For his part, Colin Orr-Ewing, chairman of Bacanora, is enthusiastic about
what the deal means for his company and its partner: "This supply
agreement with Tesla represents a vital and monumental step forwards in the
commercialization of the large lithium resources that the company holds,
together with its partner Rare Earth Minerals, in northern Mexico. We
anticipate this contract to rapidly accelerate the development of the Sonora
Lithium Project, which we expect will prove to be invaluable in an
increasingly lithium-hungry world."
Leading battery manufacturer Panasonic Corp. is predicting powerful growth
in emerging markets for lithium-ion batteries. The chart below shows
Panasonic's expectations between 2014 and 2025.
Source: Benchmark
Mineral Intelligence
Welcome Relief for Lithium Companies?
Tesla's supply chain strategy could have a positive effect on a lithium
industry that badly needs new investment. The deal has piqued investors'
sometime-waning interest in the lithium sphere. But Simon Moores warns there
are challenges: "The biggest hurdle to the agreement is Bacanora's need
to secure significant financing through debt and/or equity, which Tesla may
itself be involved in."
And though Chris Berry calls the deal "an encouraging first
step," he remains cautious, noting "while it likely won't breathe
new life into the mining space (if Friday's closing prices of the 34 lithium
plays I track are any indication), it is a signal of companies anticipating
future demand. I would expect to see Tesla and perhaps other battery
manufacturers undertake additional 'out-of-the-money call option'-type deals
as the lithium market tightens over the next two years. This is also likely
to be true for cobalt and graphite."
The Takeaway
Simon Moores stresses to investors that thinking long term is crucial.
"The timing appears good for Bacanora, with lithium prices at five-year
highs intensifying the need for new supply. Lithium hydroxide has risen as
much as 25% this year, while carbonate is up as much as 15% on 2014 levels. A
lack of new supply in the face of steadily increasing battery demand has seen
the lithium industry fall into a supply shortage."
Chris Berry had this takeaway: "Perhaps the most significant
conclusion is that you're just starting to see these next-generation value
chains come to life."
