August 11th, 2022 | 10:57 CEST
BYD, Edison Lithium, Albemarle - It is getting problematic
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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
BYD - Securing the supply chains
Recession or not. The demand for metals for the energy transition, such as copper and lithium, will continue to rise in the coming years. In contrast, supply is limited, as little has been invested in new projects over the past decade due to low base prices. Tesla CEO Musk recently fired a cry for help, urging investors to get involved in lithium projects; he sees lithium as the "new oil."
The battle for resources due to rising sales of electric cars is only just beginning, but lithium has already been declared a critical raw material in 2022. BYD, China's market leader that recently toppled Tesla from its throne, has as its top priority securing its supply chains. Through cooperations and acquisitions, the Shenzhen-based Company wants to become as independent as possible from external suppliers. In addition to producing e-cars and e-buses, BYD is one of the world's largest battery manufacturers, further expanding the need for lithium.
As explained in a detailed report, the Company, founded in 1995, is tinkering with its own value chain. Thus, a stake in Shenzhen Chengxin Lithium Group was announced with an investment of EUR 425 million, which ensures secured lithium supplies. Furthermore, the commitment to the lithium producer Shanshan Lithium Battery Material Technology was expanded. In addition, the "Build Your Dream" company acquired 6 African lithium mines, which, according to experts, contain more than 25 million tons of ore with a lithium oxide content of 2.5%, which could enable mining of up to 1 million tons of lithium carbonate.
BYD's strategy and the disproportionately rising sales figures are well received by the analyst consensus. Thus, the major Swiss bank UBS raised the price target for BYD from HKD 320 to HKD 345 and continues to see the share as a buy candidate. Citigroup even sees the Warren Buffett-backed company as a "top sector pick" and called for HKD 640 for the mobility company.
Edison Lithium - In concert with the big players
When it comes to the production of the critical metal lithium, the "Lithium Triangle" is comparable to the Silicon Valley of the tech industry. The triangle intersects three countries: northwestern Argentina, southern Bolivia and Chile. The triangle has emerged as a treasure trove of lithium-rich brine deposits located beneath the salt plain.
As early as 2021, Edison Lithium secured 148,000 hectares of lithium brine claims from Resource Ventures, divided into the Salar de Antofalla project with 107,000 hectares and the Salar de Pipanaco project with 41,000 hectares. Salar de Antofalla is located less than 20 km west of a lithium production operation of Livent Corporation, Argentina's largest lithium producer.
What expands the chances of a golden production future is that both sites are adjacent to the concessions held by Albemarle, a global leader. In addition, deposits of Allkem, Lake Resources and Posco Chemical are located nearby. Historically, 56 holes have been drilled at Antofalla, identifying a resource of 83 million tonnes of potash at a grade of 6,400 mg/l and 2.22 million tonnes of lithium at a grade of 350 mg/l. The total discovery represents 11.8 million tonnes of lithium carbonate equivalent.
In addition, Edison Lithium has an attractive cobalt project in Ontario, Canada. Previous resource estimates indicated grades of 1.5% cobalt over 1.37m and selected grab samples of up to 4% cobalt and 93.3 g/t gold. In addition, deposits of nickel and copper were identified.
In order to create greater value for shareholders to participate in the development of two separate specialized companies, the spin-out of the cobalt segment into a newly formed subsidiary has now been approved by the Board of Directors, which could once again create fantasy as a result of the listing of the cobalt segment.
The market value of Edison Lithium, which is expected to participate in a booming lithium market, is CAD 7.49 million. When considering the location of the concessions and the cobalt fantasy, new attractive opportunities could arise after the share price slide.
Albemarle - Profiteer from skyrocketing prices
Sales figures of the leading electric carmakers doubled compared to the same period last year. In addition to sales, the market share of battery-powered vehicles also doubled from 4.7% in 2020 to 9.5% in the past year. According to Statista, there will be 116 million electric vehicles worldwide in 2030, which would mean an increase of 1,800% since 2020. Rising sales figures equally mean exploding demand for lithium and sharply rising prices.
Albemarle, the world's largest producer of lithium for electric vehicle batteries, felt this boom keenly in the second quarter and, as a result, raised its full-year forecasts. Compared to last year, Albemarle now expects the price at which it sells its lithium to rise by at least 225% in 2022 and adjusted profit in its lithium division to grow by at least 500%.
The Company reported a second-quarter net income of USD 406.8 million, or USD 3.46 per share, compared with USD 424.6 million, or USD 3.62 per share, in the same quarter last year. Adjusted earnings in the Company's lithium division more than quadrupled. Albemarle said its lithium production is expected to increase by at least 20% this year and that expansion projects in Chile, Australia, China and the United States are on track or ahead of schedule.
Following a correction since the beginning of the year with a low of USD 168.49, the share is now in an upward trend and currently trading at USD 244.25. The next resistance to the upside would be the high for the year at USD 273.21.
The electrification of transport to achieve climate targets requires an incredible amount of lithium. Already, demand is outstripping supply. Albemarle has been able to celebrate disproportionately good results in its lithium division due to the rising lithium price and continues to benefit from the enormous demand. Edison Lithium also has tremendous imagination due to the booming market. BYD is already laying the foundation for the future and is celebrated by analysts.
Conflict of interest
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