EDITOR: | May 12th, 2016 | 9 Comments

Lithium as the New Gasoline?

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The self-created mythology that Goldman Sachs invented the BRIC economies has now been found to be a fallacious construct. The fact that many actually thought the plural of the Brazil-Russia-India-China acronym, that basket-case South Africa on the tail-end, shows how nebulous and “in the eye of the beholder” the whole thing was.

However, despite its faults BRIC set the tone for a decade and a half of boisterous developing markets and had a part to play in the almost simultaneous Commodity Supercycle. Along the way Goldman made a lot of money, as it does…

Now, however, Goldman has come up with the rather glib soundbite that “Lithium is the New Gasoline”. Even the most shameless Vancouver promoter would not have coined that clanger and everyone I know in the lithium space thought it not much more useful than for a bit of a laugh.

We shall look at this “claim” in the light that, dare we say it, we know something more about the subject than Goldman Sachs.

Means of Production Versus an Input

Everyone knows the combustion engine runs on gasoline (or diesel) and that the motor is generally made out of metal as is the fuel tank. The car does not run on electricity, per se, so the battery, made out of lead mainly, stores electricity generated by the car’s motion to power the ignition, the instruments, lights and windows, etc. The gasoline powers the car not the metals it is made of.

In an electric car or a hybrid, the car is powered by electricity (along with gasoline in a hybrid). The car is most definitely not powered by lithium. The lithium is what the battery in the car is made of — not what powers the car. So we have an apples-to-oranges comparison between lithium and gasoline, and few seem to have noticed the flakiness of this simile.

What is the Goal?

The market has become rather cynical about the pronouncements of Goldman Sachs on issues such as this. It tends to be that a counter-intuitive approach is taken by investors when they hear comments emanating from the bank’s strategists and analysts. “Go long gold” or “oil is going down” makes the market think the company has a long or short position opposed to what it is telling the market.

The actual article on lithium as gasoline is a mere three pages long and really quite surprising for an institutional investor-focused investment bank. It reads more like a Vancouver newsletter writers’ promo pump from 2009 when no-one knew what lithium actually was. The main thesis is, not unsurprisingly, concerned with the rise of electric powered vehicles. The statistics gurus in the industry, signumBOX, have been projecting (see chart below) that lithium chemicals used in cathodes within rechargeable batteries would be increasing by increments rising from around 10,000 metric tonnes of lithium carbonate equivalent (LCE) per annum at the moment to around 25-30,000 tpa by 2025.

The Goldman piece (without a source for the projection — themselves?) states: “Total lithium demand today is 160,000mt of lithium carbonate equivalent (LCE) per year. We estimate that a 1% increase in battery electric vehicle (BEV) penetration would increase lithium demand by 70,000mt of LCE/year (or roughly half of current global demand for lithium)”.

According to signumBOX numbers from last October, LCE used in rechargeable batteries was only 75,000 tonnes per annum, so less than half what Goldman is claiming is being used. I know whose numbers I would trust.

signumbox

Conclusion

When Goldman tossed its nugget of wisdom on lithium into the market it fortunately came when most participants had solid fundamental reasons for liking the metal and were not sitting around depressed, as they were early last year when they were waiting for the Great & Good to give lithium the OK. Thus the contribution from Goldman was not really either needed nor helpful. Indeed it looked rather gauche.

With dubious statistics of its own imagining, the article was launched upon an unsuspecting world. For once the mining world knows better and was able to give the “soundbite” the treatment it deserved.


Christopher Ecclestone

Editor:

Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>


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Comments

  • Graeme

    Doing “God’s work” is a thankless task, there are always so many people around willing to lob a brick of statistics, throught the roof of glass and faith in the future. Comparing Goldie to Vancouver stock promoters, is cruel beyond words. Cruel to the Vancouver stock promoters who have over the years cleaned up their act, while the once great investment bank got taken over by Brooklyn commodity traders. When accepting advice for a commodity trader, always remember to ask, “Where are the customer’s yachts?” Besides Vancouver stock promoters have these days been replaced by Vancouver realtors.

