Five innovators changing lithium game

06 Apr, 2018 - 00:04 0 Views
Five innovators changing lithium game Lithium will be needed in larger and larger quantities, as the world’s fleet of electric vehicles grows

eBusiness Weekly

Ontario. — In the twentieth century, the world ran on oil.

Now, the future rests on a new mineral: Lithium.

A crucial component in battery-storage technology, lithium will be needed in larger and larger quantities, as the world’s fleet of electric vehicles (EV) grows and more and more renewable energy capacity is installed.

Renewable energy sources like wind and solar depend on large lithium batteries to store energy and provide reliable output.

In 2016, renewable energy accounted for nearly two-thirds of net new power capacity, adding 165 GWs worldwide.

The International Energy Agency (IEA) estimates future renewable energy capacity additions will outpace coal, and grow by almost 90 percent from 2017 to 2022.

This means opportunities for growth in the lithium tech and mining sectors could be immense.

The last two years have been good ones for lithium miners, who saw their valuations go up and up, thanks to concerns over under-supply.

In January 2018, some lithium stocks took a tumble after a bearish report from Morgan Stanley threw some cold water on estimates for future growth.

But those concerns have subsided, and now stocks are surging again.

Here’s five stocks to look at in the lithium sector:

#1 Tesla Inc. (NASDAQ: TSLA)

The key innovator in the electric vehicle (EV) sector, Tesla is now under greater pressure to deliver in 2018 after an underwhelming 2017.

The company rolled out its Model 3 in 2017, an electric sedan that was designed to bring the company into the general consumer market.

The famously-profligate firm blew through $3,5 billion in cash getting the Model 3 on the market, but production has been slow. While firm stats are tough to come by, Bloomberg estimates only about 10 000 Model 3s rolled off the assembly line in the last few months of 2017.

Tesla CEO Elon Musk wants to sell 50 000 Model 3s per year, but right now he’s being outpaced by his competitors, who have rushed Tesla copy-cats to market.

Volkswagen, the world’s leading car manufacturer, has placed $24 billion in battery purchases, exceeding the $17,5 billion allocated by Tesla.

Still, the Tesla sock has been bouncing back, and came in as the No. 2 performer on the NASDAQ in early 2018.

Morgan Stanley predicts that Tesla will overcome bottlenecks and reach production goals in 2018 and lift the stock to $380 from its current $340 level.

Sure, there’s a lot of hype surrounding Tesla, but the company’s continued innovation and Musk’s famous drive to succeed should keep it at the forefront of lithium-based battery-powered electric vehicles.

#2 Power Metals Corp. (TSXV:PWM; OTC:PWRMF)

Most lithium mining, particularly the big projects down in South America, is done through salt-brine evaporation.

The process is slow, expensive and potentially damaging to groundwater aquifers, which presents problems to long-term viability.

Some companies have shifted away from salt-brine towards hard rock lithium mining. One such company is Power Metals Corp., a small firm that sits on a potentially vast deposit of lithium in the snow-covered rock of Ontario, Canada.

Through an exciting new innovative method presented by their JV working interest partner, Power Metals is aiding in the development of a cheaper and easier method of lithium extraction than salt-brine evaporation, PWM is drilling into “pegmatite,” unique crystal rock formations loaded with high-grade lithium spodumene.

The company has three resource properties, and its major finds are coming out of Case Lake in Ontario, Canada.

The industry standard for average cutoff grade on hard rock lithium deposits sits at 1 percent lithium. Power Metals’ Case Lake deposit is well above average, with surface samples which are really impressive. See Power Metals’ own press releases of January 2018 to get details.

However, these high-grade samples are only one part of this equation. The other is the fact this deposit is located right at the surface and should be very easy to get at. This all equates into a rich opportunity.

Hard rock lithium mining used to be regarded as the tougher, more expensive option when it came to lithium production. But PWM’s position in Canada could change that.

PWM’s properties all have excellent access to public transportation routes; it can get its lithium to market rapidly, unlike remote mining operations in South America. More importantly, the easier it is to get to, the cheaper it is to operate.

And in this game, it’s all about low cost.

Plus, the environment in Canada is highly conducive to profitable lithium exploitation. Miners like SQM have to pay the Chilean government 20 percent to 40 percent in royalties.

Ontario’s mining royalty is a flat 10 percent — with no royalty on the first $10 million CDN of sales per year for the first three years of the life of a new mine.

PWM’s prospecting team is led by Dr. Julie Selway, the “Queen of Pegmatite”, who is the world’s foremost scientific expert on lithium extraction from pegmatite formations.

PWM is gearing up for a massive upcoming drill season: the total funded drill program is set for over 15 000 meters for 2018 alone! This is by far one of the largest drill programs for lithium explorers out there.

Right now, the company has a market cap of only $57 million. Its situation compares with the early days of Canadian miner Nemaska Lithium. Nemaska rode its success to a $1,9 billion valuation. PWM and Nemaska’s early stage are extremely similar from a geology standpoint, and Nemaska went on to prove up its resource; however PWM has a higher average lithium grade so far. This should attract institutional investors from Nemaska to the Power Metals’ story.

That means that investors should continue to follow this story to see if it reaches a similar conclusion.

#3 Sociedad Quimica y Minera de Chile (NYSE: SQM)

This major miner is one of the world’s top producers of lithium. While SQM stock took a pounding in February after the Morgan Stanley report came out, dropping by 11.5 percent, the stock is swinging back.

SQM benefited from skyrocketing lithium prices in 2015-2016. The price per tonne shot up from $7 500 to nearly $20 000 on the back of rising demand and short supply.

