Lee tells The Energy Report that he expects double-digit compound annual growth rates over the next few years as battery prices continue to fall and demand rises. The lithium space is small and entrenched, but the widening gap between supply and demand is prying an opening for new entrants, which Lee believes provide the best investment opportunities in the sector.
The Energy Report: Jonathan, what is the condition of the lithium space today?
Jonathan Lee: The lithium space today is an oligopoly; there are only four major mines owned by four companies. Over the past three years, the space has actually consolidated with the largest mine, Greenbushes, owned by two companies through a joint venture agreement.
From that perspective, price increases have occurred over the past three years, just because of the concentration of the mine operators.
TER: What are the greatest challenges for the space?
JL: The hardest challenge is that lithium is not really a mining sector investment; it's a specialty chemicals investment. A lot of the products that lithium miners or producers sell are specialty chemicals, and there is somewhat of a competitive moat around these products because many are specialized to the customer. Lithium is not a commoditized product.
The incumbents have both the premier assets globally in terms of low-cost operation, and also a knowledge base of who the customers are, what they're looking for and what specifications they require. Those are some of the challenges faced by any new entrant to the space.
From the investor perspective, there are limited opportunities for pure play lithium exposure since three of the four existing producers are part of larger conglomerates with other business lines, Sichuan Tianqi Lithium Industries Ltd. being the exception.