Australian investors who want to get involved in the metals that will power the electric vehicle (EV) and renewable energy (RE) revolutions are spoiled for choice – but also hampered by a seemingly paradoxical weakness that has bedevilled the lithium and graphite markets, which have failed to react as expected to rising EV sales and RE use. Increased demand ran into high Chinese stockpiles and preference for domestic suppliers, an influx of new producers as well as COVID-19, leading to declining Chinese imports, price stagnation and even shuttered operations: but slowly, the market picture in the battery materials is turning in favour of producers, on the back of EV demand.
China’s auto industry recovered significantly in the second half of 2020 from the COVID-19 downturn, while EV sales in Europe surged to meet new emissions targets, giving battery suppliers the confidence to expand supply and buy more lithium-related raw materials.
Global EV sales grew by 106% in the fourth quarter of 2020, and 89% year-on-year in the second half of 2020.
The big Australian players in the lithium and graphite markets are benefiting from this demand – not before time, after almost three years of frustration that markets were not reflecting the demand optimism.
Both Pilbara Minerals and Galaxy Resources on Thursday reported record lithium shipments for the December 2020 quarter, on the back of high demand and improved lithium chemicals pricing in China. Pilbara, for example, is accelerating shipments of hard-rock lithium concentrate amid rising prices for battery raw materials, and projections of an eight-fold demand increase from the electric vehicle market by 2030. Pilbara shipped a record-breaking 70,609 dry metric tonnes of spodumene (lithium ore) concentrate from Western Australia’s Pilgangoora mine for the December quarter, beating its target. Galaxy said it was “experiencing solid demand for its spodumene, as strong global EV sales increases the demand for lithium chemicals through the value chain.”
Argentina-based lithium carbonate producer Orocobre reported a 58% quarter-on-quarter boost to production, sales volume up 28% to a new quarterly record of 4,345 tonnes, a 57% jump in quarterly sales revenue was up 57% QoQ to US$16.5 million, and most importantly, a 22% rise in its realised average price, to US$3,797 a tonne, free-on-board (FOB).
Mineral Resources said last month that it was “monitoring market conditions” before resuming spodumene concentrate production at its Wodgina joint venture with US giant Albermarle, which has been dormant since November 2019.
While investors watch these stocks – and the EV battery stocks that we looked at in January – there is a burgeoning population of potential battery plays.
Here are 4 of the most exciting stocks in this space – but there is a very big caveat, that investors run the risk that these share prices have run too far, based on potential. Look into them, do your own research, read as much about their plans as you can…..but accept that this is largely a speculative field.
1. Piedmont Lithium (PLL, 66 cents)
Market capitalisation: $921 million
Three-year total performance: 57.2% a year
Analysts’ consensus valuation: 60 cents (Thomson Reuters)
Although ASX-listed, Piedmont’s spodumene deposit is in the US, the Piedmont Lithium project, located in the Carolina tin-spodumene belt in North Carolina. PLL rose just over 400% last year, culminating in an 83% surge in September after it signed a five-year deal with EV giant Tesla, to supply spodumene concentrate to the carmaker from its North Carolina deposit.
Many investors obviously like the opportunity of investing in a company supplying lithium materials directly to Tesla – but the supply deal must commence between July 2022 and July 2023. Under the Tesla agreement, Piedmont will supply its spodumene at a fixed price, with the option to extend its sales agreement for a further five years. The deal will cover one-third of the miner’s planned spodumene concentrate production of 160,000 tonnes a year for five years: additional quantities of spodumene concentrate may be delivered “at Tesla’s option.” The Tesla sales will generate 10 per cent–20 per cent of Piedmont’s total expected revenue from its mine-to-hydroxide project.
2. Euro Manganese Inc. (EMN, 67.5 cents)
Market capitalisation: $228 million
Three-year total performance: n/a
Analysts’ consensus valuation: 54.4 cents (Thomson Reuters)
Listed in October 2018, EMN soared from 13 cents to 40 cents in 2020, and pushed as high as 76 cents in January, on the back of market enthusiasm for its Chvaletice manganese project in the Czech Republic, which involves the re-processing of a manganese deposit in historic mine tailings.
