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Canadian lithium miners in ‘prime position’ as EV battery race accelerates

CIBC sees North American lithium producers playing a bigger role in a global supply picture overwhelmingly dominated by China and Australia.
CIBC sees North American lithium producers playing a bigger role in a global supply picture overwhelmingly dominated by China and Australia. (Prapass Pulsub via Getty Images)

Two Canadian lithium producers are top prospects as mining and automotive giants hunt for deals to supply the silvery-white metal for electric vehicle (EV) batteries, according to a CIBC Capital Markets analyst.

Earlier this month, Mohamed Sidibé initiated coverage on TSX Venture-listed Rock Tech Lithium (RCK.V) and Frontier Lithium (FL.V) issuing “outperformer” ratings. Sidibé also published a lengthy primer on the alkali metal, calling for rising prices due to tight supply as more consumers buy EVs.

Sidibé sees North American lithium producers playing a bigger role in a global supply picture dominated by China and Australia. Backed by billions in promised government investments in critical minerals, he predicts combined Canadian and American output will grow from a two per cent share in 2022, to seven per cent in 2027.

“While Canada does not currently produce much lithium in the grand scheme of things, the country is host to seven projects, with a hub being created in Ontario and Quebec,” Sidibé wrote in his report. “The country is in a prime position to take market share at each level of the local supply chain.”

He also notes Canada’s abundance of clean electricity (83 per cent non-emitting grid, versus 37 per cent in the U.S.) as appealing to firms looking to shrink their environmental footprint.

Frontier and Rock Tech are among a handful of junior mining players focused on new sources of lithium in Northwestern Ontario. Sidibé says Frontier owns “one of the highest-grade undeveloped deposits in North America,” putting the company “at the frontier of North America’s EV supply chain.”

“We believe that Frontier’s high-grade, low-impurity deposit, and low-cost, render the company an attractive M&A candidate in a market where major players are showing interest in the industry,” Sidibé wrote, noting Rio Tinto Group’s (RIO) interest in Canadian lithium assets. However, the mining giant's CEO Jakob Stausholm recently told Bloomberg that companies are “very expensive,” and the miner would rather “develop the projects ourselves.”

Rock Tech’s Georgia Lake project is located in the Thunder Bay mining district. The company is developing a lithium hydroxide converter in Guben, Brandenburg, Germany, “strategically placed at the heart of Europe’s battery supply chain,” according to Sidibé.

Proximity to German automakers appears to be paying off for Rock Tech. In October 2022, it inked an offtake agreement with Mercedes Benz Group (MBGAF) for 42 per cent of the battery-grade lithium monohydrate hydroxide produced by its German converter from 2026 onwards.

“We assume the company will enter into a strategic joint-venture partnership with an automotive OEM (original equipment manufacturer), a battery OEM, or a third party within the battery materials space for $191 million for a 30 per cent stake in the converter,” Sidibé wrote. “We expect Rock Tech to mitigate the mining construction risk at Georgia Lake by entering into another strategic joint venture, preferably with a miner, for 30 per cent of the asset for $30 million.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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