March 6, 2017 / 10:00 PM / 2 years ago

Crowded herd of lithium explorers faces culling as supplies rise

TORONTO, March 6 (Reuters) - The crowded field of explorers fighting for capital to produce lithium faces a painful reckoning as supplies build and prices flatten, leaving those with low costs and powerful partners still standing, industry consultants say.

Prices of the critical component in rechargeable batteries used in electric cars and mobile phones spiked last year and demand is projected to soar 60 percent to 300,000 tonnes of lithium carbonate equivalent (LCE) annually by 2020, National Bank Financial said.

Even so, it said new players could flood the market.

“It’s crowded, no doubt about it, and it will get culled,” said Jon Hykawy, president of Stormcrow Capital, calling lithium, the “latest bubble sector.”

Explorers are gathering at the Prospectors & Developers Association of Canada mining convention in Toronto through Wednesday.

To survive, suppliers must produce at low cost, enabling them to withstand price corrections, Hykawy said.

Dozens of companies globally look to be “pump and dump” schemes, unlikely to produce a single tonne, said consultant Joe Lowry of Global Lithium. Investors who back them risk being burned, he said.

Even potential new players are nervous.

“If there is one screw-up, one fly-by-night (company), it affects every single one of us,” said Carlos Vicens, chief financial officer of early-stage explorer Neo Lithium Corp .

Canada’s TMX Group has 35 listings related to lithium, compared with 20 three years ago, spokesman Shane Quinn said.

Prices have little upside, because demand growth has met with aggressive supply build-up, similar to rare earths and vanadium in past cycles, Paul Robinson, director at consultancy CRU Group, said on the convention’s sidelines.

Partnering with existing producers helps.

Lithium Americas Corp’s $425-million first-phase Argentina project is substantially funded by a partnership with producer SQM, and investments by Jiangxi Ganfeng Lithium Co and Bangchak Petroleum. It aims to start construction by June.

Technical expertise is hard to find, said Lithium Americas President John Kanellitsas. After new entrants’ exuberance, the complexity of lithium production sets in.

“It’s niche and it wasn’t strategically important until recently,” he said. “So there’s a lack of experienced talent.”

Nemaska Lithium Inc, armed with off-takes with FMC Corp and Johnson Matthey Battery Materials, looks to raise C$500 million in debt and equity over 18 months to build its mine and plant. Nemaska’s advantage is that operations are vertically integrated, its CEO Guy Bourassa said.

Advantage Lithium Corp’s Chief Executive David Sidoo said, “where you’re headed right now is (determining) who are the pretenders and who are the real deal.” (Reporting by Rod Nickel in Toronto; Editing by Denny Thomas and Grant McCool)

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