Cell phones, laptops, mp3 players-they are all powered by
lithium. Bruno del Ama, the portfolio manager of New York-based,
exchange traded fund issuer Global X Management, has recently
launched an ETF targeting lithium companies for just this reason.
In this exclusive interview with
The Energy Report,
del Ama discusses why sizeable deposits of lithium just now
being developed may not be enough to keep up with the demand
generated by consumer electronics and the emerging electric
vehicles industry over the next decade.
The Energy Report:
Bruno, your firm recently launched the
Global X Lithium ETF (
. Why lithium? Why now?
Bruno del Ama:
Lithium is of huge interest today for a number of reasons. The
primary reason is that demand for lithium is growing by about 10% a
year. Most of that growth is fueled by lithium-based batteries used
in small consumer appliances, cell phones and laptops, as well as
other portable electronic devices.
What really hasn't been factored into that growth is lithium-ion
batteries used in electric vehicles. Lithium-ion batteries are the
best technology and all new hybrid and electric vehicles are
adopting it. The amount of lithium that's required for electric
vehicles is much, much larger than what is needed for a laptop, for
That growth hasn't been factored into a market that's already
growing very quickly. We expect the electric vehicle and hybrid
market to grow very significantly from where it is today, which is
basically non-existent. That should have a tremendous impact on the
demand for lithium
But why form an ETF for lithium?
It's basically impossible to invest in lithium today. There's no
futures market for lithium. There are no other investable products
for lithium. The only way to invest in lithium today, or until
these products are available, is to buy individual stocks in
lithium mining or processing companies. What this ETF does is
provide an easy package for investors to get access to the full
What type of investor is investing in the Lithium ETF?
At one end of the spectrum, we've received inquiries from some of
the largest institutional investors. At the other end of the
spectrum, any investor with a brokerage account can buy into the
Lithium ETF with as little as $20. When it first came to market in
July, shares in the fund were at about $15 and it's trading at over
$20 a share now. The return has been incredible in a short period
How much is lithium per ton currently?
Lithium was trading at about $2,000 per ton until 2004. The price
has more than tripled to about $6,500 per ton since then.
That growth is obviously being stoked as lithium technology
replaces existing technologies, but what if lithium technology is
supplanted by something else?
Lithium is currently the best technology for batteries. It's the
best technology partially because of the characteristics of the
metal. It's the lightest metal in the periodic table while storing
three times the energy density of competing materials.
We don't see developments that would replace lithium in energy
storage. But we do see developments that would replace the anode
component of the lithium-ion molecule, which are typically carbons,
that would eliminate the heaviest part of the material. There is
already R&D looking into lighter lithium batteries like the
lithium-air battery, for example, which takes advantage of
freely-available oxygen in the environment and eliminates anode
storage entirely in the battery.
Are there any other growth aspects to the lithium story?
Another aspect that is having a big impact on demand is storage for
the alternative energy industry. For example, wind farms. Wind can
blow at any time during the day. It's not very predictable. When
that energy is applied to the electric grid, it's wasted if it's
not consumed quickly. There's significant investment into storage
of alternative energies, be it solar, wind or hydro. There's also a
lot of research into "smart" electric grids where a big battery
bank is set up to store the electricity that we are producing but
There are about 20 companies in the index that are tracked by your
Global X Lithium ETF. How did you select those 20 companies?
The selection is done by an independent index provider, Structured
Solutions, which maintains what is currently the only lithium index
in the world. The company will continually update the index to
reflect new companies in the space over time. We would expect the
index to expand from its current 20 companies to include additional
mining or battery-producing companies in the future.
The index is meant to reflect the full life cycle of lithium,
from lithium miners and producers to the deployment of lithium
where most of the growth is coming from: lithium-ion battery
The world production of lithium is dominated by three companies:
Sociedad Quimica y Minera de Chile SA (NYSE:SQM;
FMC Lithium Corporation (
Rockwood Holdings, Inc (
This is a global fund. There are a number of junior lithium
mining companies in the U.S. and Canada. A lot of the lithium
developments today are in Latin America. There are also lithium-ion
battery producers in the U.S., Japan and Europe.
