* Push for fuel economy through hybrids, EVs boosts demand
* Battery makers, automakers buying stakes in miners
* Producers see benefits of diversifying production
By Julie Gordon
TORONTO, Oct 7 (Reuters) - Lithium miners are reaping the benefits of a political and industry push to get more electric vehicles on the road, with shares in some Canadian-listed miners up more than 50 percent in the past two months.
That has opened the door to numerous exploration companies and junior miners looking to capitalize on the trend.
But while lithium is fairly abundant, it is not easy to find a cost-effective deposit and process the highly reactive metal. That points to increased M&A activity for companies with promising reserves but only a distant chance of production.
"Lithium is an extremely active area," Byron Capital Markets analyst Jon Hykawy said of deals in the sector, adding that most automakers and battery companies want to spread their lithium purchases over several miners. "No one major firm is going to stop with one small junior prospect," he said. "They can't put all their eggs in one basket that way."
Early this year, Magna International
Shares of the Lithium Americas have risen 60 percent in the past two months on the Toronto Stock Exchange.
"You always protect your supply chain," said Ted Robertson, president of Magna's E-Car Systems. "To mine lithium, and have it in the form we need for these batteries, there are only certain people doing that today."
Magna, the world's third-largest auto parts manufacturer, recently created an E-Car division, which will build parts for hybrid and electric cars, as well as full electric cars.
The company uses about 8.9 kilograms (19.6 pounds) of lithium for each battery pack, along with other elements such as cobalt, nickel and iron. "I would say that lithium, as the basic substance in batteries, will be the current technology being used over the next 10-20 years," Robertson said. After that: "My bet is we'll just refine the lithium compounds that are used in the batteries today."
For graphic on lithium demand: http://r.reuters.com/guk47p
Three diversified companies, SQM
The only pure-play producer is Australia's Talison Lithium -TLH-TSX with about 24 percent.
Talison recently bought Salares Lithium and used the Vancouver-based company to list on the Toronto Stock Exchange.
Looking ahead, companies with promising properties like Rodinia Lithium <RM.V>, Lithium One <LI.V> and Western Lithium <WLC.V> could become takeover targets, said Hykawy. And with demand soaring, there is space for two or three of the junior miners to grow into major players, analysts say.
"That's a major, major step forward in terms of demand forecast by a major lithium producer," Hykawy said. "It strongly suggests that there's more than enough room for the juniors to come to the market, to become major players."
CURBING CARBON EMISSIONS
The main force driving growth is the push by U.S. and European governments to reduce carbon emissions, including a U.S. plan to increase fuel economy by 42 percent by 2016. "We think the only way they can do that is by doing the electrification of vehicles - so more use of hybrids," said Tom Astle, head of research for Dundee Capital Markets.
"People think that simply because you stake ground in a salt lake it means that you have lithium mine," said Lithium Americas Chief Executive Waldo Perez. "Well it's not." He added that production from brines takes at least two years, making responding to rapid changes in demand difficult.
Lithium can also be mined from hard rock, called spodumene, in a quicker but costlier process.
($1=$1.01 Canadian) (Reporting by Julie Gordon; Editing by Frank McGurty and Janet Guttsman)
