With the coming boom in electric vehicles, you might be tempted to invest in EV companies
or even electric battery manufacturers.
But I think the safer and more profitable strategy will be investing in lithium, an
element that is essential to the lithium-ion batteries used in EVs and other energy storage
solutions.
The easiest way to do this is with lithium mining and manufacturing companies, which
there are quite a few of across the globe.
But in this video, we’re focusing on the one that I believe to have the greatest potential
of them all, and that’s Lithium Chile, ticker LTMCF.
To get us started, we’re going to take a look at the overall lithium market and landscape.
This will help us better understand why Lithium Chile is perhaps the best pure-play lithium
investment on the market.
Then we’ll dive into Lithium Chile and what sets them apart from other businesses in the
lithium space.
Make sure you stick around for this, because they are incredibly well positioned for the
future of lithium.
Next, to round out this analysis, we’re going to discuss some potential valuations
for the stock.
I don’t usually talk penny stocks, but with all things considered, I think Lithium Chile
could produce some life-changing returns.
And as with all investments, there is some risk involved here, so last we’ll be taking
a look at a few things you’ll want to consider before investing in this stock.
Let’s get started.
The transition to electric vehicles and renewable energy storage is accelerating faster than
previously predicted, with analysts upgrading EV expectations from 20%, to 40%, to even
70% annual growth.
Lithium is one of the key materials used in these technologies, so as they become more
widespread, the need for lithium increases.
And because lithium is forecasted to be so integral to our energy needs in the coming
decades, it’s even being called “the new oil”.
According to the United States Geological Survey, over 70% of the world’s lithium
supply is being used for batteries, up from about 50% in 2019.
This shows that Lithium Ion batteries are single-handedly driving demand for lithium.
With the continued penetration of electric vehicles, lithium demand is expected to more
than double by 2024.
And it’s at this point in 2024 that the demand for lithium is expected to exceed the
available supply.
By the close of the decade, demand will be far greater than the available supply and
put pressure on lithium prices, which have already started soaring back as of December
2020.
So as an investor, lithium looks like an attractive commodity to be involved in.
But not all lithium is created equally, because there are many different geographies and materials
it’s found in around the world.
So we’re going to take a look at the three main sources of lithium, which are clay deposits,
hard rock deposits and brines, which are underground saltwater deposits.
Clay makes up the smallest portion of the world’s lithium reserves, at an estimated
3% of our total lithium supply.
Most of these deposits are found in North America, specifically in Mexico and Nevada.
Because of this, a lot of domestic companies are aggressively chasing after ownership of
these clay deposits.
Tesla has announced plans to produce lithium in Nevada, and Lithium Americas, ticker LAC,
has gotten some publicity lately for securing Thacker Pass, which is believed to be the
biggest clay deposit in the U.S.
The first problem with clay deposits is that many believe they are the least economical
source of lithium.
According to Jade Cove research, this could change in the next decade, but for now, clay
is not believed to be economically feasible because it contains lower grade lithium than
other sources.
Additionally, it’s not yet believed that extracting lithium from clay will have any
environmental benefits compared to other extraction methods.
Since environmental concerns are part of this EV shift, the carbon footprint of lithium
extraction is something we’ll have to keep in mind.
So by focusing on clay extraction, businesses are probably paying more to go after a smaller
supply of lithium without any clear benefits other than its location within the United
States.
Hard rock mineral deposits are the next biggest source of lithium, with an estimated 30% of
our world’s total lithium supply.
This lithium is found within other minerals, the most common being a mineral called spodumene.
This and similar lithium sources are the most evenly distributed around the world, with
some of the biggest operations taking place in Australia, China and Canada.
In addition to their widespread availability, rock deposits generally have higher concentrations
and quality of lithium than other sources.
Unfortunately, this advantage is offset by the costly mining process required.
Mineral ores are mined using traditional methods, simply digging into the earth’s surface.
Then, the lithium has to be extracted from the mineral ore, which is both an expensive
and heavily carbon-intensive process.
In fact, hard rock mining is expected to produce four times more carbon emissions than the
next extraction method we’re discussing, brines.
This has some serious implications for the future of lithium hard rock mining, despite
it being an efficient, accessible and high quality source for lithium.
The final source of lithium is in brines, which again are underground saltwater deposits.
These are estimated to make up over 60% of the world’s lithium supply.
The vast majority of these brines are located in what’s known as the lithium triangle,
an area that covers Bolivia, Argentina and Chile.
The lithium triangle is estimated to be home to 50 to 60% of the world’s lithium supply,
making it the most concentrated area of lithium reserves on the globe.
This ownership is largely dominated by Chile, which is estimated to have about 50% of the
world’s lithium supply within its borders.
To extract this lithium, the saltwater is pumped to the surface and distributed into
shallow pools.
In the dry climates, this water is evaporated over time until only dry minerals are left.
Then, the lithium can be easily extracted.
Lithium extraction from brines is cheaper and easier than previous methods, but it also
takes the longest at about 12 to 18 months for the evaporation process to complete.
