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Lithium-ion battery demand sends shares in miners soaring, but analysts predict bubble will burst

By Kathryn Diss


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Map: Perth 6000A wide shot of the Mt Marion lithium mine with a crane to the left of the mine structure.

Demand for lithium to produce batteries for electric cars and home storage is driving huge share price gains for local companies, with some up 2,000 per cent in recent months.

However analysts have warned while demand for the mineral is fundamentally strong, interest in the sector is driving a speculative bubble which is likely to burst.

Lithium is globally abundant, but only five lithium mines have been developed in the past two decades because demand has been low.

Now, the growing need for the metal to produce lithium-ion batteries for the global shift towards electric cars and solar-powered houses is driving huge investor interest in lithium stocks.

"We're seeing characteristics of a bubble in the equity markets for lithium," Bell Potter Securities senior advisor Giuliano Sala Tenna said.

"I think the physical spot market is not reflective of a bubble at all - it's about supply and demand. We have seen the price for lithium go up a lot because there has been a really big increase in demand."

Perth-based miners have all made big share price gains over the past year.

Shares in lithium miners soar

  • Galaxy Resources up from 2.4 cents to 50 cents in last year (2,000 per cent rise)
  • Pilbara Minerals Limited up from 8.9 cents to 64.25 cents (700 per cent)
  • Neometals up from 7.62 cents to 46.5 cents (600 per cent)

Neometals managing director Chris Reed said his company was gearing up to start production at its Mt Marion mine near Kalgoorlie this year.

He said the booming market had seen his company secure a lucrative supply deal with one of China's largest lithium producers, Jiangxi Ganfeng Lithium Co.

"The batteries are growing at in excess of 20 per cent," Mr Reed said.

"There's been booming demand driven by electric vehicles and renewable energy storage against a backdrop of very much constrained supply.

"We tried to develop this in 2010. Unfortunately there was a price war, the Australian dollar went to parity, we stopped the project [but] demand is now above supply, so we are very fortunate."

Electric vehicles paving the way

The drive to produce more lithium is also proving a boon for battery suppliers like Perth-based company Solar Balance, which sells lithium-ion batteries produced by Chinese manufacturer BYD.

A BYD lithium battery in a tall rectangular metal case sits on the ground. P
hoto: Solar Balance is benefiting from sales of Chinese-made BYD lithium-ion batteries. (Supplied: Solar Balance)

Solar Balance chairman Rod Hayes said he believed electric cars would drive initial demand.

"I think we'll see battery production for home energy storage, commercial energy storage really grow very quickly over the next five years, but I do think the short-term driver is going to be mass transport, electric vehicles," he said.

"Communities like Shenzhen are going to all-electric bus fleets right now, and that's driving huge increase in demand for lithium batteries.

"At the moment some of the big boys are really in a race to expand battery manufacturing capacity."

The hype around lithium batteries has also driven dozens of struggling miners to reinvent their shell stocks as lithium companies.

However analysts do not believe many of them will last, along with their high share prices.

"You go through this interesting life cycle where there's a shortage of supply, that leads to a strong increase in the physical price of the commodity and that then leads to a speculative bubble in the equities market, and that's what we're seeing in lithium," Mr Sala Tenna said.

"We think that will probably last for another two to three years before we see the heat start to come out of the lithium spot price."

Graphite sharing spotlight with lithium

Graphite has also been a hot stock.

WA company Graphex floated on the ASX on Tuesday, with its share price closing more than 80 per cent above its listing price.

"What a lot of people don't know is that there's over ten times the amount of graphite than lithium in the lithium-ion batteries," Graphex managing director Phil Hoskins said.

"So that's the reason you've seen many of our graphite peers including our IPO go so well."

"[It is] expandable graphite we are focusing on ... it's used in electronic products as a heat shield and also in flame-retardant buildings.

"Use a bit of graphite in ordinary polystyrene foam, and it becomes a thermal insulator and protects buildings from fire."

Graphex is targeting 2018 for first production at its Tanzanian mine.

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Report: BYD to begin production of lithium manganese iron phosphate batteries for EVs in 2015

13 August 2014

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Shanghai Metals Market. BYD Auto will begin production of a new high-energy density battery in 2015 and apply them in its vehicles, according to board secretary Wu Jing-sheng, as cited by China’s Securities Times. BYD reportedly plans to add manganese to its lithium iron phosphate cathode material to improve the range of electric vehicles and reduce costs.

As one example of the potential benefit of such a cathode material, Dow Energy Materials (DEM) offersa lithium-manganese-iron-phosphate cathode material (LMFP) which provides a 10 to 15% increase in energy density in battery cells compared to standard lithium iron phosphate cathode material (LFP). (Earlier post.)

The DEM material, which offers the safety and cycle life of iron phosphate chemistries, has an energy density in the 150+ Wh/g range, according to DEM.