* Lithium demand seen doubling by 2020
* Push for fuel economy through hybrids, EVs boosts demand
* Battery makers, automakers buying stakes in miners
* Producers see benefits of diversifying production
By Julie Gordon
TORONTO, Oct 7 Lithium miners are reaping the
benefits of a political and industry push to get more electric
vehicles on the road, with shares in some Canadian-listed
miners up more than 50 percent in the past two months.
Four major producers have long dominated lithium output and
demand is likely to double in the next 10 years as automakers
roll out hybrid and electric cars using lithium-ion batteries.
That has opened the door to numerous exploration companies
and junior miners looking to capitalize on the trend.
But while lithium is fairly abundant, it is not easy to
find a cost-effective deposit and process the highly reactive
metal. That points to increased M&A activity for companies with
promising reserves but only a distant chance of production.
"Lithium is an extremely active area," Byron Capital
Markets analyst Jon Hykawy said of deals in the sector, adding
that most automakers and battery companies want to spread their
lithium purchases over several miners.
"No one major firm is going to stop with one small junior
prospect," he said. "They can't put all their eggs in one
basket that way."
Early this year, Magna International (MG.TO) acquired a
13.3 percent stake in junior miner Lithium Americas (LAC.TO) in
exchange for a guaranteed 25 percent share of production, even
though the Toronto-based company doesn't plan on having a
single ounce of lithium to sell before 2014.
Shares of the Lithium Americas have risen 60 percent in the
past two months on the Toronto Stock Exchange.
"You always protect your supply chain," said Ted Robertson,
president of Magna's E-Car Systems. "To mine lithium, and have
it in the form we need for these batteries, there are only
certain people doing that today."
Magna, the world's third-largest auto parts manufacturer,
recently created an E-Car division, which will build parts for
hybrid and electric cars, as well as full electric cars.
The company uses about 8.9 kilograms (19.6 pounds) of
lithium for each battery pack, along with other elements such
as cobalt, nickel and iron.
"I would say that lithium, as the basic substance in
batteries, will be the current technology being used over the
next 10-20 years," Robertson said. After that: "My bet is we'll
just refine the lithium compounds that are used in the
For factbox on lithium click here: [ID:nN06279444]
For factbox on lithium mining click here: [ID:nN06267755]
For graphic on lithium demand: r.reuters.com/guk47p
Three diversified companies, SQM SQMa.SN, Rockwood's
Chemetall ROC.N and FMC (FMC.N), account for 60 percent of
global lithium carbonate production. The only pure-play
producer is Australia's Talison Lithium TLH.TO, with about 24
Talison recently bought Salinas Lithium and used the
Vancouver-based company to list on the Toronto Stock Exchange.
Looking ahead, companies with promising properties like
Rodinia Lithium (RM.V), Lithium One (LI.V) and Western Lithium
WLC.V could become takeover targets, said Hykawy.
And with demand soaring, there is space for two or three of
the junior miners to grow into major players, analysts say.
Global lithium output doubled to 92,000 tonnes in 2008 from
45,000 tonnes in 1997, and one major producer says demand will
be over 200,000 tonnes in 2020.
"That's a major, major step forward in terms of demand
forecast by a major lithium producer," Hykawy said. "It
strongly suggests that there's more than enough room for the
juniors to come to the market, to become major players."
CURBING CARBON EMISSIONS
The main force driving growth is the push by U.S. and
European governments to reduce carbon emissions, including a
U.S. plan to increase fuel economy by 42 percent by 2016.
"We think the only way they can do that is by doing the
electrification of vehicles - so more use of hybrids," said Tom
Astle, head of research for Dundee Capital Markets.
The majority of the world's lithium supply is currently
mined from giant salt lakes in Argentina and Chile that offer a
low-cost, high-grade source of the reactive metal. But not all
salt lakes contain lithium.
"People think that simply because you stake ground in a
salt lake it means that you have lithium mine," said Lithium
Americas Chief Executive Waldo Perez. "Well it's not."
He added that production from brines takes at least two
years, making responding to rapid changes in demand difficult.
Lithium can also be mined from hard rock, called spodumene,
in a quicker but costlier process.
For Talison, a spodumene miner with projects in Australia,
the decision to buy Salares for its Salares 7 brine project in
Chile was easy.
"The logic of combining a mineral producer and a brine
producer is that it guarantees a secure supply," said Chief
Executive Peter Oliver. "If you're looking at a car
manufacturer that's putting $100 of lithium into a $50,000 car,
the one thing they do want is to guarantee a high-quality,
(Reporting by Julie Gordon; Editing by Frank McGurty and Janet