While Morgan Stanley predicted that supplies would vastly exceed demand by 2021, it’s far from clear if that’ll turn out to be the case.

It’s entirely possible that prices will remain high, and SQM fill find buyers for its stocks of lithium, much of it produced in Chile.

One major customer is Tesla, the EV manufacturer that struggled with production bottlenecks in 2017.

One such barrier was a shortage of lithium, and in February Tesla began working with SQM to secure a steady stream of lithium for future battery production.

Tesla isn’t the only manufacturer looking to secure supplies: other auto makers from the US, China and Europe are lining up to secure new sources of lithium.

Chinese interest is so high, it’s trying to buy a share in SQM, a move that Chilean authorities have moved to block, citing antitrust concerns and worries that it will allow China to exercise influence over lithium production.

It all indicates long-term interest in securing lithium supplies, which bodes well for SQM, a leading miner and supplier of the precious mineral.

#4 FMC Corp (NYSE: FMC)

FMC Corp. doesn’t depend on lithium for its bottom line: 88 percent of its revenue comes from selling pesticides.

But the company’s lithium sector witnessed a 20 percent increase in profits in 2017, helping to preserve FMC profitability almost single-handed.

While FMC’s stock fell after a recent Morgan Stanley report, the company believes lithium will remain under-supplied until 2025. So it’s preparing to ramp up lithium production.

FMC plans to expand lithium hydroxide production to 30 000 metric tonnes a year, tripling overall capacity to keep pace with demand. And now, plans are in motion to spin off the lithium division.

FMC plans a $500 million IPO this fall for stakes in its lithium business. The company expects revenues of between $420 and $460 million for its lithium business in 2018, compared to agricultural earnings of $3,95 to $4,15 billion.

It’s a win-win for investors. Even if the lithium play doesn’t pan out, FMC has a diverse set of assets that will pay off for investors under any conditions. This makes FMC a solid bet for 2018.

#5 Albermarle (NYSE: ALB)

Like FMC, Albermarle is a diversified lithium miner that brings in consistent revenue.

The company was a major earner in 2017, and its stock increased by 130 percent from 2016 to 2018. Profits from lithium drove the expansion: in 2017 revenue from lithium production increased 37 percent.

Albermarle reported a solid fourth quarter, with a 23 percent increase in quarterly revenue from lithium production. The company brings in $289,6 million from lithium, about 33 percent of its total revenue stream.

Despite the fall in prices and concern surrounding over-supply, Albermarle is pumping up production for 2018.

Albermarle is planning on bringing back lithium production inside the United States: it recently acquired the Kings Mountain lithium mine, which was once in production in the 1990s.

Albermarle already owns the only lithium mine currently in active operation in the US, the Silver Peak brine mine in Nevada.

Some more good news came from Chile: Albermarle saw an increase in its production quota from the Chilean government, and it’s now permitted to offload 145 000 metric tons of lithium until 2043.

That means that Albermarle can safely expand production from its Chilean properties in the coming years, along with its assets elsewhere. Albermarle is charging forward with plans to increase its lithium output; no end to lithium demand is in sight for this big miner.

Other companies to watch

Nemaska Lithium Inc. (TSX:NMX) is a smart company which realizes that lithium will be used in nearly every major tech-leap in electric vehicles and consumer products using batteries the coming years.

With a looming lithium supply squeeze coming, Nemaska has a unique technology and great government support. Nemaska explores and develops hard rock lithium mining properties and related processing in Quebec.

It’s small, and its shares are trading right now under $1, but it’s the government support you should look out for. Smart investors know a good thing when they see it and will be sure to follow Nemaska in the coming years.

eCobalt Solutions (TSX:ECS) is an established mineral exploration and development company based in Canada. It is a leader in the cobalt industry which is just as important as the lithium space in this energy revolution. Moreover, eCobalt prides itself on providing ethically sourced commodities. Its primary asset is in prime territory in Idaho.

Backed by strong leadership and a forward-thinking attitude, eCobalt is expecting feasibility study results in Q2. This is shaping up to be one of the most exciting belts in the US, and investors are definitely taking notice.

Fortune Minerals (TSX:FT) is another player in the cobalt space. Operating in Canada’s Northwest Territories, Fortune is eyeing status as a major Canadian producer of battery-grade cobalt chemicals — but it’s also got copper and gold bismuth upside. And it’s getting a boost from the government in terms of mining infrastructure.

Fortune’s modest market cap and low buy in make it a great stock for investors looking to get a piece of the electric vehicle revolution. The company’s value has increased significantly over the past year but it hasn’t yet reached its peak.

Royal Nickel Corporation (TSX:RNX): While investor attention is about to refocus on zinc, it’s possible that nickel is being overlooked, and while this stock has been a recent top decliner, if nickel demand growth is overlooked, RNC could be a good stock to hold.

RNC’s principal assets are the producing Beta Hunt gold and nickel mine in Western Australia, the Dumont Nickel Project located in the established Abitibi mining camp in Quebec and a 30 percent stake in the producing Reed copper-gold mine in the Flin Flon-Snow Lake region of Manitoba, Canada.

RNC’s stock price has lagged since July, but a recent uptick in nickel prices could revive this stock once again.

Centerra Gold (TSX:CG): This big mid-tier gold Canadian miner realized a very competitive cost per ounce in 2016 and expects to cut costs even further in 2017. Its Kyrgyzstan operation yielded a very strong result in 2016. Next to gold, Centerra’s copper production is worth noting as prices for this metal just leapt to two-year highs, providing a nice extra income for Centerra this year.

With new deals in the making, Centerra Gold stands to continue to be a force in the Canadian stock market, and a fair bet for investors. — BabyStreet.

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