Hi-ho silver as lone-ranger investors unite then split, leaving lithium stocks to steal the show

Silver shone brightly on financial markets for a few days this week as speculators played games while serious investors were drawn to another white metal, lithium.

5th February 2021

Tim Treadgold

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Silver shone brightly on financial markets for a few days this week as speculators played games while serious investors were drawn to another white metal, lithium.

The silver frolic was fun to watch as a new breed of tech-savvy day traders bid up the price of a commodity which has a track record of destroying more wealth than it creates.

There are reasonable supply and demand fundamentals underpinning silver but whether they are strong enough to support a price above $US30 an ounce seems unlikely.

A 10% fall from Monday’s high of $US29.50/oz to $US26.54/oz on Thursday was a warning that silver is pretty, but it can also be quite slippery.

Lithium has also stung a few investors over the past three years, but largely because of premature forecasts of a boom demand for the batteries used in electric vehicles (EVs).

There is a risk that the latest surge of interest in battery metals will be a re-run of the 2018 price collapse, though that seems unlikely given the latest batch of optimistic investment bank research reports and market news.

In China, the price of lithium carbonate has risen by 40% over the past four weeks, a move which encouraged one of the world’s biggest producers of the metal, Albemarle Corporation, to raise $US1.3 billion in fresh capital to accelerate growth projects such as the Wodgina and Kemerton developments in WA.

Macquarie Bank attributed the latest lithium price rise to a worldwide EV rush as consumers reacted to government incentives, greater EV availability and a fall in vehicle prices.

“After a period of stagnation from mid-2019, when EV sales were hit by a combination of subsidy withdrawal in China and then Covid-19, there was a remarkable recovery during the second half of 2020 (with EV sales) massively exceeding all forecasts,” Macquarie said.

It wasn’t just one bank getting excited again about lithium. Morgan Stanley chimed in a day after Macquarie with a note which also highlighted the consumer rush into EVs – but there was a sting in the tale of its analysis - idle lithium capacity poised to restart.

Wodgina and Kemerton, the two Albemarle-led WA projects (with Mineral Resources a junior partner) are highest on the Morgan Stanley lithium watch list with the potential to plug a large supply gap.

On the market, the big lithium winner of the week was Vulcan Energy Resources which announced a $120 million capital raising to fund work at its the European-focused lithium and geothermal energy producer. On the market, Vulcan added $1.25 (16%) to $9.10, taking its increase since early November to $8.12, a rise of 800%.

The Vulcan story has eluded most local investors because its major operations are in Germany, but it has strong Australian connections, chaired by a WA technology entrepreneur, Gavin Rezos, with Gina Rinehart as a shareholder.

Other lithium stocks shared in the revitalised interest in battery metals. Pilbara Minerals, after a sell-off last month, added 15c this week to $1.01. Orocobre was up 15c to $5.05, and Liontown put on 5c to 40c.

Independence Group, while best known for its gold and nickel assets, add 7c to $6.26 as investment banks started to factor in its deal to acquire a stake in the big Greenbushes lithium mine in WA. UBS has increased its price tip for the stock from $5.85 to $7.50.

Overall, the Australian stock market was fractionally stronger this week with gold the sick man of the mining sector, shedding $US40 an ounce to be last trading around $US1822/oz.