At the Financial Post, we have followed the lithium boom with the same shock and awe as the broader investment community. But what started as a fringe investment is moving to the mainstream on Bay Street, as Canaccord Adams has initiated coverage on a group of small lithium exploration plays.

Analyst Eric Zaunscherb has picked up coverage of Canada Lithium Corp., Lithium One Inc., and Western Lithium Corp., calling each one a "speculative buy."

The reason for interest in these companies is obvious: Mr. Zaunscherb and his colleagues wrote that producing clean energy is a part of our future, and lithium-ion batteries are going to be needed to power electric vehicles. Canaccord is projecting 10% and 20% market penetration rates by 2020 for pure and hybrid electric vehicle markets, respectively. That adds up to an incremental increase in demand of 286,000 tonnes of lithium carbonate equivalent, far above current annual production levels.

Canaccord is taking a conservative approach to lithium pricing on the assumption that supply and demand will stay roughly in balance and prices will not rise too much from where they are now (almost US$7,000 a tonne).

"Despite this conservative commodity outlook, we believe that investors should be exposed to lithium exploration, development and production in the event that, for example, electric vehicle penetration exceeds expectations or senior producers have overstated their ability to ramp up production," the analysts wrote.

The lithium market is dominated by a handful of large companies: SQM SA of Chile, Rockwood Holdings Inc., FMC Corp., and Talison Minerals Pty Ltd. After that, it is all juniors. Canaccord recommends getting exposure through one senior producer and a basket of junior explorers and developers. Those juniors should either have good projects that allow them to force their way into the lithium "club," or be advanced enough to get into production rapidly (while being small enough to avoid the attention of defensive seniors).

Canaccord believes the three juniors it picked up in coverage meet the criteria. Canada Lithium received a price target of 50¢ a share, Lithium One got a target of $1.20 a share, and Western Lithium got a target of $1.90 a share.

Peter Koven