Rival stocks eat dust as e-car growth supercharges lithium market

Tesla Motors P85D Model S. Photo / Getty Images

Western Australia has had more than its fair share of rags-to-riches stories.

Stocks there can start with seemingly modest prospects but can occasionally enjoy explosive growth, thanks to the state's generous mineral resources.

The Pilbara, the world's biggest iron ore mining district, has gone a bit quiet lately, thanks to the slump in ore prices, but the talk of the state in recent months has been Pilbara Minerals, whose share price went from A5.6c in June to A38c in October - a 578.5 per cent increase - based on anticipated demand for lithium.

Pilbara Minerals' managing director Neil Biddle, in Auckland to address an investment briefing for the hardy brand of investors willing to delve into the high risk-high return world of mining and exploration stocks, said enthusiasm for the stock came from the anticipated demand for lithium battery-powered cars.

The much vaunted Tesla model 3, which is expected to go into production in 2017, will be powered by lithium ion batteries, as will vehicles from Mercedes, Volkswagen and Porsche, which are also expected to come on the market in the same year.

As it stands, about 2 per cent of the world's lithium demand comes from vehicles, but that is expected to soar to 60 per cent by 2020, according to Biddle.

"The electric vehicle market is well and truly hotting up and it's difficult to see where this lithium is going to come from," he told the investment conference. "We can certainly make a dent, but a few more projects are going to have to come on stream."

Biddle said Pilbara Minerals' Pilgangoora Project, 100km south of Port Hedland, contained the world's second-largest lithium-tantalite deposit - after Greenbushes - which is also in WA.

Pilbara Minerals is an emerging tantalite producer from its Tabba Tabba project, 75km south of Port Hedland. Tantalite, when refined into tantalum, is a high-value commodity, used in the production of capacitors for smartphones and tablets. It is also used as a protective coating for the blades of jet turbine engines.

Tabba Tabba is expected to be in production soon, but most of the attention centres on Pilgangoora.

Pilbara Minerals has just finished a capital raising, which netted the company A$12 million ($13 million) after placing 52.2 million shares at A23c a share, and its share price has since fallen back to A25c. The stock now has a market capitalisation of A$200 million and the company has A$15 million in the bank.

Pilgangoora is an existing tantalite mine but Pilbara Minerals said it discovered the site also contained a high-grade lithium-bearing spodumene deposit, with tantalite as a subsidiary material. Aside from batteries, lithium is used in ceramics, engine grease and pharmaceuticals.

Biddle said Pilgangoora is expected to come into production in June, 2017.

Power up

• 2% of the world's lithium demand comes from vehicles, but that is expected to soar to 60% by 2020.

• Much vaunted Tesla model 3 is expected to go into production in 2017. Powered by lithium ion batteries.

• Vehicles from Mercedes, Volkswagen and Porsche are expected to come on the market in the same year.