While it’s also less environmentally taxing in terms of carbon emissions, there are some
concerns that this process drains the natural water supply of the surrounding regions.
So to quickly review, Clay is not currently an ideal source, but it has some US based
businesses excited.
Hard rock deposits have higher costs and carbon impacts, but may offer higher quality lithium.
Brines are the largest and most efficient source of lithium, especially in Chile, but
they’re not without their own issues.
With so many different ways to mine lithium, there’s a huge variety of lithium producers
to invest in.
However, I think Lithium Chile makes a case for being perhaps the most attractive investment
opportunity.
This is thanks to their geographic positioning and properties, their partnership with summit
nanotech and of course their current valuation.
Lithium Chile has a portfolio of 13 properties throughout the country of Chile, which as
we know holds more economical lithium reserves than anywhere else in the world.
They own 100% of this land, meaning they owe no rights or royalties to anyone else.
With this ownership, they are the largest land owner of lithium reserves in Chile, except
for the Chilean government and SQM, a chilean lithium producer that happens to be one of
the largest in the world.
However, it’s worth noting that SQM currently mines lithium in only one location - the Salar
de Atacama.
This salar alone produced 36% of the world’s lithium in 2017, which shows how powerful
a single one of these resources can be.
So with the properties that Lithium Chile possesses, it’s possible that they’re
sitting on reserves that could also supply massive amounts of lithium.
And what they’ve done is perform sampling and analysis on their properties to determine
which ones are the most prospective candidates for large amounts of lithium.
With these results, they’ve identified the most valuable properties based on their size,
their ease of access or how deep the lithium brine is underground, and the concentration
of the lithium samples in each location.
I’m not going to cover each of their properties here, but pretty much all of their properties
look incredibly promising.
I’ll link their investor presentation below as well as an interview with CEO Steve Cochrane
if you want to learn more about the distinct advantages of each one.
We’ll talk more about their properties when we discuss valuation, but the big idea here
is that Lithium Chile has massive ownership in the lithium capital of the world.
Just a single property could enable them to become a leading producer of lithium, and
they have 13 properties to further explore and develop as lithium demand grows.
This gives them a huge advantage over other producers who have significantly less land
ownership and are in less advantageous geographic locations.
In addition to having the land ownership, being located in Chile gives them the absolute
cheapest cost of lithium production.
Because they’re able to extract from brines instead of clay or hard rock, most of the
work is done by the Chilean climate.
With this advantage, they estimate their cost of lithium production per ton to be approximately
one half the cost of lithium produced anywhere else in the world.
Additionally, they’ve found resources like gold, silver, copper and even cesium among
these properties, which will add some extra value and diversity to their portfolio.
In fact, Lithium Chile has already stated that they’ll allow other companies to mine
these non-lithium resources, which will allow them to cash flow off of these properties
without having to put in any work themselves.
The next huge advantage that Lithium Chile has is their partnership with Summit Nanotech.
Summit Nanotech is pioneering a new method of lithium extraction known as Direct Lithium
Extraction.
I’m paraphrasing the CEO Amanda Hall, but she says they’ve designed this technology
to mimic the human kidney.
The idea here is they’ll use a sponge-like device to instantly soak up the lithium directly
from the brine, eliminating the need for the lengthy evaporation process.
This will substantially reduce the extraction time and costs to improve the efficiency of
lithium extraction.
Of course, one of the most significant benefits here is that it also completely eliminates
any environmental concerns associated with brine lithium extraction, since they’re
not evaporating the natural water supply or expending other resources.
So this technology can dramatically cut costs and improve production for Lithium Chile.
Their partnership with Summit Nanotech is non-exclusive, so it’s possible that other
lithium miners will also benefit from this at some point, but Lithium Chile is confirmed
to be the very first lithium producer to test this new technology.
They’re expected to get the first unit deployed in July of this year, which could really put
Lithium Chile at the forefront of the future lithium mining.
This will give them a big advantage in local communities that are concerned with the environmental
impact of lithium mining, since they’ll be one of the first to offer this greener
solution.
So let’s talk valuation, because this is one of the biggest reasons I see Lithium Chile
as a huge opportunity in lithium.
My thesis here isn’t that Lithium Chile will become the world’s largest supplier
of lithium, although it could be possible in several years.
Instead, I see the opportunity in Lithium Chile being that they’re so criminally undervalued
based on the assets they currently own, with a current market cap of approximately $60
million at 50¢ a share.
Considering their portfolio of properties and the lithium reserves they hold, I believe
they should have a higher valuation that reflects their properties and future supply capabilities.
So let’s start with Salar de Coipasa, which the CEO has stated is one of the most exciting
prospects that Lithium Chile has.
About one third of this lithium source is located in Chile, while the other two-thirds
is located in Bolivia.
Lithium Chile owns about 70% of the property on the Chilean side.
In 2019, Chinese electrical equipment manufacturer Xinjiang TBEA Group invested $1.3 billion
for approximately 50% ownership of the Bolivian side of this salar.
At that price, the entire salar would be worth approximately $4 billion.
