Cell phones, laptops, mp3 players they are all powered by lithium. Bruno del Ama, the portfolio manager of New York-based, exchange traded fund issuer Global X Management, has recently launched an ETF targeting lithium companies for just this reason. In this exclusive interview with The Energy Report, del Ama discusses why sizeable deposits of lithium just now being developed may not be enough to keep up with the demand generated by consumer electronics and the emerging electric vehicles industry over the next decade.
The Energy Report: Bruno, your firm recently launched the Global X Lithium ETF (NYSE:LIT). Why lithium? Why now?
Bruno del Ama: Lithium is of huge interest today for a number of reasons. The primary reason is that demand for lithium is growing by about 10% a year. Most of that growth is fueled by lithium-based batteries used in small consumer appliances, cell phones and laptops, as well as other portable electronic devices.
What really hasn't been factored into that growth is lithium-ion batteries used in electric vehicles. Lithium-ion batteries are the best technology and all new hybrid and electric vehicles are adopting it. The amount of lithium that's required for electric vehicles is much, much larger than what is needed for a laptop, for example.
That growth hasn't been factored into a market that's already growing very quickly. We expect the electric vehicle and hybrid market to grow very significantly from where it is today, which is basically non-existent. That should have a tremendous impact on the demand for lithium
TER: But why form an ETF for lithium?
BDA: It's basically impossible to invest in lithium today. There's no futures market for lithium. There are no other investable products for lithium. The only way to invest in lithium today, or until these products are available, is to buy individual stocks in lithium mining or processing companies. What this ETF does is provide an easy package for investors to get access to the full lithium market.
TER: What type of investor is investing in the Lithium ETF?
BDA: At one end of the spectrum, we've received inquiries from some of the largest institutional investors. At the other end of the spectrum, any investor with a brokerage account can buy into the Lithium ETF with as little as $20. When it first came to market in July, shares in the fund were at about $15 and it's trading at over $20 a share now. The return has been incredible in a short period of time.
TER: How much is lithium per ton currently?
BDA: Lithium was trading at about $2,000 per ton until 2004. The price has more than tripled to about $6,500 per ton since then.
TER: That growth is obviously being stoked as lithium technology replaces existing technologies, but what if lithium technology is supplanted by something else?
BDA: Lithium is currently the best technology for batteries. It's the best technology partially because of the characteristics of the metal. It's the lightest metal in the periodic table while storing three times the energy density of competing materials.
We don't see developments that would replace lithium in energy storage. But we do see developments that would replace the anode component of the lithium-ion molecule, which are typically carbons, that would eliminate the heaviest part of the material. There is already R&D looking into lighter lithium batteries like the lithium-air battery, for example, which takes advantage of freely-available oxygen in the environment and eliminates anode storage entirely in the battery.
TER: Are there any other growth aspects to the lithium story?
BDA: Another aspect that is having a big impact on demand is storage for the alternative energy industry. For example, wind farms. Wind can blow at any time during the day. It's not very predictable. When that energy is applied to the electric grid, it's wasted if it's not consumed quickly. There's significant investment into storage of alternative energies, be it solar, wind or hydro. There's also a lot of research into "smart" electric grids where a big battery bank is set up to store the electricity that we are producing but not using.
TER: There are about 20 companies in the index that are tracked by your Global X Lithium ETF. How did you select those 20 companies?
BDA: The selection is done by an independent index provider, Structured Solutions, which maintains what is currently the only lithium index in the world. The company will continually update the index to reflect new companies in the space over time. We would expect the index to expand from its current 20 companies to include additional mining or battery-producing companies in the future.
The index is meant to reflect the full life cycle of lithium, from lithium miners and producers to the deployment of lithium where most of the growth is coming from: lithium-ion battery producers.
The world production of lithium is dominated by three companies: Sociedad Quimica y Minera de Chile SA (NYSE:SQM; SN:SQM), FMC Lithium Corporation (NYSE:FMC) and Rockwood Holdings, Inc (NYSE:ROC).
This is a global fund. There are a number of junior lithium mining companies in the U.S. and Canada. A lot of the lithium developments today are in Latin America. There are also lithium-ion battery producers in the U.S., Japan and Europe.