How often do you rebalance the fund? What parameters do you
Since it tracks an index, we rebalance as the index rebalances,
which is semi-annually, at the end of November and May.
Can you tell us how it is determined that a new equity is going to
make it into the index?
Basically these indexes will include all of the lithium mining
companies that are above a certain size as well as those that
mainly deploy lithium, which are the lithium-ion battery producers.
So if, for example, some private mining or start-up mining company
becomes public or an existing publicly traded company crosses the
minimum liquidity or minimum size threshold, they will be included
in the index. And similarly with regards to the lithium-ion battery
producers-if there's a new IPO, if there's a stock split, and the
company splits in two, for example, then they both qualify. Or
let's say they do a spin-off of just the lithium business, then
that will probably remain in the index and the part that's not
focused on lithium will come out. So, basically, they fully cover
the lithium market and any new publicly traded company that comes
in will come into the index.
A private company,
Talison Lithium Ltd. (
, that became a public company by merging with Salares Lithium in
July, isn't in your fund. From what I've read, it appears to be one
of the largest, if not the largest, producers of lithium. So,
that's why I was surprised when I looked at your holdings and did
not see it in there. But because you rebalance twice a year, it
probably hasn't moved up the ranks yet, right?
If it's large enough and liquid enough and focused on lithium, it
will be added, yes.
Another company that I am familiar with is
Western Lithium USA Corp. (TSX.V:WLC;PK:WLCDF)
, and that isn't on the index as well. Are you familiar with
I think I may have seen Western Lithium on the list of companies
considered for inclusion in the index. So, if they didn't make it,
it's not because the index company is not aware of this company,
but because they didn't meet the criteria for some reason. So,
Western Lithium may have been either too small or too illiquid, but
all of these companies are becoming larger and more liquid quickly.
So, it is my expectation that Western Lithium will come into the
index at some point.
About 60% of companies in the Global X Lithium ETF are foreign
companies. Does that reflect better opportunity for the lithium
market abroad or a dearth of American companies with strong
It reflects the composition of the lithium industry globally. This
is a global fund that's meant to reflect the full lithium industry
wherever it may be located, and the reality is that a lot of the
global lithium industry is located outside of the U.S.
Pure-play lithium companies are difficult, if not impossible, to
find. Could you tell us about some junior mining companies with
some exposure to lithium that are among your ETFs holdings?
Some of the components would include companies such as
Lithium One Inc. (TSX.V:LI)
Canada Lithium Corp. (TSX:CLQ; OTCQX:CLQMF)
Avalon Rare Metals Inc. (TSX:AVL; OTCQX:AVARF)
. These are specialized junior mining companies that have a
significant lithium component. They are in the development stage of
prospecting and setting up mines and developing new mining
The easiest lithium mining processing is where the weather
basically does the work for you: a brine operation based on an
evaporation process used in places like Chile where time and the
sun have done the work for you. Some of these companies are looking
into spudomene mining as well. It's more expensive, but it allows
mining of lithium resources in places where the weather may not be
Avalon has a big rare earth project in Canada's Northwest
Territories. In an operation like that, do companies typically send
the lithium to market separated from the rest of the metals?
It typically goes to market separated from the magnesium, which is
the most common metal mixed in with lithium extracts, and is
typically sold and price-quoted as lithium carbonate. All of the
lithium trading is currently done over-the-counter by the
industrial companies that use lithium.
With the expected growth in electric vehicles and the scarcity
of lithium providers, a lot of car manufacturers like Toyota,
Nissan and Ford are entering into direct off-take agreements with
these mining companies. They are entering into one-off agreements
to make sure that they secure long-term availability of lithium
before they invest billions of dollars into development of full
electric vehicle brands and cars.
Are there any estimates about how much lithium Avalon's Nechalacho
project could produce on an annual basis?
It's actually in the early stages of development, so they haven't
published specific projections on volume. The company does point
out that rare earths are also a big component of that project and
thus it is not a pure-play lithium company.
Would Canada Lithium be something more akin to that?
Canada Lithium is much more of a pure-play lithium company. It also
has a more developed lithium mine. It has specific projects and
estimates with regards to the production and is clearly a company
that fits very nicely in the ETF.
What is their proposed production?
