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Germany, Hillary and Horizon Minerals

- By Christopher Malcolm

Horizon Minerals Corp. (HZNM) has 20,600 acres of land in the lithium-rich portion of Nevada. This property is in close proximity to Tesla's (TSLA) lithium-ion battery factory (Gigafactory) that is located just outside of Sparks, Nevada.

I don't know if Horizon Minerals is going to be a big winner, but I do know that any company that controls a produceable lithium resource this close to the Gigafactory will be. That is why I'm putting Horizon Minerals on my watchlist so that I can closely monitor its progress.

What I also know is that clean energy is the biggest investment opportunity of my lifetime.

Banning the internal combustion engine

In case you missed it, Germany is going to ban the use of the internal combustion engine by 2030. I didn't say reduce; I said ban.

Members of the German government have passed a resolution to ban the sale of internal combustion engines in the European Union by 2030. Only zero-emissions vehicles would be allowed on the market after that time, according to the resolution.

That would mean millions of electric cars are going to be required, and that is going to mean a huge increase in lithium consumption.

The resolution was passed in Germany's Bundesrat, the nation's legislative body representing the 16 German states, with across-the-aisle support. This is no joke; it is happening.

It could also get a lot bigger as the Bundesrat wants the entire EU to follow suit.

The resolution that was passed implores the EU Commission to ban the sale of new gas- or diesel-powered vehicles starting in 2030. Vehicles sold before the ban would still be allowed, but after 2030, automakers would be banned from selling new fossil fuel-powered vehicles in the EU. The Bundesrat doesn't have authority over the EU, but Germany is the most powerful economy in the union and has huge influence.

Hillary Clinton wants to cut oil consumption

Hillary Clinton has an ambitious plan to reduce the amount of oil that the U.S. uses. Her campaign has laid out a strategy to cut U.S. oil consumption by one-third by 2027.

For that to happen there is going to have to be a rapid shift of drivers to automobiles that are powered by something other than oil. The only possible answer is the electric car which again points to a massive increase in lithium demand.

A look at some numbers shows how big the changes proposed by Germany and Clinton could be for lithium.

In December Goldman Sachs (GS) released a "what-if" report. In the report Goldman referred to the fact that each Tesla Model S car battery required as much lithium as 10,000 cell phones.

It isn't going to take many Tesla Model S cars being built to make a big difference to lithium demand.

Goldman believes that only a 1% increase in the rate of penetration of the electric car would increase total global lithium demand by 50%.

According to Goldman, electric car sales will likely get to the point where they represent 22% of all vehicle sales in 2025. Goldman believes that would increase the amount of lithium required each year by 300%.

That is a large increase in demand in less than 10 years. Now imagine the increase in demand if Goldman had factored in Germany's internal combustion engine ban or Clinton's 33% oil consumption reduction plan. Look at what has already happened to the lithium price.

Image result for lithium price 2016

Why Horizon Minerals' location is such an advantage

Tesla is likely to be the biggest single user of lithium on the planet. The problem the company is going to have is securing as much lithium as it needs.

Most lithium production today is concentrated within four big players. These four companies have 86% of lithium production today:

  • 31% from China's Tianqi Group.
  • 22% from Chemical & Mining Co. of Chile.
  • 20% from Albemarle Corporation (ALB).
  • 13% from FMC Corporation (FMC).


Source: Pure Energy Minerals

Beyond that 86%, another 13% of production comes from a bunch of Chinese companies. That means that only 1% of production comes from outside this group.

This is an incredibly tight market. Any company finding an economic lithium deposit is likely going to be a good investment over the coming decades. To find it right next to where Tesla's Gigafactory is located would be even better given the huge advantage in reduced transportation costs that would bring.

Lithium is going to become a highly coveted resource. The single best place to produce it will be Nevada which is why Horizon Minerals is a company I'll be keeping an eye on. If the company has any positive news about a significant amount of lithium being discovered on its property I'll be ready to act.

Disclosure: I don't own any shares of any company mentioned in this article.

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This article first appeared on GuruFocus.