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The war in Ukraine is shrinking the world. De-globalization, an anathema only a decade ago, is a big new opportunity for investors.
More than 850 international businesses announced last week they were cutting ties with Russia in the wake of the Ukraine invasion. Western business is forsaking the Russian economy, and the resources it provides.
Energy and metals prices are spiking. Investors should look further down the road.
Lithium is the cornerstone for the new economy. It’s what comes next.
The biggest surprise of the Russian invasion, apart from the Ukrainian stiff resistance, is how quickly Western business leaders moved to cut ties with Russia. From Coca Cola (KO) and Starbucks
Russia might not seem like an important player. Its corruption plagued economy is now smaller than South Korea, yet its trove of resources is vital. Within days of the Ukraine invasion a note from the German Association of the Automotive Industry warned that plants would soon have to idle due to shortages in palladium and nickel, metals that are needed to make catalytic converters and lithium-ion batteries for electric vehicles, respectively.
Lithium-ion batteries are especially important.
According to Benchmark Mineral Intelligence, by 2030 EVs will be responsible for 90% of the demand for lithium.
The entire automotive industry is transitioning to EVs. They are an upgrade from traditional internal combustion engine cars and trucks, fun to drive and don’t require gasoline or natural gas. All of the major brands have designed new vehicles to compete with Tesla
It doesn’t help that most of the world’s batteries are made in China, another authoritative regime. American politicians and business leaders want a domestic alternative. The Department of Energy claims it is a matter of natural security.
Australia, Chile, and China currently account for 80% of the world’s lithium production. And 50% of all lithium processing occurs in China, according to the International Energy Association.
Lithium Americas (LAC) is sitting on a deposit at Thacker Pass, Nev., that could account for as much as 15% of all of the lithium carbonate mined in Australia. The project sits inside an extinct super volcano. Thousands of tons of lithium are simply sitting in rich fields of sediment. The plan is to build a massive open pit mine.
Glen Miller, professor of environmental science at the University of Nevada told CNBC in January that the mine is expected to produce 60,000 tons of lithium carbonate annually, about half of the 2025 expected domestic need. Better still, Lithium Americas is planning to build onsite both the mining and processing operations. This will sidestep the need to deal with China.
Given what is happening in the world, that is more important than ever. Bad actors in authoritative regimes can cause substantial disruptions to global supply chains.
LAC
LACThe war in Ukraine caused the price of oil to spike from $85 to $130 in March. Class 1 nickel, a metal used to make EV batteries, shot up to more than $100,000 per metric ton, a 400% increase during the course of only week. Traders are worried that removing Russian resources from the marketplace will lead to longer-term shortages.
It makes more sense than ever to shore up supply chains with local production. And de-globalization is a new trend that puts both sides of the political spectrum on the same page, a rarity in the current polarization.
Overall lithium demand has shrunk this year as the ramp-up in EVs has been slower than expected, causing the Global X Lithium etf (LIT) to fall 28% from its November 2021 high.
Yet Lithium Americas is set to reap the benefits of this moment.
Longer-term investors should consider starting a position into the current pullback.