Thursday, January 07, 2010Thursday, January 07, 2010

Canadian car parts giant Magna International Inc. is jumping into the mining sector with a strategic investment in a privately held lithium firm that it hopes will provide a secure supply of the metal used to make batteries for electric vehicles, according to sources.

Magna is understood to have participated in a $10.5-million equity financing by Toronto-based Lithium Americas Corp. that was completed Dec. 23. The equity deal gives Magna the right to acquire a percentage of any lithium produced by the mining company in exchange for an interest-free loan for some of the money needed to develop the project in Argentina.

Although Magna's initial investment is small, it underscores the Aurora, Ont.-based company's commitment to producing components for electric-powered vehicles that will run on lithium-ion battery technology. “They are all coming downstream. Lithium is going to be big and they better have supply,” said a source close to the deal.

Environmental technologies, including lithium-ion batteries, are a potentially huge growth area for Magna as auto makers race to bring hybrid-electric and battery-powered cars to market to meet new fuel economy standards being put in place in the U.S.

Magna developed a battery-powered version of the Focus compact car for Ford Motor Co., which was unveiled a year ago (and now stars nightly on The Jay Leno Show ).

But Magna is also trying to expand that expertise to other auto makers.

Ford and its rivals are seeking financially strong suppliers to help them develop these new technologies, which involve investments of tens of billions of dollars.

Magna is among the most well positioned to do that because of a cash hoard of about $1-billion (U.S.) and expertise in a broad range of auto components, including complete vehicle assembly on a contract basis for several auto makers.

Magna chairman and founder Frank Stronach said last year that he would like to see the batteries assembled in Canada and that governments want Magna to assemble batteries here.

Tracy Fuerst, a spokeswoman for Magna, would not comment.

Lithium Americas is just one of scores of junior mining firms with lithium development projects that have sprouted recently to take advantage of the sudden investor interest in the commodity.

The company hopes to produce lithium from brine lakes, which it says is cheaper than extracting the mineral from rocks.

Although lithium has been used for years in cellphones, high-tech alloys and by the pharmaceutical industry, the prospect of soaring demand from the auto sector has made it the metal of the moment in the junior mining sector.

Industry analysts estimate that if hybrid and electric vehicles reach 10 per cent of total vehicle sales, the market for lithium-ion and other advanced batteries could grow to between $10-billion (U.S.) by 2015 and $15-billion by 2020. Currently, the lead-acid battery market is worth between $7-billion and $10-billion.

Lithium Americas was created last summer as a spinoff of Latin American Minerals Inc., which trades on the TSX Venture Exchange and still holds a 17-per-cent stake.

Boasting lithium development projects in the Argentine provinces of Jujuy and Salta, the privately held Lithium Americas is expected to conduct a public stock offering within the next year that could raise between $25-million (Canadian) and $50-million.

Raymond Mitchell, chief financial officer of both Lithium Americas and Latin American Minerals, would not comment. “I can't comment on who our investors are,” he said.