A few years ago, before rechargeable batteries became common, you might never have heard of lithium unless, perhaps, you thought back to chemistry lessons to recall it as the third element in the periodic table.
Yet the soft, silvery metal has become a key component in our modern lives – vital to power our mobile phones, tablets and, crucially, hybrid and electric vehicles.
It is this last use which is really expected to drive demand for the metal in coming years, and that should bode well for mining firms such as Bacanora Lithium.
High demand: Since we last looked at this stock the lithium price has, incredibly, nearly tripled again – a ton is now worth $16,500 (£12,000)
Figures from data provider Statistica show global consumption of lithium reached 212,719 tons in 2016 – up from 120,968 tons in 2008.
Two years ago, this column tipped Bacanora, a company in the early stages of developing the world’s largest lithium mine and processing facility in Mexico.
The Canadian firm, which has dropped its dual listing and can now be found solely on the London Stock Exchange’s junior AIM market, was enjoying improving sentiment towards lithium – the price of which had more than tripled to $6,000 (£4,000) a ton in the 16 years to April 2016.
Since we last looked at this stock the lithium price has, incredibly, nearly tripled again – a ton is now worth $16,500 (£12,000).
Bacanora’s Sonora project in Mexico is expected to produce up to 35,000 tons a year when it is in operation.
It was hoped that production would start in 2019, but the first quarter of 2020 now looks more likely.
Construction will begin in the first half of this year and is likely to take 18 months. The final costs and timetables are still being worked out, but a recent feasibility study has indicated the site’s potential to become a ‘world class, low-cost producer’ of high-value lithium products.
Bacanora’s shares have climbed to 87p since we tipped them at 77p in 2016 – a decent gain for investors but a steep fall from the high of 149p they reached in January this year. Is this just profit-taking or a sign of problems to come?
A setback came earlier this year when Chinese investment group NextView Capital pulled out of a deal to invest £31.1 million in the business in return for 33 million shares. The reasons for this are still not clear. Bacanora says it has ‘reserved its right to pursue any available legal remedies against NextView’.
Another cloud on the horizon is that analysts at Morgan Stanley have forecast that the price of lithium will plunge 45 per cent by 2021. The broker said new lithium projects would add about 500,000 tons a year to global supplies, creating a surplus.
It reckons that electric vehicles would have to account for about 13.7 per cent of the market to require such volumes – significantly above the 9 per cent penetration rate expected – and almost seven times today’s rate.
But perhaps Bacanora’s falling share price can be more clearly linked to a series of hiccups at leading electric car maker Tesla.
Production issues have meant the company is producing just 2,000 of its Model 3 cars a week, rather than the 5,000 promised, and shares dropped in March after a recall of Model S vehicles and a temporary halt in production.
Midas verdict: There are several shadows over the lithium industry at the moment, which cast doubt on whether Bacanora can deliver on its promised potential.
But, regardless of production issues at Tesla or fears over the price of lithium, we are moving to a world of electric cars and increasing reliance on lithium to power our most treasured technological possessions.
Start-up mining companies are a roller-coaster ride, but for investors who believe Bacanora could reach 149p again, buying at the current price of 87p could make for a hefty discount.