Lithium: What are the “Metal Oil” Stocks Hailed as the Way to Profit from the “Oil of the 21st Century?”

Checking into some lithium teases by Keith Kohl's Energy Investor newsletter

By Travis Johnson, Stock Gumshoe, March 27, 2016

First Published March 8 2016
This is not a brand-new ad, and it has been discussed by Gumshoe readers a few times — but apparently I’ve never written about it or looked closely at it, so we’ll remedy that today. And, of course, we’ll name the “secret” stocks being teased for you.

Keith Kohl opens his ad by promising that his “Metal Oil” is going to be the “Oil of the 21st Century”, and what he’s talking about is lithium, which is the lightest and least dense metal… which is part of why it is in high demand in batteries (yes, lithium ion batteries include more graphite than they do lithium… but graphite is relatively cheap and abundant).

The big argument is a compelling one: Lithium battery production is climbing rapidly, and with Tesla’s Gigafactory the demand should ramp up even more quickly (and, of course, other car makers and battery companies are also investing in increasing their production capacity — it’s not just Tesla). There’s a lot of lithium in the world, but it’s not that cheap to increase production quickly — which gives some logic to the “lithium will rise in value” argument. So what are the stocks being hinted at by Keith Kohl?

Let’s start by stipulating that it pays to be careful about our assumptions — uranium, for example, has been in a “must rise” status for two years or more thanks to falling production and continuing reactor development, and a price that meant many uranium miners couldn’t operate profitably or bring in more supplies… but the price didn’t rise as expected. Why? Well, there’s no one reason… but partly because the market is not as transparent as we’d imagine, there are huge strategic and accidental stockpiles (such as when Japan shut down their reactors — they still had contracted uranium shipments coming in), most uranium is sold on long term contracts, and some customers plan ahead for decades. We also don’t know much about non-public companies, much of the time, and we all have a tendency to see market opportunity and obvious supply-demand imbalances but assume, with some accidental hubris, that the major players in the market aren’t also seeing that imbalance and acting to profit from it (having the effect, sometimes, of “rebalancing” that enthusiastic speculators maybe don’t foresee).

But that said, yes, sometimes windfalls hit and give you a chance to profit, even if the spike in interest later recedes (examples from the last decade? Rare earth minerals, graphite/graphene, you can probably name your own). Sometimes whole segments of the junior resource space all go crazy at the same time, and if enough speculators and promoters get people jazzed up about it the actual mechanics and financials of that business almost stop mattering for a brief while. Right now, it seems that gold and lithium are the two areas that have some near-term potential to go bonkers (this is not a unique insight of yours truly — if I see that, it means thousands of other people do, too, all of them better traders than I).

So let’s see what Keith Kohl is talking about. Here’s how the ad gets us started:

“Elon Musk and Tesla Motors, Toyota, BMW, GM, Nissan, utility companies, energy insiders, and the government are sending the energy business into a tailspin by phasing out fossil fuels and ushering in the futuristic Metal Oil.

“This swift transition will create a staggering amount of wealth for those who understand what’s to come….

“Imagine you owned a piece of Spindletop Hill on January 10th, 1901…

“It was the first oil gusher of the Texas oil boom, and it changed U.S. history.

“It set off an industry that made trillions off of the explosive demand for gasoline in the early 20th century.

“Early investors became the new ruling-class millionaires. Everyday oil barons retired well….

“Today, we’re on the verge of a new energy revolution using a new type of fuel that will be a staple for 90% of our energy needs.

“America is making the quiet transition from fossil fuel to Metal Oil.”

I know, I know, I hear you yelling there in the back — yes, you are correct lithium is not a fuel. And batteries are not an energy source, they’re just a way to store energy. But still, it’s that energy storage that holds back essentially every “alternative” to gasoline — few resources can pack the kind of punch as a gallon of gasoline, and do so both with the support of a global infrastructure so everyone can use that gasoline and relatively easy transportability. Better batteries hold out the promise of a more fungible energy future, where the electricity generated by a windmill is as valuable as the electricity generated by a coal or gas plant or the power generated by a gasoline engine. That’s not the case now, because the wind doesn’t always blow and doesn’t necessarily blow close to the big city where you need your air conditioners to always pop on in the Summer without fail, and because you can’t just swap out a gallon of gas for a pack of batteries at your corner service station when hydropower is cheaper than gasoline.

But anyway, that’s the idea — better energy storage is the holy grail for alternative energy, both mass energy storage that is much more efficient and portable energy storage that can perhaps someday replace fossil fuels in the automobile fleet.

Here’s a bit more from the ad about increasing demand for electric cars:

“Tesla Motors offered the proprietary technology at the heart of its Model S electric car to any company that wants to build electric cars.

“Elon Musk opened his cookbook and let everyone else follow his revolutionary electric car recipe.

“And by the time he was done, he had all major automakers on board.

“BMW and Nissan shook hands on the deal and, in return, offered to throw some of their patents into the mix to push the electric car agenda forward.

“There was once a wall of Tesla patents in the lobby of the company’s Palo Alto headquarters.

Are you getting our free Daily Update
"reveal" e