Read the word lithium and it’s likely not too long before you are reading the word battery. Jon Hykawy, lithium analyst for Byron Capital Markets echoed the sentiments of many recently when he described lithium as “hot and getting hotter.”

Lithium demand is experiencing a “sea change” according to James Calaway, chairman of Australian lithium miner Orocobre (Stock Profile – TSX:ORL & ASX:ORE) in an article by the New York Times. He further enounced, “We are at the front end potentially of a very significant increase in the demand for lithium for the emerging electric transportation sector.” Calaway’s company recently entered into a $100 million joint-ventured lithium project in Argentina with Toyota Tsusho, the material supplier for Toyota.

Investors picturing a massive new demand for lithium unfolding in order to power our lives might be surprised to hear that, in 2008, just 25% of the world production of lithium carbonate was used by battery manufacturers. The majority of the demand for lithium comes from its use to manufacture high performance alloys, ceramics and glass. But it’s the anticipated demand from the automobile and electronics industries, which are increasingly adopting lithium batteries, that has the spotlight on the element. This is because a lithium-ion battery stores two to three times as much energy per pound as a nickel-metal hydride battery.

According to French technology consultancy firm Meridian International Research, the current supply of lithium is so tight and the potential sources are so limited that by 2015 there may only be enough lithium carbonate to power 1.3 million GM volt class vehicles. And, the report goes on to suggest, politics may play a major role in the supply/demand equation. Meridian says that 70% of the world’s lithium may ultimately come under state control. The lithium frenzy was not eased by recent actions in Argentina. The government in the that country’s Jujuy province recently declared it a “strategic” metal, effectively notifying all current and future lithium projects that they must be evaluated by a special commission.

In talking to The Energy Report analyst Merrill McHenry described the structure of lithium pricing as one that lends itself to confusion and speculation. “You take a mineral with no spot market and very obtuse pricing and combine that with a significant distance from here to high future volumes, significant market penetration of hybrids and higher pricing estimates and you have a scenario ripe for volatility.”

But not everyone agrees that there might not be enough lithium to satisfy demand. Lithium consultants Tru Group, who presented at the Lithium Supply & Markets Conference in Toronto in January, pointed out that the world’s current major lithium chemical producers, SQM, FMC Corporation and Chemetall/Rockwood Holdings, have the in-ground resources and ability to meet nearly all market requirements by simply expanding capacity through 2020. Their report further stated, “Only a select few new projects could make it into profitable production and then only as marginal suppliers. Bottom line is if you do have a good resource make sure you also have the strongest possible lithium technical capability to develop it.”

Today, the debate over “peak lithium” rages between those, such as Meridian’s William Tahil, who say that most of the easily recoverable lithium from world-class properties like SQM’s Salar de Atacama project in Chile has already been recovered. While groups like Argonne National Laboratory, a research branch of the US Department of Energy, says that on the other hand “long-term supply should not be a major concern.”

Whichever side is ultimately proven correct issues around the supply, demand for lithium appears to be on the front burner for some time to come. That means volatility in the lithium market and, perhaps, opportunity in the sector. For investors looking to sort the lithium contenders from the pretenders, MiningFeeds.com offers, in no particular order, five lithium stocks with varied stories to keep an eye on in 2011.

1. Lithium One (TSXV: LI)

Other people’s money. Not only does Lithium One (Stock Profile – TSXV:LI) have what might be one of the purest sources of lithium in the world; the company recently reported what it described as favorably low magnesium and sulphate content at their Sal de Vida brine project in Argentina, but some well timed agreements have minimized the company’s requirements for additional fund raising to capitalize on the project.

In early June of last year Lithium One entered into a joint venture earn in agreement with Korea Resources Corporation (KORES) to develop their Argentinian Project. The arrangement required KORES to fund up to US$15 million to complete a Definitive Feasibility Study and to provide a completion guarantee for Lithium One’s share of the debt portion of project development. KORES then brought more to the table when it entered into a consortium with GS Caltex and LG International, two leading battery and energy companies in Korea, to share equally in the 30% ownership stake.

With things in full swing, Lithium One, early last month, reported its first independent lithium and potassium resource statement for its flagship Argentinian project. The inferred resource estimate, prepared by E.L. Montgomery and Associates, includes 5.44 million tonnes of lithium carbonate equivalent and 21.3 million tonnes of potash equivalent. Lithium One’s property is adjacent to FMC Corp.’s lithium brine operation, the source of more than 15% of the world’s production of lithium, in the eastern part of the same Salar.

Lithium One’s second project, a spodumene hard rock project in James Bay, Quebec exhibits a spread-the-risk methodology similar to the one used on their Argentinian property. In February, the company announced a joint venture agreement with Galaxy Resources (ASX: GXY), an Australian listed mining company, whereby Galaxy can acquire up to a 70% interest in project in Quebec through earn-in conditions including $6 million in payments and the completion of a feasibility report. Galaxy owns and operates the Mount Cattlin mine in Western Australia which is currently producing spodumene concentrate. The MiningFeeds.com connected with Lithium One’s President and CEO Patrick Highsmith recently to discuss the company’s future – CLICK HERE – for the interview.

2. Canada Lithium (TSX:CLQ)

On the last day of February of this year, Canada Lithium (Stock Profile – TSX:CLQ) had a surprise for investors. And, in this case, investors didn’t like what was inside the box. At 12:23 p.m. Pacific, shares of Canada Lithium were halted at the company’s request, pending news. A few hours later Canada Lithium announced it had hired Roscoe Postle and Associates Inc. to explore the possibility that its flagship project in northwestern Quebec might not be as large as they first suspected. Canada Lithium management said it was “unable to reconcile the results of the internal review, which incorporated various resource estimation methodologies, with the reported 43-101 resources announced in October, 2010.”

When the stock resumed trading the next morning, the verdict was swift and harsh. Shares of Canada Lithium ended the day at $.89 cents, down 34% from $1.35. The stock lost another $0.17 cents to close at $.72 cents on March 2nd.

Just months before, things were looking much brighter for Canada Lithium. In an interview with BNN on December 20th, 2010 CEO Peter Secker said the company would “be producing by the end of 2012, we’ll produce about 20,000 tonnes of lithium carbonate per year which would make us about 12% of the world market.” Mr. Secker also said that the mine’s life would be “in excess of 50 years” and felt there was “there’s a lot of potential there” for additional reserves being identified having only drilled 50% of the property.

Secker now believes there will be a material reduction in the measured, indicated and inferred resources reported in October. The question for investors now is: just how material? Speculation will no doubt run rampant over the months it takes to produce a new National Instrument 43-101-compliant report.

Canada Lithium believes an historical reserve estimate done by a firm called Nenninger et Chenevert Inc. in 1974 is is “relevant” but should “should not be relied upon” because “they do not meet the current CIM definition standards on mineral resources and mineral reserves adopted in 2005”.

Canada Lithium’s Quebec Lithium Project is located in the Lacorne Township near Val d’Or. Between 1955 and 1965 the mine was a former producer of lithium carbonate, lithium hydroxide and spodumene. Before the internal review, Canada Lithium said the project could be one of the two-or three-largest hard-rock lithium deposits in the world. With all the recent uncertainty surrounding the project, however, some investors might be inclined to take this information with a grain of spodumene.

For Part 2 of 5 Lithium Stocks to Watch in 2011 – CLICK HERE.