Casualty of Australia's iron ore war seeks second chance in lithium

By James Regan and Matt Siegel

SYDNEY (Reuters) - Ken Brinsden rode Australia's iron ore boom up and then down as head of Atlas Iron (AGO.AX). Now he is chasing a new treasure, one fuelled by a metal powerful enough to propel electric cars to speeds of 250 km (150 miles) per hour: lithium

His company, Pilbara Minerals (PLS.AX), plans to be mining the silvery-white metal by 2018, putting it ahead of dozens of other Australian prospectors.

"Once we get up, we will be able to account for the equivalent of about 20 percent of the market as it stands now," Brinsden said. "As long as we can keep our costs low, we've got a good shot."

Lithium prices have tripled to over $20,000 (£15,145) a tonne in the past year on expected demand for batteries to power electric vehicles and to store electricity. Tesla Corp (TSLA.O) said in May it plans to build 500,000 new electric cars a year by 2018 and lithium will be the key element in that expansion. (nL3N1813YJ)

Investors looking to cash in on this boom should look to miners like Pilbara and others but need to keep in mind previous booms in opaquely-traded metals such as rare earths and uranium that quickly crashed when demand failed to materialize and prospectors ran out of money.

Far East Capital fund manager Warwick Grigor likens Australian lithium stocks to a "crapshoot" and a "casino for uneducated investors."

"At one stage we had more than 100 companies wearing theuranium ticket but only two or three companies end up producing uranium out of that” as prices retreated before mines could be dug, Grigor said.

Since Brinsden took over Pilbara in December, its shares have jumped 1-1/2 times in value from 23.5 Australian cents to 60.5 Australian cents.

In April, he raised A$100 million (£56.8 million) in new capital. This month, Pilbara agreed to supply lithium to one of China's biggest users, General Lithium.

Pilbara is not the only Australian lithium stock on the move. General Mining (GMM.AX) has climbed from A$0.11 to A$0.48 and Galaxy Mining (GXY.AX) from $A0.25 to A$0.75 since January.

UNLEASHING MORE METAL

Pilbara and the others risk competition from established miners that could unleash more metal as the market grows.

According to a report from Macquarie Bank, four producers control 90 percent of global lithium output and are producing below capacity to support prices.

U.S.-listed Albemarle (ALB.N), the world’s biggest lithium producer, was given permission to expand its output at its La Negra facility in Chile and plans to add capacity there, it said in February.

In February, Rio Tinto allocated $20 million to complete studies on a lithium deposit in Serbia it believes could meet 10 percent of world demand.

"What you find in small caps is they can often work in a boom, but typically have a much shorter mine life and higher cost," UBS small companies portfolio manager Stephen Wood said. "When the boom ends, they slowly disappear." It's a hard lesson Brinsden learned mining iron ore.

A few years ago Rio and BHP (BHP.AX) started flooding the market and pushed the price so low only they could make money, leaving Atlas at the mercy of its creditors and a stock price ofless than 1 Australian cent.

This time around, "We want to be the BHP of lithium, not the Atlas,” Brinsden said.

Brinsden argues there is room for new entrants, not just from Tesla but also as China pursues its massive transition to cleaner energy.

($1 = 1.3344 Australian dollars)

(Reporting by James Regan and Matt Siegel; Editing by Christian Schmollinger)