TER: How often do you rebalance the fund? What parameters do you use?
BDA: Since it tracks an index, we rebalance as the index rebalances, which is semi-annually, at the end of November and May.
TER: Can you tell us how it is determined that a new equity is going to make it into the index?
BDA: Basically these indexes will include all of the lithium mining companies that are above a certain size as well as those that mainly deploy lithium, which are the lithium-ion battery producers. So if, for example, some private mining or start-up mining company becomes public or an existing publicly traded company crosses the minimum liquidity or minimum size threshold, they will be included in the index. And similarly with regards to the lithium-ion battery producers if there's a new IPO, if there's a stock split, and the company splits in two, for example, then they both qualify. Or let's say they do a spin-off of just the lithium business, then that will probably remain in the index and the part that's not focused on lithium will come out. So, basically, they fully cover the lithium market and any new publicly traded company that comes in will come into the index.
TER: A private company, Talison Lithium Ltd. (TSX:TLH), that became a public company by merging with Salares Lithium in July, isn't in your fund. From what I've read, it appears to be one of the largest, if not the largest, producers of lithium. So, that's why I was surprised when I looked at your holdings and did not see it in there. But because you rebalance twice a year, it probably hasn't moved up the ranks yet, right?
BDA: If it's large enough and liquid enough and focused on lithium, it will be added, yes.
TER: Another company that I am familiar with is Western Lithium USA Corp. (TSX.V:WLC;PK:WLCDF), and that isn't on the index as well. Are you familiar with them?
BDA: I think I may have seen Western Lithium on the list of companies considered for inclusion in the index. So, if they didn't make it, it's not because the index company is not aware of this company, but because they didn't meet the criteria for some reason. So, Western Lithium may have been either too small or too illiquid, but all of these companies are becoming larger and more liquid quickly. So, it is my expectation that Western Lithium will come into the index at some point.
TER: About 60% of companies in the Global X Lithium ETF are foreign companies. Does that reflect better opportunity for the lithium market abroad or a dearth of American companies with strong lithium-based assets?
BDA: It reflects the composition of the lithium industry globally. This is a global fund that's meant to reflect the full lithium industry wherever it may be located, and the reality is that a lot of the global lithium industry is located outside of the U.S.
The Energy Report: Bruno, your firm recently launched the Global X Lithium ETF (NYSE:LIT). Why lithium? Why now?
Bruno del Ama: Lithium is of huge interest today for a number of reasons. The primary reason is that demand for lithium is growing by about 10% a year. Most of that growth is fueled by lithium-based batteries used in small consumer appliances, cell phones and laptops, as well as other portable electronic devices.
What really hasn't been factored into that growth is lithium-ion batteries used in electric vehicles. Lithium-ion batteries are the best technology and all new hybrid and electric vehicles are adopting it. The amount of lithium that's required for electric vehicles is much, much larger than what is needed for a laptop, for example.
That growth hasn't been factored into a market that's already growing very quickly. We expect the electric vehicle and hybrid market to grow very significantly from where it is today, which is basically non-existent. That should have a tremendous impact on the demand for lithium
TER: But why form an ETF for lithium?
BDA: It's basically impossible to invest in lithium today. There's no futures market for lithium. There are no other investable products for lithium. The only way to invest in lithium today, or until these products are available, is to buy individual stocks in lithium mining or processing companies. What this ETF does is provide an easy package for investors to get access to the full lithium market.
TER: What type of investor is investing in the Lithium ETF?
BDA: At one end of the spectrum, we've received inquiries from some of the largest institutional investors. At the other end of the spectrum, any investor with a brokerage account can buy into the Lithium ETF with as little as $20. When it first came to market in July, shares in the fund were at about $15 and it's trading at over $20 a share now. The return has been incredible in a short period of time.
TER: How much is lithium per ton currently?
BDA: Lithium was trading at about $2,000 per ton until 2004. The price has more than tripled to about $6,500 per ton since then.
TER: That growth is obviously being stoked as lithium technology replaces existing technologies, but what if lithium technology is supplanted by something else?
