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Hanz Potente, Research Analyst of Carillion Asset Management, Presents a Report on What Has Been Discussed on the Latest Las Vegas Lithium Conference, Jan/2010

Electric Cars are here, they will be on our roads soon. They will be powered by Lithium and automakers are unveiling model after model of EVs in recent months. Investment decisions in Electric Cars Value Chain will be driven by politics and Supply and Demand in a tightly controlled Lithium market space. Will Lithium market be under control of our "friends" from Bolivia, like oil is now under control of OPEC? Will it be controlled by 3-5 companies with lithium revenue as low as 8%? Read on...

Las Vegas, NV, March 18, 2010 --( We are entering a very important stage of Lithium and REE market, when opportunity is noticeable and existing players are viciously protecting their market.

After recent rush into the sector, there are around 60 projects in development phase worldwide with most junior companies behind it. Most of the companies do not even have any technical expertise on board and are sourcing all work to outside specialist.

Main message from the Las Vegas Lithium conference:

1. One year ago questions were - will it be Electric Car? Will it be powered by Lithium?

Now it is almost out of the question - we will drive Electric cars after CV before anything else on a mass scale, they are ready, and it is lithium to power them. Question remains - how fast will be the adoption rate? It depends on battery cost, business models of market penetration (lease of the batteries) and government subsidies (they are in place in most markets). With rising scale of production expectations are that cost per 1 kWh will drop from over 1000 USD/kWh to below 500 USD/kWh. GM has announced before that they are expecting to achieve cost below 450USD/kWh in 3-5 years. Secretary of DOE of U.S. discussed estimations that with recent technological advance prices below USD100 per kWh could be a possibility. According to FMC cost of Lithium is less than 1% of battery final cost now.

2. All Japanese companies presented corporate structures with Lithium and REE divisions formed as part of the supply chain for Japanese multinationals. They are all hunting for resources to lock them in. It looks like almost a military operation with divisions on all elements of Lithium batteries and electric power train for the production supply chain.

3. Main drive for them is to secure supply with focus on existing dependency on limited region, uneven distribution and demand increase.

4. Recent deals by Magna and Toyota with juniors (by the way both companies are sitting on the same Salar system) spiked a lot of interest to upcoming juniors with solid projects and teams able to advance them. Brines in Argentina and Nevada are of particular interest now.

Existing producers SQM, FMC and Chemetall (all from brines) were defending their position with "thousand of years" Lithium supply - conference was very sceptical: market is not transparent, their lithium share of revenue is very low (some 8%) and production decisions are driven by other mainstream product like potash.

Main concern is security of Supply.

5. Major players in the Industry SQM, FMC and Chemetall were addressed as Oligopoly and there is a risk of concerted play against newcomers.

6. Strategic partnership for Juniors will be crucial in order to be successful in timing to market. Demand expected to pick up significantly with Electric Cars coming into mainstream in 2014-2015.

7. Demand for lithium in its optimistic scenario depends on rate of adoption of Electric Cars. There are wide range of numbers and estimations on the market. At the conference all serious participants from Asia noted that level of understanding of development of Electric cars technology and advance in batteries was very poor by the invited "experts". There was no presence of the most advance Lithium market players on automakers side like GM or Nissan.

8. Apart from a few professionals from Canaccord, Byron and Cormark (Canada) analysts or "investment bankers" (US) were presented with specialisation in Lithium/Biotech/Everything else. It is a very early stage in the investment cycle and even supply side of investment banking is still in its education phase.

9. Information was presented that number (basically all of them) of Chinese Lithium projects are running into a technical/chemical/extraction problems, that is why even hard rock producers from Australia still have their market and new projects are under development, new twist is when mines are in Australia and than spodumene transported to China for further production of Lithium carbonate.

10. Of notice was a presentation by Altair Nano "Applications for advance batteries and grid storage". There is an estimated demand for 40 000 MW of "fast"storage capacity worldwide at the moment. It is not a straight forward conversion, but with 24 kWh battery in Nissan Leaf this capacity will translate into magnitude of equivalent 1.7 million electric cars. Announcements from Panasonic, EnerDell and Mitsubishi showed that grid applications are adopting Lithium technology as well. cost will be the driving factor as well here.

11. Main message from upcoming producers was that the next decade Major Multi-National companies in Electric Space with 280 billion market and Major Companies in battery making space with 70 billion market will depend on SQM, FMC and Chemetall brine lithium production with market under 3 billion.

There is place for other players with focus on Lithium.

Contact Information
Carillion Asset Management
Robert Petterson
+81 3 4496-6194

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