Khan favoured Canada Lithium in a notably tight field of lithium producers that might be bought because he sees it as fulfilling part of Rockwood's desire to gain Chinese market share. As Khan noted, Canada Lithium has signed an offtake agreement with a Chinese industrial company for the bulk of its lithium production over the next five years.
Khan also pointed out that Canada Lithium will be producing higher priced lithium carbonate as opposed to the lower priced lithium concentrates that Talison sells (albeit in great quantities and from a very high-grade lithium deposit).
“We would also add that while TLH is blessed with an exceptionally high-grade resource, it currently produces and sells spodumene (lithium concentrate) and only has preliminary plans for building a chemical plant to produce lithium carbonate,” Khan wrote. “CLQ, however, is starting off with selling lithium carbonate - a value-added and higher margin product - and expects to be delivering by 1H of 2013.”
Eoin Treacy's view The lithium sector represents an oligarchy since it is dominated by a comparatively small number of large producers, namely SQM, FMC Corp, Rockwood and Chengdu Tainqi following is acquisition of Talison Mines. Smaller producers have tended to underperform by a considerable margin.
Canada Lithium has been notable for its outperformance among the smaller producers and has held a progression of higher reaction lows since June. It found support in the region of 64¢ from last week and a sustained move below that level would be required to question current scope for additional upside.