November 2nd, 2023 | 08:10 CET
14 million e-cars in 2023 alone: BYD, Standard Lithium and Defense Metals profit
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Defense Metals: Strategic partner coming soon?
The EU and the US rely heavily on critical raw materials from China. Of course, alarm bells are ringing when the Chinese Ministry of Commerce announces that it will control exports of rare metals. This makes it all the more important to establish a domestic supply of raw materials. This is in full swing, especially in North America. Defense Metals wants to benefit from this. The Company is currently developing the Wicheeda rare earths project in the Canadian state of British Columbia. Last year, the preliminary economic valuation showed an after-tax net present value of CAD 517 million and an after-tax internal rate of return of 18%. To put this in perspective, Defense Metals is currently valued on the stock market at around CAD 50 million. Drilling is ongoing to expand the resource estimate.
This week, Defense Metals provided the detailed technical report of its updated mineral resource estimate for the Wicheeda project, confirming the positive numbers reported in advance. The estimate is based on 10,350 meters of drill hole data from 45 holes drilled by Defense Metals in 2021 and 2022. The updated resource estimate increased the contained metal by 17% and the tonnage by 31%. Furthermore, the Company had previously reported sending samples of mixed rare earth oxides and rare earth carbonates to potential customers, including major processing facilities, refineries, and metal traders in Europe, Asia, and North America.
Due to the increasing demand and the "China problem", Defense Metals is confident of convincing one or more strategic partners with their samples. Should this materialize in the coming year, it should have a significantly positive impact on the share price. After all, Defense Metals estimates that once the project is converted into a mine, it could achieve a 10% market share of the current global production of rare earth metals. Outside of China, this would likely make it one of the very big players. In this context, the current market capitalization of around CAD 50 million seems to be anything but high.
Standard Lithium: On the way to becoming a lithium producer
Lithium shares have recovered from their lows in recent weeks. For example, Standard Lithium went from EUR 2.28 to EUR 3.20 within 10 days at the beginning of October. In the meantime, the share has consolidated somewhat, but operationally, it remains exciting for the Company on the way to commercialization.
Following positive results from the preliminary feasibility study for the South West Arkansas ("SWA") project, Standard Lithium has exercised its option to expand the area. From TETRA Technologies, Standard Lithium is acquiring brine production rights on approximately 27,000 acres. The acreage is located within the SWA project area.
Standard Lithium COO Andy Robinson said, "This is an important and natural step for us in advancing our Southwest Arkansas project. Our primary goal is to unlock the commercial potential of the Smackover Formation. The TETRA area within the SWA project area has delivered excellent results in our exploration efforts. Our total defined resource has increased by more than 100% over the last five years, with an improved average lithium concentration of 437 mg/L. Having secured exclusive lithium brine rights, we are positioned to advance the SWA project to a FEED and Definitive Feasibility Study."
SWA's recently completed preliminary feasibility study had shown not only solid economics but also some of the highest reported lithium brine concentrations in North America, according to Standard Lithium. The base case project economics showed a pre-tax net present value of USD 4.5 billion and an IRR of 41%. Following the completion of the Definitive Feasibility Study next year, construction of the production facilities is expected to begin in 2025. First commercial production is scheduled for 2027.
BYD: Buffett sells, and UBS advises to buy
Few experts doubt anymore that BYD is likely to surpass Tesla as the number one electric vehicle manufacturer this year. Nevertheless, the share is not really getting off the ground. The latest price damper came once again from star investor Warren Buffett. His company, Berkshire Hathaway, has again sold shares in the Chinese electric vehicle company. Berkshire parted with another 820,500 BYD shares worth almost USD 26 million last week. This reduced Berkshire's stake in BYD from 8.05% to 7.98%. Buffett has held a stake in BYD since 2008 and is likely up over 2000%. At its peak, he owned over 15% of all BYD shares. In 2022, he started selling the shares gradually and did not give a specific reason for the sales.
In contrast, UBS gives a reason to buy BYD shares. In their research update, the analysts raised their earnings estimates for 2023 to 2025 by 13% to 29%. They expect BYD to weather the price war instigated by Tesla well due to its attractive product mix and overseas expansion. As a result, the analysts reiterated their buy recommendation on BYD shares and slightly raised the price target from HKD 345 to HKD 360.
The e-car boom continues, reshaping the automotive industry, and BYD appears to be one of the winners from the shake-up. In contrast, Standard Lithium and Defense Metals should be relatively indifferent to which automaker survives. What matters most to them is the installation of batteries and the use of lithium and rare earths. In this regard, the share of Defense Metals appears to have catch-up potential, especially if a strategic partner is announced.
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