The shaking out of the tree in the world’s lithium production sector that began ten or so years ago when the world woke up to the full potential of electric vehicles and the consequent ramifications for commodities is gathering pace.
Back then, the cock of the roost in what was otherwise an obscure space was SQM (NYSE:SQM), which ran an efficient enough and market-leading producing operation out of its mines in Chile, on the southern section of the lithium triangle.
As it stands, the top five lithium miners in the world by market capitalisation are SQM, Mineral Resources (ASX:MIN), Tianqi Lithium, Albemarle (NYSE:ALB), and the daddy of them all, Ganfeng. To a degree, this spread of companies is reflective of where lithium production is now taking place, with the four top producing countries being Australia, Chile, China and Argentina.
But the current dispensation is unlikely to be long-term either. For one thing, although Australia is producing more lithium than anyone else currently, Chile’s reserves are actually far larger. So it may well be that there will be a further about face in that direction, especially since Chile is no slouch when it comes to mining, unlike its South American counterpart Argentina – where it is notoriously hard to do business.
But perhaps a more immediate cause of change may be the arrival and interest of bigger players. Already this month Rio Tinto has announced that pilot lithium production from tailings in California has gone well, and a decision on commercialisation is pending. Rio has another operation in the Balkans that may start producing primary lithium in due course, alongside borates, and so, at a stroke, one of the majors enters the ring.
Why haven’t the majors already honed in on lithium in a major way, given the significance it’s likely to play in the global economic future?
The answer to that question is partly cultural.
In a similar way, until quite recently the major miners never undertook potash mining. It was regarded as a sector of its own – “fertilizer” – and the big potash companies like Mosaic were left to plough their own furrows. But all of a sudden, boom went the potash price, and all of a sudden one of the majors – BHP (LON:BHP)(ASX:BHP) in this case – broke ranks and went on a billion dollar buying spree.
Now, with lithium, Rio Tinto is dipping its toe in the water, and it may well find that the temperature is, after a long time warming up – to its liking.
If so, which companies or projects could come into its cross-hairs, or likewise those of other companies thinking along the same lines?
These are the most advanced, although it’s worth noting that Bacanora’s major project, Sonora, is already partially-owned by Ganfeng, while the European Metals project, Cinovec, is jointly-owned with a Czech power utility.
Savannah is therefore the most unencumbered, and might offer the easiest opportunity for a clean deal to any acquisitive-minded mid-tier or major company.
Also worth watching though will be the earlier-stage companies, like the privately-held Cornish Lithium, which is coming along leaps and bounds, and British Lithium, which is also privately-held.
Alternatively, for investors who want to spread their risk, Cadence Minerals (LON:KDNC) has exposure to both Bacanora’s Sonora project and European Metals’ Cinovec project, as well as offering some diversification into iron ore and rare earths.