G. Joel Chury — ResourceHunter.ca

It’s hard to ignore the buzz around electric vehicle (EV) market driver Tesla Motors’ [NASDAQ – TSLA] plans to transform the state of Nevada into a modern day manufacturing hub, as it draws closer to opening its monolithic Gigafactory in less than two months. The ambitious project aims to help Tesla deliver on its goal of producing a million cars a year, as pre sales for its latest Model 3 release already close in on 400,000.

Officially opening on July 29, the plant is already producing Tesla Energy products, such as PowerPacks and PowerWalls, which are being used in major centres to store lower cost energy to later be consumed during peak power times.

All signs point to a major ramp up in lithium demand, and subsequently the commodity’s price in the present. Already, lithium carbonate, which Goldman Sachs aptly dubbed “white petroleum” due to its importance in the new EV boom, has seen a price surge of 47% in Q1 compared to the 2015 average price.

Given that Nevada is currently the only North American region so far to have produced lithium, it’s no wonder that Tesla chose the sunny desert state to set up shop. The Rockwood Lithium Mine and Processing Plant located in Silver Peak is North America’s only lithium production facility in operation. While Rockwood is solely owned by Albemarle Corporation [NYSE – ALB], multiple explorers have entered the area, and are all looking to reach production in time to capitalize on Tesla’s presence in the region.

OTHER MAJORS FOLLOWING SUIT

Obviously Tesla Motors is not the only major player in the lithium-ion based revolution.

Tech giants such as Apple and Google are also working diligently on electric cars apple, and are gunning for Tesla in any way they can, including trying to poach Tesla engineers (something that Elon Musk was accused of doing to Apple the year prior). That’s happening in the tech sector, but its popular push for more electric vehicles on the world’s roads has definitely impacted the lithium space.

Major car manufacturers such as GM, Ford, Nissan and Daimler are also getting in on the action, driving further lithium demand for “smarter” cars. In particular, demand is growing rapidly for self-driving cars—or at least a car with an “auto-pilot” feature.

Nissan is moving towards implementing its Nissan Intelligent Driving feature, which includes being able to automatically make lane changes on highways.

Daimler aims to revolutionize the trucking industry, by introducing self-driving big rigs on German highways, with the Mercedes Benz Actros truck’s Highway Pilot system.

Even Audi with the help of Delphi engineers just completed a coast to coast trip across the USA covering nearly 3,400 crash-free miles.

ASIA’S MARKET INFLUENCE

While these western international players are making waves, realistically, most of the world’s lithium demand will come from Asia (China in particular). Mining and metals consultants CRU group peg the continent to account for 60% of global demand by 2020 (up from half last year).

Warren Buffett has placed his bets on China’s influence, through backing electric car makers BYD Co. [OTC – BYDDF], which many believe will likely be Tesla’s greatest competitor. The Chinese-based company aims to provide a far cheaper price tag to the world, while accomplishing similar low-emission goals.

Despite China’s destined market share for lithium based products, experts still call this upward movement the “Tesla Effect”, and for good reason.

TESLA’S PR JUGGERNAUT

Unlike other majors that are going to be players in the electric car takeover, Tesla’s sole focus on the space of green power storage makes it easier to zone in on and use as a greater indicator for the lithium space as a whole. Led by charismatic CEO Elon Musk, Tesla’s role as market drivers will not be ignored.

At the unveiling of the Tesla 3 model on March 31, Musk admitted that lithium supplies are definitely going to be a factor in the lead-up to the million-cars-per-year goal, stating:

“In order to produce half a million cars a year… we would basically need to absorb the entire world’s lithium-ion production.”

Since Tesla is far from being the largest consumer of lithium, supply is going to need to grow in order to keep up the pace, and rapidly.

Even though the $5.5 billion Gigafactory will put tremendous pressure on lithium suppliers, the latest announcement from German auto manufacturing giant Volkswagen will also make a splash on demand, as it will be building a $15.5 billion factory for batteries in Germany. So, Tesla’s demands for locally sourced lithium just became more important, given that global demand just got a lot more competitive.

LITHIUM AS AN INVESTMENT VEHICLE

For miners (and investors in the space) to capitalize on the Nevada advantage set forth by Tesla’s new epicenter of activity set smack dab between Reno and Las Vegas, they’ll need to set up shop in the prolific Clayton Valley mining district.

Home to Albemarle’s mine, the Clayton Valley is quickly becoming a hot spot of activity as suitors line up to supply the Gigafactory’s lithium-ion battery assembly lines.

Unlike other commodities such as gold, silver, copper, petroleum, etc. lithium doesn’t have the same access for investors wanting to purely play the commodity’s long game. You can’t just buy and hold lithium, like you can for many of its mineral cousins.

However, for investors that see the further potential for lithium’s growth rate that seems to be twinning the massive growth rate in demand for electric storage devices, access can still be found at the junior mining level.

Albemarle’s facility uses evaporation ponds for their lithium brines to slowly expose the metal. That said, brine production doesn’t technically require a company size and market cap such as Albemarle to actually produce.

Success stories are starting to already emerge, such as Clayton Valley based Pure Energy Minerals [TSXV – PE], which saw a price surge almost immediately after announcing a conditional supply deal back in September with Tesla from its 9,324-acre lithium brine project near Albemarle’s current operations taking the PE stock price from $0.10 to $1.15.

Not too far behind is the emerging story of Zadar Ventures [TSXV – ZAD], which opened 2016 at only $0.035, but has already increased in value 7-fold hitting a high of $0.255 earlier this month.

Both Zadar’s WSP claims directly adjacent to the Albemarle facility, and its CR claims only 18km to the south have indicated elevated concentrations of lithium brines. Drilling on these properties is due to commence in the summer, with the WSP likely to conservatively get the first attention, while the CR is set to be noise maker if the company proves its hunch that it has its own untapped brine reservoir on the claims.

Given the Clayton Valley’s overall proximity to the Tesla Motors Gigafactory, the transportation savings will eventually be passed along to the end consumers.

PRE SALES FORESHADOW BRIGHT FUTURE

With the unveiling of the Model 3 back in March, Tesla has already made waves by drastically dropping the end price of electric vehicles, from previous lows of $70,000 to a new pre-rebate price of $35,000.

The new price has already resulted in nearly 400,000 in pre sales, and approximately $10 billion for the company.

As these prices drop to the level more acceptable and achievable for the masses, the lithium boom will truly be ignited. And the ignition is looking to come from Nevada, setting off a cascading growth effect from consumer demand, on down to lithium suppliers.


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