Bloomberg: Russia’s Only Escape From More Deficit Pain Is Economic Growth

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Bloomberg – Russia’s Only Escape From More Deficit Pain Is Economic Growth http://bloom.bg/2aWh4Tf

Of course, to grow any economy, and  improve the living standards of an economy’s citizens, the economy must grow over and above the growth in population.

When an economy stagnates, but the population does not, the citizens are essentially sharing a cake amongst more people, so all other things being equal, everybody gets a smaller slice – which means they get poorer.

When people invest in businesses, and raise the output of goods and services, the economy grows, and people are richer, but ONLY, if the rate of growth in output is more than the population growth.

This conundrum, is at the heart of economists problems. The rate of growth of the economy.

During the early Industrial Revolution, the increase in automation added lots more goods and freed up people who were moving from agriculture, to industry. These individuals were released from agriculture because it too was mechanising..

In a service based economy, it is difficult to grow the output, because it is more difficult to automate.

A restaurant frees up people from the drudgery of cooking,  setting and laying the table, and washing dishes, but it produces not much additional value, because those citizens, cannot improve their own output by not doing these tasks because they are involved in waiting for food, between courses etc..

However, if we replace these waiters and waitresses with automatons, (Artificial Intelligence servers) and an experienced waiter to resolve difficulties, then those staff are released to produce more goods, and services elsewhere. THIS is the way to improve productivity in the economy.

However, when people are released from one industry to work in another, they have to be able to move their skills easily, and in an increasingly technological world, the time to retrain may take years. It is simply not cost-effective to retrain a 55+ year old, if he or she is going to retire perhaps two years after gaining the skills, but has (or would have) taken 4 or more years to gain the necessary expertise.

This is the problem, for economists, and politicians, because money can flow like water from one part of the economy to another, but people don’t move quite so easily.

That is at the heart of the European Union’s (EU) freedom of movement dictum. As one economy expands, people moving in, will dampen wages, and lower output per person. That’s the theory anyway,.

However, large corporations, when they use cheap money to merge with, or to take over in a hostile fashion, other corporations, do not add much value, if the people displaced do not have capital to build businesses, because their savings have been depleted by poor wages, poor interest rates, high taxation or other methods of losing value.

But, in the near future, we are about to see a positive explosion in technological advances, that will likely revolutionize the world economy. Artificial Intelligence, Virtual Reality, Augmented Reality, Robotics, Spintronics, Thorium Energy production,  and Solar Energy production coupled with storage technologies to move the energy that hits the Earth during the day, to those parts of the energy demand curve usually later at night,  to heat or cool homes, or to drive factories such as Tesla’s Giga-Factory in Nevada.

This factory, which Elon Musk, has committed to producing 500,000 vehicles per annum in, by late 2017, will catapult demand for Lithium Carbonate, critical in building the batteries for his car for everyman.  Warren Buffet, who made a major investment in China’s BYD a similar automotive corporation with aspirations to produce huge numbers of electric powered vehicles using Li-ion cells, will also require huge amounts of Lithium Carbonate.

By the end of the year, according to Reuters, BYD should have 10 GWh of battery production capacity, which it expects to increase to 34 GWh by 2020 with a new factory in Brazil—about the same capacity as Tesla’s.

Other Tesla rivals rushing to the battery production scene will be iPhone manufacturer Foxconn and LG Chem, which is already one of the top three battery makers.
Samsung is also hot on the trail, having just acquired Magna’s battery production division.

According to Credit-Suisse, the lithium industry is “poised for significant volume growth,” which could lead to shortages of supply.  As a result producers of lithium are set to enjoy significant earnings throughout the decade.

Elon Musk’s aspirations, if met, will require as much Lithium as is currently produced world-wide, and such demand will also be required by BYD, and the other major manufacturers working to catch up, such as: BMW, Mercedes, General Motors, Ford et-al.

“The key drivers of the continued growth in the market are electric vehicles (“EV”), which have been pioneered in Nevada in recent years, but the larger catalyst for global mass market uptakes is EV technology in China.

Deutsche Bank has forecasted that global sales of EVs in 2025 to be 16 million vehicles per annum (current sales are just 2 million).

This increase should lift lithium consumption in EV’s 8-fold from 25-kilo tonnes (Kt) of Lithium Carbonate Equivalent (“LCE”) in 2015 to 205Kt in 2025.

This along with the other increases in global lithium demand is expected to increase LCE demand to around 535Kt of LCE by 2025.

This new demand is being driven by the improved economics of electric vehicles and energy storage products.

In particular in the last five years lithium-ion costs have dropped from US$900/kWh to US$225/kWh.”

In the world, there are essentially 4 major producers of Lithium. Albemarle being the biggest in Nevada, but right next to it, is a junior Lithium explorer,  with capital from major investors, who see this as a huge financial opportunity to grow output to meet this expected demand. And at a mere $1.66-1.70 range on the day I was writing this, it values the business at $114.27m (Source: Bloomberg)

Some Lithium miners, are lying about their resources, and others, simply lack the expertise to bring the Lithium salts to production.

From this small company’s web site they have this to say:

[Our Company] has an option to become the largest claims holder with over 15,020 acres (6,078 hectares) in Nevada’s Clayton Valley and land positions both north and south of Albemarle’s Silver Peak mine, North America’s only lithium producer.