    Or one could always keep in mind these 3 Wall Street maxims:

    Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.
    Warren Buffett.

    “Call it the Goldman Sachs test. If this is something Goldman would do to its clients, don’t do it.”
    Felix Salmon.

    “Finance is the art of passing customer segregated funds from hypothecation to hypothecation until it finally disappears.”
    Jon Corzine, with apologies to Robert Sarnoff

    May 13, 2016 - 3:05 AM

    • Tracy Weslosky

      Thank you for your comment Graeme! We are SO excited about you writing a bi-monthly column…will be emailing you this week. Thanks for visiting. Tracy

      May 16, 2016 - 2:58 PM

  • jeff stufsky

    Clever macro slogans garner investment attention and win elections, while solid micro-analysis actually makes money and solves problems. But the former is generally easier and more fun while the latter is hard work, so…….Caveat Emptor, or a fool and his money are soon parted. Batteries (and lithium) may over time prove to be indispensable (or not), but this does not mitigate the requirement to assess where in the value chain and on which name(s) risk dollars should be placed; which is especially important in the absence of a liquid terminal market.

    May 13, 2016 - 9:14 AM

  • Craig

    I know whose numbers i would trust too. Someone who knew what they were talking about. Unlike yourself who makes an apples to oranges comparison and then concludes that someone else’s numbers are wrong.

    For the record, Goldmans were talking about total lithium demand, whereas your mates were talking about battery demand.

    May 16, 2016 - 1:44 AM

    • Tracy Weslosky

      Whoa Craig – This is below the belt and I am throwing down a penalty flag on you. Your comment has been published to use as an example of how NOT to conduct yourself on InvestorIntel. Please submit your dialogue with data to support your hypothesis, and do not patronize or disrespect anyone on this site. We welcome your data…try again.

      May 16, 2016 - 2:49 PM

  • Christopher Ecclestone

    Craig,

    So you are a “Goldman is Right, no matter what” school of thought. The fact that signumBOX spend every waking hour on this stuff and that Goldman merely dabbles seems to escape you. Have you even read the Goldman piece? The only reference they make to global LCE demand is to toss out the number 160,000 tpa.

    SignumBOX are not my “mates” they are THE recognised experts on lithium.

    May 16, 2016 - 4:22 AM

  • Craig

    Do you think that Signum’s 75kt for batteries
    Plus Ceramics
    Plus Glass
    Plus Lubricants
    Plus Pharmaceuticals
    Plus other
    equals Goldman’s TOTAL demand of 160kt?

    May 16, 2016 - 7:30 PM

  • Craig

    With dubious statistics of its own imagining, the article was launched upon an unsuspecting world. For once the mining world knows better and was able to give the “soundbite” the treatment it deserved.

    May 19, 2016 - 9:18 PM

  • Robin Bromby

    Regardless, the lithium frenzy is still running hot in Australia. Just take the past few days on the ASX. These are the announcements I have picked up since Monday (with ASX codes):

    Sovereign Gold Co (SOC) is joining the Nevada lithium hunt; in the same state, Caeneus Minerals (CAD) has completed due diligence on another lithium project. Prospect Resources (PSC), having recently added lithium to its gold assets in Zimbabwe, is interested in kicking rocks for lithium in Namibia and Mozambique as well.

    Botswana Metals (BML) has found lithium pegmatities in the eastern part of that country and is eager for more. Auroch Metals (AOU) has picked up a project in Tanzania, and Lake Resources (LKE) likes the feel of its new brine project in Argentina (and saw a 263.6% gain on the news of that).

    On the home front, Kidman Resources (KDR) has confirmed the lithium potential of some of its ground and Maximus Resources (MXR) announced a high-grade discovery in Western Australia.

    And, just before posting this, I thought I’d better check Thursday morning’s announcement. Bingo. Perpetual explorer De Grey Mining (ASX) has pegmatities in the Pilbara that have lithium and tantalum possibilities it said today.

    May 25, 2016 - 10:39 PM

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