BDA: Lithium is currently the best technology for batteries. It's the best technology partially because of the characteristics of the metal. It's the lightest metal in the periodic table while storing three times the energy density of competing materials.
We don't see developments that would replace lithium in energy storage. But we do see developments that would replace the anode component of the lithium-ion molecule, which are typically carbons, that would eliminate the heaviest part of the material. There is already R&D looking into lighter lithium batteries like the lithium-air battery, for example, which takes advantage of freely-available oxygen in the environment and eliminates anode storage entirely in the battery.
TER: Are there any other growth aspects to the lithium story?
BDA: Another aspect that is having a big impact on demand is storage for the alternative energy industry. For example, wind farms. Wind can blow at any time during the day. It's not very predictable. When that energy is applied to the electric grid, it's wasted if it's not consumed quickly. There's significant investment into storage of alternative energies, be it solar, wind or hydro. There's also a lot of research into "smart" electric grids where a big battery bank is set up to store the electricity that we are producing but not using.
TER: There are about 20 companies in the index that are tracked by your Global X Lithium ETF. How did you select those 20 companies?
BDA: The selection is done by an independent index provider, Structured Solutions, which maintains what is currently the only lithium index in the world. The company will continually update the index to reflect new companies in the space over time. We would expect the index to expand from its current 20 companies to include additional mining or battery-producing companies in the future.
The index is meant to reflect the full life cycle of lithium, from lithium miners and producers to the deployment of lithium where most of the growth is coming from: lithium-ion battery producers.
The world production of lithium is dominated by three companies: Sociedad Quimica y Minera de Chile SA (NYSE:SQM; SN:SQM), FMC Lithium Corporation (NYSE:FMC) and Rockwood Holdings, Inc (NYSE:ROC).
This is a global fund. There are a number of junior lithium mining companies in the U.S. and Canada. A lot of the lithium developments today are in Latin America. There are also lithium-ion battery producers in the U.S., Japan and Europe.
TER: How often do you rebalance the fund? What parameters do you use?
BDA: Since it tracks an index, we rebalance as the index rebalances, which is semi-annually, at the end of November and May.
TER: Can you tell us how it is determined that a new equity is going to make it into the index?
BDA: Basically these indexes will include all of the lithium mining companies that are above a certain size as well as those that mainly deploy lithium, which are the lithium-ion battery producers. So if, for example, some private mining or start-up mining company becomes public or an existing publicly traded company crosses the minimum liquidity or minimum size threshold, they will be included in the index. And similarly with regards to the lithium-ion battery producers if there's a new IPO, if there's a stock split, and the company splits in two, for example, then they both qualify. Or let's say they do a spin-off of just the lithium business, then that will probably remain in the index and the part that's not focused on lithium will come out. So, basically, they fully cover the lithium market and any new publicly traded company that comes in will come into the index.
TER: A private company, Talison Lithium Ltd. (TSX:TLH), that became a public company by merging with Salares Lithium in July, isn't in your fund. From what I've read, it appears to be one of the largest, if not the largest, producers of lithium. So, that's why I was surprised when I looked at your holdings and did not see it in there. But because you rebalance twice a year, it probably hasn't moved up the ranks yet, right?
BDA: If it's large enough and liquid enough and focused on lithium, it will be added, yes.
TER: Another company that I am familiar with is Western Lithium USA Corp. (TSX.V:WLC;PK:WLCDF), and that isn't on the index as well. Are you familiar with them?
BDA: I think I may have seen Western Lithium on the list of companies considered for inclusion in the index. So, if they didn't make it, it's not because the index company is not aware of this company, but because they didn't meet the criteria for some reason. So, Western Lithium may have been either too small or too illiquid, but all of these companies are becoming larger and more liquid quickly. So, it is my expectation that Western Lithium will come into the index at some point.
TER: About 60% of companies in the Global X Lithium ETF are foreign companies. Does that reflect better opportunity for the lithium market abroad or a dearth of American companies with strong lithium-based assets?
BDA: It reflects the composition of the lithium industry globally. This is a global fund that's meant to reflect the full lithium industry wherever it may be located, and the reality is that a lot of the global lithium industry is located outside of the U.S.
