By Frank Holmes, US Global Advisors
Is your portfolio positioned for a “white gold” rush?
In North America and the United States in particular, the hunt for lithium, a key component of batteries used in electric vehicles (EVs), has historically followed a handful of other countries. This includes Australia, which mines more “white gold” than all other countries combined, and China, a leader in both lithium refining and lithium-ion battery production.
But with last week’s announcement that the White House is deploying nearly $3 billion to increase domestic production of electric vehicle batteries and the minerals used to make them, it may be time for investors to step up. take note.
In an Oct. 19 press release, the Biden administration said it was providing $2.8 billion in grants to as many as 20 U.S.-based companies to “expand domestic manufacturing of electric vehicle batteries and the power grid”. The lion’s share of the investment – part of the bipartisan $1.2 trillion infrastructure bill signed in November 2021 – will go to three companies involved in the production of critical minerals, including lithium.
More than $114 million is earmarked for Talon Metals, which will use the grant to support construction of a battery mineral processing plant in North Dakota. In January of this year, the Minnesota-based company reached an agreement with Tesla to supply 75,000 metric tons of nickel concentrate from its Tamarack Nickel project in Minnesota.
Piedmont Lithium, one of our favorite coins in the industry, was selected to receive $141.7 million. The North Carolina-based company said the investment will go toward building a new lithium project in Tennessee, which aims to supply up to 30,000 metric tons of lithium hydroxide per year.
Also based in North Carolina, Albemarle is the recipient of a $150 million grant. The company says this will help support construction of a new lithium concentrator facility at its Kings Mountain site in North Carolina. Albemarle hopes to eventually have the capacity to produce up to “100,000 metric tons of battery-grade lithium per year to support domestic manufacturing of up to 1.6 million electric vehicles per year,” the company said in a statement. Press release.
As background, the entire global lithium industry produced 100,000 tons in 2021, according to the US Geological Survey (USGS).
Shares of all three companies traded strongly last week, with Talon Metals up over 16%, Albemarle at 13% and Piedmont Lithium at an incredible 22%.
Weaning the United States off Chinese lithium products
To impress upon you just how game-changing these investments should be, the United States has so far been a virtual non-player in the global lithium game, with production limited to a single brine project in Nevada. Besides Australia and China, other major suppliers are Chile and Argentina, while Zimbabwe, Brazil and Portugal are gaining ground.
This poses a national security concern, particularly if the United States is to meet the administration’s goal for electric vehicles to account for half of all new passenger vehicle sales by 2030. Lithium is literally about to become “the new essence”.
When it comes to batteries, Asia is the undisputed world leader in manufacturing, with just 10 companies accounting for 92% of global supply. Almost two-fifths of all batteries are produced by a single Chinese company, Contemporary Amperex Technology Co. Limited, or CATL. Earlier this year, CATL introduced its EVOGO system, which allows Chinese EV drivers to swap out batteries at special stations in a fraction of the time it takes to charge them. The company now plans to expand into international markets.
Driven by growing global demand, lithium carbonate prices have skyrocketed around the world. But in China, where the renminbi has plunged to near-record lows against the dollar, a ton of the commodity now trades for more than half a million yuan, or around $75,000. That’s 13 times in just two years.
This means Chinese inflation is exported alongside the physical batteries CATL and its peers supply to Tesla, Ford and other US automakers. Bringing end-to-end production to the states would not only enhance national security, but also stabilize prices. It could also provide investors with better investment options in more favorable jurisdictions.
Tesla confirms plans to refine its own lithium in Texas
During Tesla’s earnings call last Wednesday, CEO Elon Musk commented on lithium prices, calling them “crazy expensive.” He also confirmed that the company was moving forward with plans to build its own battery-grade lithium hydroxide refinery plant near Corpus Christi, Texas, just three hours south of Tesla’s headquarters in Austin.
I’ve often said that business investment and innovation should be the main driver in finding solutions to reduce emissions, and I hope Musk can make it happen.
Although third-quarter Tesla vehicle deliveries fell short of expectations, largely due to logistics and shipping issues, Musk expressed confidence in an “epic year-end.” He also shocked listeners by saying he believed Tesla’s market capitalization would one day eclipse the combined market capitalizations of Apple and Saudi Aramco, the two most valuable companies in the world. As I write this, Tesla’s valuation is around $661 billion, while Apple and Saudi Aramco’s are at $4.5 trillion. No one has ever accused Musk of lacking ambition.
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Holdings may change daily. Holdings are reported at the end of the most recent quarter. The following securities mentioned in the article were held by one or more accounts managed by US Global Investors as of (09/30/22): Tesla Inc., Talon Metals Corp., Piedmont Lithium Inc.
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