It has an open-pit mine in Quebec called Val d'Or. The processing
plant is capable of producing about 43 million pounds of
battery-grade lithium carbonate by 2012, according to their
estimations. That would place them as a significant player within
the lithium industry.
What is the annual global demand at this point for lithium?
Global demand right now is in excess of 27,000 metric tons. If
Canada Lithium's Val d'Or project were to come into production, it
would certainly go a long way towards meeting some of the
Does it make sense to bring the project on at full capacity at the
beginning? It seems like it would flood the market.
Current predictions from major investment banks on new supply and
demand indicates that the market will be fully served over the next
8 to 10 years. Depending on the speed of evolution and adoption of
electric vehicles, we'll be in a significant deficit starting 8 to
10 years from now.
That will obviously affect the price of lithium. How could that
impact the ETF?
Price has an impact on performance because the ETF has exposure to
the companies that produce lithium and sell lithium. The more
expensive the commodity, the higher the margins of companies in the
fund. However, there doesn't need to be increases in lithium prices
to have high returns through the ETF. These companies can produce a
higher profit just through the increasing demand for the commodity
at the same profit margin. Any increases in margin from there would
mean even higher returns as it not only increases earnings but also
the price-to-earnings ratio.
Can you tell us about FMC, SQM and Rockwood Holdings in terms of
their exposure to lithium and their role in the market?
Their role in the market is massive. Those three companies account
for in excess of 70% of the lithium supply. They are, however,
diversified mining companies. Lithium may account for less than
one-third of their profits.
They're mining lithium as a byproduct?
They started as potash producers and lithium was a byproduct of
potash. As demand for lithium increased over time, and as the
prices for lithium started to increase, it became more of a
strategic mineral that they're extremely focused on growing the
production of. The lithium part of their business has the highest
margins for all three companies. It's also the fastest growing part
of the business for all three. It's expected that lithium will be a
much, much bigger proportion of their revenues within a decade.
What are some parting thoughts on the lithium market?
To some extent, it's like buying an option. You have a market that
is already growing rapidly without taking into account any impact
from electric vehicles or energy storage.
Look at all the iPads and iPhones-that's a market that's
expanding quickly and all of those technologies are using
lithium-ion batteries. Any growth that materializes from electric
vehicles will just be gravy on top of that. The potential from
these markets could have a large impact on growth for lithium.
The ETF allows investors to buy into a market that's already
growing very quickly and to have an option for the market to expand
at a much more dramatic pace if the electric vehicle market ends up
becoming a widespread reality.
Are there any other commodity ETFs on the horizon for Global X?
We currently offer
Global X Copper Miners ETF (
. It has had incredible returns over the last three months. Returns
from this fund have been driven by industrial growth and demand
We also offer the
Global X Silver Miners ETF (
. It's a basket of all the largest and most-liquid silver mining
companies around the world.
We're looking to bring two new ETFs to market this week,
Global X Gold Explorers ETF (
. This will be comprised of early-stage exploration companies and
pre-cash-flow gold companies. To some extent, we think about this
product and this market as the venture capital of gold.
We're also looking to bring the
Global X Uranium ETF (
to market this week. This will offer access to the largest uranium
mining companies around the world.
Very good Bruno. Thank you for your time.
Bruno del Ama is the co-founder and CEO of New York-based
Global X Funds
. The company is dedicated to developing innovative Exchange
Traded Funds (ETFs) focused on emerging markets, global
commodities and clean tech resources. Global X Funds has over $1
billion in assets under management and has been ranked by
BlackRock as the fastest growing ETF provider YTD. Previously,
Mr. del Ama served as head of operations in the structured
products business at Radian Asset Assurance. Prior to that, he
was a senior consultant at Oliver Wyman, advising leading
financial services firms in a range of strategy matters. Mr. del
Ama, a CFA charter holder, received his MBA from the Wharton
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1) Brian Sylvester of
The Energy Report
conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are sponsors
The Energy Report:
Talison and Western Lithium.
3) Bruno Del Ama: I personally and/or my family own shares of the
following companies mentioned in this interview: None. As CEO of
Global X Funds, I personally and/or my family am paid by all of the
companies mentioned in this interview.
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