What have iPhones, laptop computers, electric toothbrushes, and power-tools all got in common?
They’re all powered by a ‘magical’ element that’s on the British Geological Survey’s Risk List of strategic minerals.
You may have heard of rare earths and tungsten. Both are key ingredients in modern technology. And both are dominated by China.
But there’s another element that’s just as strategic to modern technology. And unlike rare earths and tungsten, this one isn’t dominated by China. In fact, this strategic element is a key Australian export. And it’s now in play as resources companies scramble to get a cut of the action.
What element am I talking about? Lithium.
And specifically, the market for lithium ion batteries.
The once humble lithium ion battery sector is taking off like a stung cat. And if the market moves as I expect, early-mover investors stand to make some very tidy profits indeed.
Lithium reminds me of iron ore about ten years ago. Of course iron ore’s best days are behind us. The trick is to foresee what will drive the next decade’s bull market.
And I’m certainly not alone in seeing how important lithium will be in the future.
Just this morning we heard that Chinese battery maker Chengdu Tianqi Industry Group is making a move on Aussie-based but Canadian-listed Talison Lithium (TSE:TLH).
Things are hotting up in the lithium stakes. This will be the second bid for Talison. Just three months ago, global lithium leader Rockwood Holdings (NYSE:ROC) bid the equivalent of A$700 million.
We don’t know how much Chengdu will offer yet, but they will exceed Rockwood. This is already driving the price higher in anticipation.
The result is some spectacular results for Talison holders, who have seen the share price jump by 133%, from $3 to nearly $7 in just six months. And I don’t think the bidding is over yet.
Talison Lithium – Takeover Bids Raise the Price 133% in Six Months
The irony is that even though the project is in Western Australia, there wasn’t enough investor interest in Talison to list on the Australian market a few years ago, so the company had to list in Canada.
Good News for Aussie Lithium Investors
But the good news for Aussie investors in that when companies start fighting to outbid each other it tends to shine the spotlight on that sector.
So we can expect other lithium stocks to get some attention soon.
Better yet, there is a truly world class lithium stock listed on the ASX. The lithium sector isn’t big, and for my money this stock is next in line for a takeover bid in the future.
The scarcity of lithium (in terms of that which is economically recoverable) means that it is a key part of my ‘strategic mineral strategy’ in Diggers and Drillers.
The bidding war for Talison is a good advert for just how important this sector has become.
Governments are getting anxious about securing lithium as well. The British Geological Survey’s (BGS) has increased lithium’s ‘risk rating’ by 22% in just a year.
Last year it scored 5.5/10. But in this year’s risk it has been pushed right up the list to 6.7/10 – making it more critical than silver, or diamonds.
So what’s all the fuss about anyway?
Lithium is essential for lithium ion batteries, and this market is growing fast.
It might have been out of the spotlight for a few years, but the growth has been staggering in that time. Since lithium was the ‘hot commodity’ of 2009, the size of the lithium ion battery market has increased at around 14.9% annually, or 52% in total.
Lithium ion Battery Market – Growing Fast
The interesting thing here is the red bars are for consumer technology, mostly laptops and phones. Demand from electric vehicles (brown) and hybrid vehicles (purple) are just starting to make an impact now. And you can see this is growing fast. Even so it still has a long way to go.
Watch the Graphite Sector Too
The other big ingredient for a lithium ion battery is graphite.
The growth rate in this sector is creating a lot of new demand for quality graphite. So this has been another key part of my strategic minerals strategy.
And we have more good news here. Just this morning, the graphite stock I’ve tipped has announced two exploration targets, each of which would be larger than the world’s largest graphite mine.
This staggering find makes this graphite stock the likely new king of the sector, and will make it very hard for new players to get a look in.
In fact there is so much graphite in the deposit the company is now talking about a 100-year mine-life!
The nature of the deposit will ensure it will be cheap to produce from, and it’s this type of mega-long life, low-cost project that make sound long term investments.
The reality is that this also makes it a takeover target for bigger players, so it’s possible we could see bidding wars in the graphite space too.
The bottom line is that thanks to the explosion in lithium ion battery demand, there’s plenty happening in strategic minerals stocks.
At a time that the old bull markets of iron ore and coal are a very tough sell, I believe the lithium ion battery sector is building the way for a whole new decade-long bull-market.
Dr Alex Cowie
Editor, Diggers & Drillers
PS. Investing in resources stocks is high-stakes investing. You make small bets, but if they come off you can make big returns. I believe almost every investor should set aside part of their portfolio for small-cap resource stocks.
But aside from that it’s also important to have a balanced side to your investments. That is, you should invest in lower-growth, income-earning stocks too. This is something the office income specialist, Nick Hubble has been researching for the past three years. What he’s come up with is something you should pay close attention to. To find out the details of Nick’s Aussie income strategy, click here…
From the Port Phillip Publishing Library
Special Report:
Retire Rich, Happy and Free From Money Worries
Daily Reckoning:
Accelerando Towards the Fiscal Cliff
Money Morning:
Who Says Gold Doesn’t Pay ‘Interest’?
Pursuit of Happiness:
What’s Your Entrepreneurial Idea?
Diggers and Drillers:
Why Graphite is the High Tech Commodity Driving an Investment Revolution
