Lithium: Bet on Batteries

03/25/2014 7:00 am EST


Among the elements of the universe, lithium is a real lightweight—the third lightest of them all; but as one of the most conductive metals in existence, lithium is a true heavyweight in the field of energy storage and battery design, explains Joseph Cafariello in Wealth Daily.

In hot demand as the chief ingredient in batteries where power and long life are critical—such as in electric cars and aerial drones—lithium is rapidly becoming one of the hottest commodities to invest in, driving multiple market segments, from mining, to manufacturing, to advanced electronics.

Unfortunately, that hot commodity may be too hot to handle. It has been known to spontaneously combust, causing its batteries to fully discharge all of their stored energy in a flash—literally.

To make ion batteries a little safer, manufacturers have replaced the lithium cobalt oxide with either lithium iron phosphate, lithium manganese oxide, or lithium nickel manganese cobalt oxide (NMC); the latter is the favored configuration for electric cars.

The need for NMC batteries is so huge that Tesla Motors (TSLA) announced last month that it will build its own lithium battery factory—the world’s largest. The company is gearing up to begin production of its next generation electric car in three years’ time, and it doesn’t want any battery shortages to interfere with production.

As the ever-increasing production of portable consumer devices, electric cars, and even electric military equipment will dramatically increase the demand for lithium-ion batteries, lithium may well provide investors with an investment opportunity of a lifetime.

Luckily for manufacturers, mining lithium is relatively inexpensive, especially at brines in high mountain plateaus, where lithium coats the surface of the ground after the sun has evaporated the water from the deposits.

The highest concentrations of lithium are found in the high altitude regions of the Andes Mountains in Chile, Argentina, and Bolivia, as well as in the mountains of Tibet and China. Mid-range concentrations of lithium can also be found in the mountain ranges of Nevada, California, Colorado, and Utah.

If you want to stake a claim in this sector, you could try Chile’s Sociedad Quimica y Minera (SQM); FMC Lithium, a division of FMC Corp. (FMC); and Rockwood (ROC), an American mid-cap that recently purchased a 49% share in Talison Lithium.

Of course, you also have a lithium exchange-traded fund—Global X Lithium ETF (LIT), if you want to spread your investments across multiple holdings.

Trading since 2010, LIT holds all three of the above listed lithium producers as its top three holdings—FMC weighted at 19.31%, ROC at 19.15%, and SQM at 7.5%. LIT's shares have risen 16% from $12 to $14 over the past month.

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