Clayton Valley North covering approximately 5,480 acres (2,217 hectares) in northern Clayton Valley, Nevada. The claims are contiguous to private lands and placer claims belonging to the lithium production facility of Albemarle Corporation. Historic drill information and a geophysical survey show the Property covers basin-fill sediments which are similar to the sediments currently producing lithium brines. Two Albemarle production wells lie along the boundary. Two holes are proposed within the Clayton Valley North claims as offsets to the production wells to test the complete stratigraphic section. Drilling and exploration are active in the basin and the permitting process is well established.

[Our Company] has also acquired the Clayton Valley South Expansion, totalling approximately 9,540 acres (3,861 hectares). The property is strategically located between and contiguous with the Silver Peak lithium mine operated by Albemarle Corp. on the northern boundary, the Clayton Valley South project operated by Pure Energy Minerals Ltd to the east and the Neptune property owned by Nevada Sunrise Gold Corporation to the west.

But Eric Anderson, CEO of the lithium engineering consultancy TRU, was bearish on lithium investment as early as 2009, when a flood of new projects were being planned.

“I made this statement that people snickered at—that plants would be built and closed . . . because of the hype surrounding the industry,” says Anderson.

Anderson’s lithium predictions have been largely vindicated. Demand rose more slowly than some expected—still currently between 5 and 10% per year—and new operations have been plagued by problems.

In 2012, Galaxy Resources suspended production at its Mt. Cattlin mine in western Australia. In 2013, RB Energy Inc. opened a new lithium carbonate plant in Quebec, only to suspend operations in 2014.

Nevada-based Western Lithium, which has been repeatedly floated as a potentially convenient supplier for Tesla, has taken shareholders on a very bumpy ride, and is not yet online.

According to Anderson, Western Lithium, like many new lithium operations, simply aren’t working with the right raw materials.  Though lithium isn’t rare in the environment, the cost of extraction varies greatly with its concentration and form.

With existing technology and present prices, truly profitable lithium comes only from the evaporation of highly concentrated brine.  Those sorts of brine deposits are nearly all in southwest South America, and controlled by established players.

The three biggest lithium producers are Sociedad Quimica y Minera, based in Chile, American FMC Lithium, which controls the ominously-named Hombre Muerte mine (Dead Man Mine)  in Argentina, and the U.S. based  Albemarle, which recently acquired competitor Rockwood Holdings.  Albemarle is developing lithium brine holdings around Magnolia, Arkansas too—the only American deposits that Anderson thinks might make economic sense in the near future.

Together, these three companies provide more than 90% of the world’s lithium, and have absorbed much of the rising demand simply by bringing untapped capacity online.

A dearth of technical talent seems to be another widespread problem. The Bolivian state has faced serious management and technical hurdles in extracting the massive, high-density lithium deposits in the other-worldly salt flat Salar de Uyuni.

Similarly, Chinese producers Quinghai Lithium and Citic Guoan MGL, hoping to exploit sources near Tibet, have experienced major hurdles, and plans to expand Chinese capacity to 60,000 tons a year by the end of  this year have been revised downward by half.

Elon Musk however, is eyeing a “complete transformation of the entire energy infrastructure of the world to completely sustainable zero carbon,” and what he’s talking about here is lithium-battery production on a mind-blowing scale.

Tesla is planning to produce more lithium-ion batteries in this factory than in the entire global marketplace combined.

Lithium—the lightest and most versatile of the metals—is the backbone of this exploding battery market.

Lithium is already a key part of our everyday lives, but as batteries become the rule of the day in a new global energy picture, demand for lithium is soaring—and we are only at the beginning of this curve.

Battery manufacturers across the board are moving to lithium because it has the highest electric output per unit weight.

And nowhere will this demand soar more than with the production of hybrid, plug-in hybrid and electric vehicles used by everyone from Toyota, Honda, Nissan, Renault, and Mitsubishi to Ford, Chevrolet and GM.

By the end of the year, according to Reuters, China’s BYD should have 10 GWh of battery production capacity, which it expects to increase to 34 GWh by 2020 with a new factory in Brazil—about the same capacity as Tesla’s.

Other Tesla rivals rushing to the battery production scene will be iPhone manufacturer Foxconn and LG Chem, which is already one of the top three battery makers.
Samsung is also hot on the trail, having just acquired Magna’s battery production division.

According to Credit Suisse, the lithium industry is “poised for significant volume growth,” which could lead to shortages of supply.

As a result producers of lithium are set to enjoy significant earnings throughout the decade.

Therefore, this little company, stands to be able to produce Lithium Carbonate, even quite possibly at the Albemarle facility which we know meets Tesla’s Standards, and it has even  been suggested, Musk might be interested in buying the whole company to guarantee Lithium for his Nevada Giga-Factory, and his future plans.

And, the name of this Lithium junior placed to take advantage of this rapid surge in demand is: Lithium X (TSXv.LIX) and LIXXF in the U.S.) .

And remember, we’re not Investment Advisors, so nothing in this piece should be considered a recommendation. Prices of shares can go down as well as up. We do not hold, and have no short-term intentions to do so.

 

 

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