lithium. Naturally, most discussions about lithium will center on batteries. However, lithium is also used in the medical field, primarily in the treatment of mental illnesses. There’s a storied history about this usage, and lithium as a drug is still a much-researched sector full of potential. As a corollary note, lithium is used to power several medical devices. Thus, it’s not just consumer electronics but the ever-expansive healthcare sector that could be the next big buyer of lithium.

Lithium’s Wide-Ranging Potential

The possibilities could be endless. With its small size, lithium will find itself everywhere. It’s already a major presence in our lives due to the usage of smartphones and other portable devices. But increasingly, we’re going to get high-tech in areas that we just don’t consider right now.

Our Toilets Could be One Example

Many have laughed at the idea of “smart toilets,” in particular, mocking the Japanese obsession of such “household products.” While smart toilets are currently limited to conveniences — without getting too graphic, “auto washing” — the toilet of tomorrow could be like a live-in medical doctor.

Think about it — what is the one item that collects our DNA sample multiple times throughout the day? While they may be dumb pieces of porcelain now, in the next generation to come, truly smart toilets could provide us with a 24/7 non-invasive biopsy. Illnesses, diseases, and disorders can be brought to a person’s attention well before physical symptoms are noticed.

Lithium could potentially play a critical role in powering these next-gen devices. Furthermore, their chemical properties could be used directly to address multiple needs, whether for digitalization purposes, or for human health therapies.

No wonder why power brokers like Elon Musk are eager to solidify and strengthen their position in lithium. Earlier this year, Tesla management engaged in talks with Pure Energy Minerals Limited and Bacanora Minerals about the possibility of producing more lithium. Topically, that doesn’t sound like an unusual request. But as The Daily Caller reports,

“neither of these companies has ever produced lithium-derived elements or even conducted feasibility studies on the mining of the highly combustible, environmentally dangerous material, according to Autoblog.”

The context of these talks gives the impression that Musk is more anxious than eager. With so much money on the line, pressure can do funny things.

“If you look at the rate of the new models — the number of subscriptions
for those new models was around 270,000 subscriptions,”

Luke Kissam, CEO of lithium producer Albemarle, said in an interview in early April.

“That would roughly require somewhere between 15 and 20,000 metric tonnes of lithium carbonate
equivalent to supply that demand. So that is a huge step for demand going forward.”

Aha! At 15,000 to 20,000 metric tons, this would equate on average to nearly 54% of last year’s global aggregate production! We may need to sit back and absorb these figures more clearly. Just one company in the U.S. will be responsible for soaking up more than half of global production supply of a highly demanded commodity. And we know that Tesla is only growing in popularity. Again, the potential is seemingly endless.

In this particular case, Musk is taking on a dangerous gamble. He’s betting that by talking to two mining companies that have zero experience with lithium, he can get the major suppliers of the metal — ie. Albemarle Corp., Sociedad Quimica y Minera de Chile (ADR) and FMC Corp. — to play ball by perhaps lowering the price of the extracted commodity.

But if they don’t budge, Tesla would have to resort to other metals, which again is problematic. Yes, we can bring up cobalt and rare earth metals. But we are inevitably faced with a fundamental reality of the periodic table. Lithium is the lightest metal, and unless we discover some secret metal or an alien compound, there is no equivalent substitute for the best.

The aforementioned lithium suppliers also realize how dangerous and difficult mining the metal is. Without the proper tools and expertise, Musk’s proposal is more likely to be dead in the water before it even has a chance to begin. The three suppliers can call the bluff because they know the leverage that they have. Since they sell 90% of the world’s lithium, they’re not subject to hardball negotiations.

Concluding Remarks

Lithium is quite simply the future. Other financial and commodity assets are traded primarily because of their current demand. People buy oil stocks because the world (presently) needs oil to survive. They purchase REITs because no matter who you are, you have to live somewhere. Lithium is all of that — our digital devices and our dependency upon them reflect its ongoing demand.

But it’s so much more. Outside of a scientific miracle, lithium remains our lightest metal. That attribute alone is enough to warrant a long look as an investment candidate. With society shifting further away from fossil fuels and towards electric energy, we can reasonably conclude that prospects for lithium are exceptionally bright.

As we close out 2016, look to lithium as a potentially lucrative asset in 2017 and beyond!

Prosperous Regards,
Joshua Enomoto