HNR MC too high (might as well get NMT), 80MC vs 500MC?, page-78

My investment strategy is to invest in the exponential growth in Lithium-ion battery metals caused by the rapid electrification of the global transportation & energy storage systems.
· What stocks do I invest in?
· Can a single stock satisfy my investment requirements?
· How do I get exposure in a diversified commodity portfolio in the battery metals which is associated with Copper, Nickel, Cobalt, Manganese and Lithium?

Two options exist,
1. Focus on ASX listed miners who produce the battery input metals, or
2. Focus on ASX listed miners who recycle the battery metals for re-use.

For option 1, an endless list of ASX listed miners producing battery metals are available to invest in or potentially a battery technology exchange-traded fund (ETF) like ACDC. With all these options it is hard to find stocks still offering major upside growth potential. No single company truly has exposure to all five commodities.

For option 2, gaining exposure to the new energy mega-trend commodities as a single ASX stock is difficult to pinpoint. Companies capable of recycling spent Lithium-ion batteries seems to offer the best avenue for achieving a diversified battery metal portfolio. Considering hundreds of billions of dollars is spent on the input metals of batteries then it should be equally fair to consider fortunes can be made in the recycling stage recovering the valuable metals contained in each battery and then on selling them back into the supply chain.

Research into Neometals (NMT) made me aware of the possibilities of recycling lithium-ion batteries based on its significant and promising R&D work. Commercialisation of Neometals proven recycling technology appears to be beginning with the focused introduction of the technology into the highest electric vehicle uptake region of the world. To achieve this, Neometals is strategically utilising its business relationships & majority shareholding with Critical Metals and Hannans Ltd (HNR) to advance its projects in combination with Joint Venture European partner SMS Group. As a result, Hannans Ltd is one of the levers being used by Neometals to advance its patented low carbon emission recycling technology, help establish project funding and build commercial networks via flexible business models in the recycling market. Damian Hicks (Executive Director for Hannans Ltd) has been actively developing opportunities in Sweden and Norway since 2008.

Hannans Ltd has a market capitalisation of $64 million ($0.03/share) and has the capability to be transformed into a multi-hundred million dollar business in a very short period of time thanks to the support of Neometals. The upside potential can be compared to an American company named Li-Cycle Holding Corp (NYSE: LICY). Li-Cycle is the largest lithium-ion battery recycler in North America, having a market capitalisation of AUD$2.20 billion. Thirty-four times multiple of HNR market capitalisation, could HNR reach these heights of $1.02/share? Probably not due to share dilution and how capital is ultimately raised to fund the projects but it will be significantly more than 3 cents per share. It is worth noting, Lithium-ion batteries available for recycling in North America is forecast to be 256,000 tonnes (by 2025) which is a slightly smaller battery resource compared to the Europe market HNR aims to enter.

Therefore, to gain exposure to a diversified battery metal portfolio with significant growth potential I have selected Hannans Ltd (ASX: HNR) as an ideal stock.

Hannans Ltd (HNR) is transitioning from a traditional nickel and gold explorer to a multi metal Urban Miner via its exposure to lithium-ion battery recycling technology developed by majority shareholder Neometals (NMT).

Until recently, Hannans has focused on exploring for gold, copper and nickel in highly prospective regions of Western Australia. Their main exploration programmes include Forrestania Nickel Project which has only discovered iron sulphide mineralisation from recent diamond drilling targets. Hannans is persisting with its search for new nickel sulphide discoveries in the Western Ultramafic belts given the region hosts four mines. Its other main project is the Moogie (Cu-Au-Ni) project, located north-west of Meekatharra. Hannans are searching for greenfield exploration targets using airborne electromagnetics and ground geophysics. Although the explorer has been using conventional exploration techniques to uncover hidden minerals to limited success it now appears assessment of alternative international business development opportunities with Neometals & Critical Metals could significantly change the business fortune of the explorer. The 9th September 2021, ASX announcement states,

“Hannans has signed an MoU with unlisted Australian registered company Critical Metals Ltd that provides Hannans with rights to recover high purity metals from scrap and spent LiB using a LiB recycling technology that is safe, sustainable, low energy and low CO2 when compared to incumbent technologies. The MoU with Critical Metals will take the form of a joint venture enabling Hannans to earn its interest by funding and managing certain tasks and activities.

The LiB recycling technology the subject of the MoU has undergone comprehensive pilot plant and validation test work programs and has been substantially derisked. Hannans shareholders are poised to benefit from both the long term R&D investment into the technology and the high quality strategic partnerships entered into by the technology owners. Hannans believes these attributes significantly increase the potential for the commercialisation strategy to be successfully executed.”

The new frontier for exploration is in one of the highest Electric Vehicle (EV) uptake regions of the world. The Nordic territories of Norway, Sweden, Denmark, and Finland. The company will be sourcing mineral riches of known grade and quantity as feed stock for its scalable hydrometallurgical processing plant. Scrap and spent batteries from off-specification battery manufacturing at electric vehicle Giga-factories and from retiring EV’s will be the former explorer’s new resource target. For instances, a common EV battery, the NCM 811 battery composition is composed of 15.7% Cu, 14.9% Ni, 2.4% Li and 1.9% Co, equating to a metal value of US$5,600 per tonne. By 2025, an estimated 335,000 tonnes of lithium-ion batteries will be available for recycling in Europe.

The high-grade battery resource can be readily treated using Neometals hydrometallurgical proven technology at a cost of US$1,560 per tonne resulting in a profit of $4,040 per tonne. The technology refines the mineral rich ‘black mass’ from the initial battery shredding stage into high purity nickel, lithium, copper, cobalt and manganese chemicals for return to the cathode producer supply chains.

A proposed 20,000 tonne per annum plant will initially treat production scrap from a Lithium battery megafactory (subject to supply agreements) generating profits of US$80 million per annum. Given the scalability of the technology, a Stage Two 200,000 tonnes per annum option is being examined for the treatment of production scrap, warranty returns and end-of-life batteries. The larger plant will be capable of generating profits in the order of US$800 million per annum for the JV partners who ultimately help fund and build the facility. Neometals will be entitled to on-going royalties for use of its recycling technology in the Nordics.

Based on the ability to efficiently scale-up a centralised hydromet plant that is being fed from multiple black mass shredding plants then the true economic potential of the recycling technology can be achieved for Hannans through its Nordic endeavours.

(I own HNR shares, DYOR)