The lithium sector in Australia continues to grow, however most of the new entrants have little more than pegmatites, usually undrilled. Pegmatites often carry the lithium bearing mineral, spodumene.  They are extraordinary common, and often low grade and high cost. The world is already awash with lithium deposits – there is around 1,400 years of supply from existing deposits at current consumption rates. Read more on lithium here and here.

The table below shows ASX-listed companies on the lithium bandwagon. I will have missed some as more companies continue to enter this space. I must admit that while I think the sector is overvalued, I am invested.

ASX_Li_2

Share price increases since the beginning of 2016 are extraordinary. A 100% gain is positively pedestrian. Some of the larger companies made substantial gains in 2015. For example, Pilbara Minerals was 3.6 cents 12 months ago.

The chart below shows the companies listed by market capitalisation. The top three companies make up 75% of the sector, which has a total marketcap of >$3 billion. The orange line showing the cumulative percentage is an excellent example of paretian distribution. Read more on this type of distribution here. It suggests that the majority of companies will have limited growth opportunities from here.

marketcap_paretian

I have been following the sector for some time and indeed cracks are beginning to appear. As I write 14 out of 35 companies are down, whereas last month companies in the red were rare.

 

 

21 April 2016 Commodities