Although manganese does not attract the same hype as other battery materials, it is a crucial component of lithium-ion battery supply chains. EMN’s value proposition is that it can become the only primary producer of high-purity manganese in the European Union, which imports 100% of its manganese requirements.
At Chvaletice, EMN is targeting production of ultra-high-purity electrolytic manganese metal (EMM) with specifications exceeding 99.9% Mn and ultra-high-purity manganese sulphate monohydrate (MSM) with a minimum manganese content of 32.3%, both of which exceed typical industry standards. These products will be free of selenium and chromium – known troublemakers, and this is vital to Chvaletice’s environmentally sustainable credentials.
The markets EMN is targeting are: in the lithium-ion battery supply chain, for use in nickel, manganese, cobalt (NMC) cathodes; use in metal hydrides for hybrid automobile anodes; and use in specialty steel applications.
By far the most important are the EV applications, where EMN says its European location positions it close to multiple battery makers’ European factories in the world’s fastest growing battery and EV market.
3. Talga Group (TLG, $1.49)
Market capitalisation: $440 million
Three-year total performance: +29% a year
Analysts’ consensus valuation: n/a
Perth-based Talga plans to be a world-class provider of low-emissions, high-performance battery materials, focusing on battery anode and graphene additive products. Talga’s flagship Vittangi graphite project in Sweden will mine high-grade flake graphite ore and feed it to a downstream processing facility, to produce a high-margin coated graphite anode material known as Talnode-C, to be sold to lithium-ion battery cell manufacturers. The resource at Vittangi is very high-grade – it has a JORC (Joint Ore Reserves Committee) total graphite mineral resource of 16.9 million tonnes @ 25.6% Cg (total carbon in graphite form), making it the largest graphite resource in Europe, and one of the world’s highest-grade JORC-compliant graphite resources, and providing a premium raw material supply for Talga’s downstream processing facilities. All going well, Talga aims to start 19,000 tonnes-per-year of commercial production in 2023.
Talga says its differentiating proposition that makes it unique on the ASX is its vertical integration in making coated anode and graphene products – its in-house technology capability will ensure a 100% controlled deposit-to-product supply chain.
The stock shot from 47 cents at the start of 2020 to as high as $2 in November, but has retreated to $1.49. There are no analyst price targets on this one – it needs research.
4. Vulcan Energy Resources (VUL, $9.02)
Market capitalisation: $897 million
Three-year total performance: n/a
Analysts’ consensus valuation: n/a
Quite simply, VUL has gone ballistic since the start of 2020, rising from 16 cents to $2.76 at the end of the year, and subsequently, the stock has entered the stratosphere, rising to $9.02.
The company’s proposition is that it has developed the world’s first (and only) zero-carbon lithium process and plans to produce battery-grade lithium hydroxide from hot sub-surface geothermal brines, pumped from wells with a renewable geothermal energy by-product. Vulcan says it will do this from its combined deep geothermal and lithium brine resource in the Upper Rhine Valley of Germany, which is Europe’s largest lithium resource. Vulcan’s 1,000-square-kilometres of licence package in the Upper Rhine Valley has a total resource (probable, inferred and indicated) of 15.85 million tonnes of lithium carbonate equivalent (LCE).
By using renewable geothermal energy to drive the lithium production, without using evaporation, mining or fossil fuels, Vulcan says it can produce the lowest carbon-dioxide-emissions- footprint lithium hydroxide for electric vehicles in the world. Renewable electricity will be a second source of revenue, in addition to lithium hydroxide sales. The definitive feasibility study (DFS) on the project is scheduled for completion in late 2021: on the basis of the DFS, Vulcan is projecting that commercial operation could start by mid-2024.
If all of Vulcan’s plans come to fruition, ESG-oriented investors will love it, because lithium extraction is usually high in carbon-dioxide emissions – as a zero-emissions technology, in fact one with the bonus of renewable energy production, Vulcan could have the world at its feet, as the Biden Presidency brings US emissions efforts into line with the rest of the world.
Yes, VUL is a seriously frothy stock, but last month, German stock market research firm Alster Research (which researches Vulcan under commission from the company) lifted its price target on the stock to $12.95.
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