Lithium Chile’s ownership equates to just under 25% of the entire salar, which suggests
that their ownership of this property alone could be worth as much as $1 billion.
In total, the company has ownership of 166,150 hectares of property.
They acquired this property at $3 per hectare.
In 2018, amidst the previous lithium boom, hectares were trading hands around at $1,000
each.
This puts the potential value of Lithium Chile’s portfolio over $150 million, which is still
more than double their current market cap.
Plus, given that their exploration has already discovered probable prospects of lithium and
other metals, it’s likely that their portfolio is worth even more.
At this point, I’d also like to draw a comparison to Lake Resources, a similarly positioned
lithium junior mining company.
They’ve gotten a lot of attention lately for their technology partner’s direct lithium
extraction method, which is similar to that of Summit Nanotech, and has been famously
backed by Bill Gates.
Their portfolio is also located in the lithium triangle, mostly in Argentina, and includes
roughly 50% more hectares than Lithium Chile.
However, 90,000 of these hectares are not brines, they are hard rock deposits, so they
actually have ownership of less brine than Lithium Chile.
Their flagship project makes up more than half of their brine ownership, where they
have found lithium concentration around 200 mg/L. For reference, Lithium Chile’s best
properties range up to 1,400 mg/L, making their lithium sources considerably more concentrated
and potentially more valuable.
Just like Lithium Chile, Lake Resources plans to get their direct lithium extraction technology
deployed on-site at some point in 2021 before moving into production in 2023 or 2024.
So by direct comparison, these companies are at very similar stages with comparable technological
advantages.
But considering hard rock lithium resources aren’t a priority in this geography, you
could argue that Lithium Chile still owns a superior portfolio of properties.
Yet, Lake Resources has been called undervalued with a market cap of approximately $300 million,
which is 4 to 5 times greater than Lithium Chile’s 60 million.
Purely based on the potential value of Lithium Chile’s portfolio, and the valuation that
similar lithium miners are getting, I’m confident that this stock is easily worth
one to two dollars based on nothing more than the properties they own.
Plus, as more people discover the significance of what Lithium Chile has, it’s possible
that investors will pay a premium over other lithium miner stocks for their more attractive
portfolio of properties.
Leading lithium miners are valued in the billions, so if Lithium Chile can evolve into an operation
like those, then we could really see some life-changing returns from this stock.
Of course that’s a more speculative idea, and something that will require a closer look
once they begin mapping out their production plans.
Let’s wrap up by discussing some risks, because as a junior lithium miner, there are
some very important ones to consider.
First, like we’ve said, they’re still exploring and they haven’t yet started producing
lithium.
Given their location in Chile and the exploration and sampling they’ve already done, I think
it’s a pretty safe bet that they’ll have some economically viable lithium sources on
their hands.
So whereas other junior lithium miners might be exploring at the risk of finding nothing,
I do feel confident that Lithium Chile has located and acquired substantial lithium reserves.
The risk at this stage will be any setbacks in their ability to get started with lithium
production.
Again, their prospects with locating the lithium and their partnership with summit nanotech
look good, so I think any setbacks here will come from the Chilean government.
Lithium Chile needs to go through the formalities of court approval before they can break ground
and begin mining.
Since the pandemic created restrictions throughout 2020, this was something that limited what
they could accomplish last year.
Similarly, the disapproval of indiginous communities could disrupt their plans.
We’ve seen protests surrounding most new lithium projects because people are against
the environmental impact of lithium mining.
Again, the partnership with summit nanotech makes me feel pretty comfy here, since that
should silence most arguments against lithium extraction.
The CEO has also repeatedly stated that Chile is pro-mining, which is somewhat reassuring.
But, Chilean citizens recently voted to rewrite the country’s constitution, which gives
the indiginous people a chance to play a role in the future of lithium mining in their country.
As lithium has become a more relevant subject in recent years, it’s possible that the
outcome of this constitution will impact the operations of Lithium Chile.
However, if things in Chile remain friendly towards lithium, I think it’s only a matter
of time before Lithium Chile can capitalize on their properties and scale to be one of
the world’s leading suppliers of lithium.
Overall, Lithium Chile offers an exciting opportunity to invest in one of the most attractive
portfolios of lithium reserve properties.
There are some short-term risks involved, but with their portfolio and strategic partnerships,
I feel confident that they’ll make it through to production.
It’s arguably undervalued at current prices, which I think suggests an immediate upside
of 100 to 200%.
And while there is some potential for short-term growth, I think it may not be until 2024 or
2025 where we really see this stock take off.
This is when many forecasts predict lithium demand to exceed supply, by which time I hope
we’ll see Lithium Chile actively producing lithium.
So for me, this is an exciting hold for any time frame, and as a penny stock, the potential
for explosive returns are there for anyone with the risk tolerance.
Before I wrap up, I gotta shout out Whoopensocker over on Twitter, I dug up a lot of great information
looking through their tweets.
So if you wanna check out that account or anything else I talked about
in this video, I’ll link everything in the description.
Thanks for checking out this video, if you liked it please consider clicking like and
subscribing to the channel.
I’ll see you next time.