FMC Plans to Triple Lithium Production

Last week, Fed Vice Chair Stanley Fischer did his darnedest to talk down gold and talk up Treasury rates and the U.S. dollar. It seems to be working for now. But remember, the Fed can flap its collective jaws all it wants. The big trends are on gold’s side.

Still, it’s no fun watching your gold and silver positions get whacked, even if it’s short term. On the bright side, most of your portfolio positions are up. Some of them are way up.

Now it’s time for an update on FMC Corp. (NYSE: FMC). We bought this chemical conglomerate because of its exposure to one of the hottest commodities of the century: lithium.

FMC is the world’s third-biggest lithium miner. And now, it is advancing a plan to triple its production.

As a refresher, the company has three segments: FMC Agricultural Solutions, FMC Health and Nutrition and FMC Lithium.

• FMC Agriculture sells herbicides, pesticides and fungicides.

• FMC Health sells food ingredients and colorants.

• FMC Lithium is what we’re concerned with. And no wonder. It’s the fastest-growing segment of the company.

FMC’s lithium segment is in Argentina. Lithium carbonate is extracted from El Salar del Hombre Muerto (Dead Man Salt Flats). It is sent overseas to be refined into products such as lithium hydroxide.

Lithium contributes the lowest revenue share (7.8%) to FMC’s overall revenue from its three segments. But year over year, the lithium segment’s revenue rose by 15.3%.

This segment posted operating income of $16.5 million compared to $4.6 million in the second quarter of 2015, a rise of 258.7%.

What’s more, the lithium segment reported an operating margin of 26.1% in the most recent quarter, up from 8.4% a year earlier.

FMC is targeting production of 10,000 metric tons of lithium hydroxide this year. And it is already starting a three-phase expansion of its lithium hydroxide capacity.

Phase 1 will be online in mid-2017. Next year, FMC expects to produce 18,000 tons of lithium hydroxide.

Upon completion of the Phase 3 expansion in 2019, FMC’s lithium hydroxide capacity will be at least 30,000 metric tons.

By 2020, if things go according to plan, the company expects earnings from lithium will triple from this year’s earnings.

All this depends on FMC being able to follow through on its plans. In 2015, the company tried to ramp up lithium production, and it didn’t happen. However, I believe FMC has learned from its mistakes.

FMC says it is going to “debottleneck” its Argentina operations to add 20% capacity. It is also having discussions with “multiple” lithium feedstock producers.

Bottom line: FMC intends to get the feedstock it needs, even if it has to buy a company to do it.

Now let’s look at a weekly chart…

Looking at the chart, you can see that FMC put in a big double bottom. It broke out and climbed swiftly to the $46 to $48 area. Now it is coiling up, potentially to break out again.

If it does, I think its next move could be to $59 rather quickly. And we’ll have to see what happens there.

I’m writing about lithium in Energy & Resources Digest this week. So keep your eyes peeled for that.

All the best,

Sean