Friday, November 21, 2014

Lithium Economy

A factory so large, out of its doors will pour enough lithium ion batteries to double battery production within the next five years.  That is the goal of Tesla Motor’s (TSLA:  Nasdaq) at its planned lithium ion battery plant in Nevada.  It seems quite ambitious to anticipate growth of that magnitude for battery powered cars, but let’s give Tesla sales and marketing geniuses the benefit of the doubt.  After all increasing consumer demand is underwritten by government policies offering incentives for electric vehicle ownership as well as regulations requiring fuel economy and emission reduction. 

End-user demand might not be Tesla’s most pressing issue.   Lithium batteries require lithium and the volume of batteries that Tesla is planning to make begs for ‘alot’ of lithium.  Global lithium production is near 170,000 tons per year mostly from Chile, Argentina and Australia.  So far lithium production has been met demand, but that could quickly change with such grandiose new production capacity coming on line.

The possibility of a lithium mineral shortage provides a good reason to look closely at the lithium supply chain.  Consider an early stage company called Stria Lithium (SRA:  TSX-V, SRCAF:  OTC) that Stria owns lithium properties in the U.S. and Canada.  Stria is not just another ‘wanna-be junior miner.’  The company has developed a proprietary processing technology, which it claims will reduce lithium processing costs and improve purity.  The process can be used on both lithium mineralization or brine sources. 

Recently, Stria won an important new friend in the National Research Council of Canada.  The company is to receive a small grant of $137,700 from the Canada Industrial Research Assistance Program to move forward with a pilot plant in Ontario Canada that is expected to start-up in early 2014.  The pilot plant will use mineralization feedstock from the company’s Pontax lithium project in Northern Quebec.  The objective is to produce high purity lithium compounds directly from the spodumene ore coming from Pontax, and do so at a lower processing cost.

Once the pilot project has proven the viability of Stria’s technology, the company plans to license its process to electric vehicle and battery manufacturers.  These companies are highly motivated to reduce the cost of batteries.  Well crafted license agreements could generate impressive revenue streams that would largely all flow to Stria’s bottom line.

The company is a bit circumspect on its process, but claims efficiencies through recycling of chemicals and smaller, more compact processing facilities.  Stria’s processing plant also takes advantage of energy recycling technologies.  Smaller and simpler process design almost always leads to capital cost reduction.  We also know that chemical recycling is becoming the norm in industry.  Thus Stria claims seem reasonable.  However, the Stria’s technology and process are not protected.  Thus how long it can retain an advantage over other processors and how long it can continue to demand license fees or royalties is uncertain.

Stria has yet to generate revenue or earnings.  It should be no surprise that the stock is trading for pennies per share.  While Stria does not file financial reports with the U.S. SEC, it is possible to monitor the company’s performance through Canada’s SEDAR.  In the first nine months of 2014, Stria used CDN$255,435 (US$227,337) in cash to support operations.  At the end of June 2014, the company reported having CDN$256,226 (US$228,041) in cash in the bank and recently completed a CDN$1 million (US$890,000) capital raise.  Along with the recently won grant funds, Stria’s cash resources should help deliver the company through the next valuation threshold when its pilot plant is fully operational.  It is worthwhile for investors to put Stria on a list of companies to watch.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.



Anonymous said...

What is the connection between SRA.V and SCRAF? They both seem to be Stria Lithium but SCRAF is listed as "Grey Market." Is this the only option for U.S. Investors?

Debra Fiakas said...

The company is listed on the Venture Exchange in Canada and is quoted on the Over-the-Counter Quotation Service in the U.S. Depending upon the services of their brokerage firm, U.S. investors can buy the stock on the Venture Exchange.