This was posted on Aus-biz today - worth a listen..
https://t.co/h9jVJ08pMi

Transcript from the website if you want to read instead:

Four key stocks to leverage in lithium

(ASX: IGO) (ASX: ARG) (NYSE: ALB) (NYSE: SQM)

7h ago

Lachlan Halloway from Morningstar explains the expansion of its critical minerals and lithium coverage. IGO (ASX: IGO) , with its salient stake in nickel and lithium, is of interest to Lachlan. He recognises lithium as the massive driver with the current cyclical low point creating a steep discount in its price. He also points to its share in Argo (ASX: ARG), the joint venture of IGO and Taconite, as surprisingly cheap due to this situation. More notably, Lachlan appreciates the venture's primary lithium exposure, Greenbushes, which is the finest hard rock lithium asset globally. According to Lachlan, IGO's 25% stake in Greenbushes, acquired during the last price downturn, has already started to yield substantial returns. The operation is reaping robust dividends on domestic capital all through the cycle. Furthermore, he applauds IGO for its strategic timing in its investment, catching the wave of the upside turn in the sector. As for Nickel, Lachlan states that while it makes up a part of IGO's portfolio, the main focus lies on the lithium sector.

While Argo has experienced significant pressure over recent years, with a 60% reduction in share value, Lachlan views this as an opportunity for investors. The current price, below $14,000 a tonne for lithium Carbonate, is less than their marginal cost of production, which feeds into his demand forecasts. Based on the expected increase in EV uptake globally, Lachlan predicts a resurgence in the value of lithium by year's end, climbing back to around $20,000 a tonne. He recommends stocks like Albemarle (NYSE: ALB) and SQM (NYSE: SQM), considering them cheap assuming the industry's mid-cycle forecast. For now, Igo remains the top choice for Lachlan Halloway.

Full unedited transcript:

0:00

Let's get across markets now with a specific look at 1 or 2 sectors in particular. Lachlan Halloway is joining us from Morningstar. Lachlan good to see you. Thanks for joining us here again at OBS with a actually got a focus at the moment on the resources sector in particular. Um, you're looking at a company Igo, which. Well, it's got a bit of a diverse portfolio there but clearly a focus on Nicole, which has its own problems. We'll get to that in just a moment. But more broadly, why are you looking at RGA? Yes, we just picked it up. Uh, we're expanding our our critical minerals and lithium coverage, and Argo is the first time we've taken on for our Australian portfolio. As you say, it's got some nickel exposure there too. But lithium really the way we see it is the big driver. All right. Interesting. Then let's start with lithium. Then of course it has plumbed new depths. Yeah. Um, given the oversupply we're seeing globally at the moment. Are you there

0:59

foreseeing this is now the time to get into it? It looks like it's a cyclical low in our view. So as you point out 2022 we saw these record highs in lithium. And that went straight into a tailspin in 2023. And prices are still very low. So we think uh the price of lithium now is trading at a fairly steep discount. What we see is our sort of through the decade price. As a result, shares in Argo look pretty cheap. So what, um, what sort of operations have in the lithium space? So it's got a joint venture with taconite. Lithium? Uh, in that Greenbush is lithium mine in WA. Is that the extent of its resource there? So that's its main lithium exposure. So it has a 25% stake in green bushes. Green bushes is the the highest quality hard rock lithium asset in the world really at the moment uh, it produces about half of WA and Australia's lithium exports very high quality mine low costs. And it's and it's operating. What we

1:59

like about the mine is that because of its position on the cost curve, we see it earning strong returns on domestic capital throughout the cycle. And as far as ego is concerned, this 25% stake was exceptionally well timed. They bought it sort of at the bottom of the last 13 price slide and have really got all the upside. And we think that's continue on for the rest of the decade.

2:19

I was mentioning Nikola, what sort of how large is part of its portfolio is nickel, bearing in mind what we heard from BHP last week, where it's essentially suspended operations. Given what we're seeing with the nickel price, it's not going to come back online until 2027. What are you doing? Yes. Audio has two main nickel operations Nova and Forest Area. These mines are running towards the end of their life, so they'll be transitioning to care and maintenance in the next couple of years. We think it's about 10% or so of their fair value estimate. So it's not a big part. Look, it's a component. But really the focus for us is that 90% lithium chunk, which is how we see the valuation. It's also a part of that. Those operations they're copper cobalt at the same time. So it is a fairly diverse portfolio that it has there. That's right. Yeah. Yeah. What. So when you take I might just bring up the share price again with Argo. Now it has been under significant pressure over the past couple of years. Uh, it's it's come off

3:19

fairly dramatically. There we go. We've got it up at the moment. Um, obviously over the past year down more than 60%. How are you looking at that as a potential opportunity then? Yeah. So the way we look at lithium and build up our price forecast is to look at their the marginal cost of production. So we think that that's probably based on our demand forecasts, which is largely a function of EV uptake. We think that's about us $20,000 a tonne for lithium carbonate. And at the moment it's below $14,000 a tonne. So we've seen that destocking piece we talked about. We've seen a bit of a pullback in demand for EVs uh globally. And that's seen this big price slide. But we think that comes back towards the end of the year. We're expecting an appreciation back towards that sort of 20,000 a tonne level. And that should support the price of IGL accordingly. So look, in any other stocks you're looking for at potentially in this space or this is your favorite at the moment. This is the name we like. Um, so that's that's sort of what we're focused on now. We have uh, we have under our

4:19

US coverage team, we've got other names like Albemarle there, which we think looks very cheap to an SQM. So most of our as you'd expect, most are lithium miners at the moment are looking pretty cheap based on our mid-cycle forecast. So we see buying opportunities pretty broadly.