11. January 2021 | 10:32 CET
Defense Metals, Millennial Lithium, Orocobre: Metals are exploding!
The rally in industrial commodities continues - precious metals, on the other hand, are experiencing the biggest daily slump since November. The reasons are simple, although not always obvious: The economic momentum has been underestimated since the middle of last year, analysts are currently gradually moving away from their gloomy forecasts. In particular, mines in the industrial metals sector have seen lower production and exploration following the pandemic outbreak, resulting in closures. Some have closed following price collapses. Currently, things are going the other way: metals, especially copper and lithium, are in strong demand and are soaring, with the producers' shares following suit. The situation is different with precious metals: The need for hedging is decreasing, the propensity to take risks is increasing: precious metals are thus tending to decline. The overall market follows the general battle cry: RISK-ON!
time to read: 3 minutes by André Will-Laudien
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
Defense Metals - 100% premium in 4 weeks
Rare earths are needed to make high-tech gadgets. It is also not groundbreaking news that "rare" literally equates to "very little." Deposits of rare earths are found mainly in China (more than 80% of the world's reserves) and North America. We are talking in particular about electromagnetically important metals, such as neodymium, praseodymium, dysprosium, and terbium. According to current studies, the demand in 10 years will be 5 times the current demand. Here, the current e-mobility and electricity storage industries are simply extrapolating. But who will supply these quantities?
Currently, governments around the world agree that we have long been talking about strategic metals, and a supply-side dominated by China cannot be the solution. So they are looking for new deposits that could fill the successive supply gaps as they are developed. The explorer Defense Metals is one aspirant, taking a big step forward with significant financial successes. First, warrants (call options) were exercised and flushed CAD 631,000 into the coffers, and then there was a private placement at CAD 0.20 equivalent to CAD 200,000.
With this, the feasibility study can be completed; it is the next step in calculating a mine financing - or an indication of how valuable the deposit in Wicheeda, British Columbia is. Usually, shares fall first when new plays are announced, but in the case of Defense, there was a buying spree to almost CAD 0.40. Market participants have probably realized that there needs to be at least 50% more mine supply in the next few years, but it can only be possible with rapid new developments. Defense's capitalization currently reaches CAD 22.8 million, which is still a clear buy for the coming shortage situation.
Millennial Lithium Corp - Now going into flight mode
If you look at the Tesla share price, you can imagine how the financial industry has set the parameters for e-mobility. 100% growth per year and mainly in Asia and North America, with Europe in 3rd place. Governments worldwide are hoping for the positive effects of e-mobility in achieving their climate goals, which requires all kinds of battery metals, first and foremost lithium, cobalt, graphite and manganese.
One prominent owner of lithium is Millennial. The Company is developing its flagship Pastos Grandes project, located in Salta province in Argentina's Lithium Triangle. Lithium producers in the triangle include SQM, Albemarle, Livent Corp. and Orocobre. Standard producers, SQM and Albemarle, have recently expanded production by 30%, but long-term demand is above their capacities. Millennial recently completed a feasibility study for its Pastos Grandes project, which showed proven reserves of 179,000 metric tons of lithium carbonate equivalent (LCE) and probable reserves of 764,000 metric tons of LCE, among other results. The study's economic analysis showed solid economics for a mining operation of 24,000 tonnes of battery-grade LCE per year with an initial investment of USD 442 million. The calculated net present value of the mine comes out to USD 1.1 billion over an 8-year life. With the lithium prices used, this provides an internal rate of return of 24.4% per annum.
Millennial shares have gained a full 150% since October 2020, but profit-taking set in with the last jump to EUR 2.42. The market capitalization has now reached almost EUR 200 million - that is a lot for an explorer.
Orocobre Limited - Lithium from the Outback
Another industry player is Orocobre Limited, a mining company based in Brisbane, Australia. The focus is on exploration in Argentina, where the company has projects in various provinces. Orocobre Ltd. has been listed as a public company on the Australian Stock Exchange since 2007, and its share price has also more than doubled since October.
Salar Olaroz is a salt lake in the province of Jujuy in northwest Argentina, close to the border with Chile. It mainly produces deposits of lithium and potash salt (potash). According to company information, previous measurements have shown an average lithium content of 700 ppm and a magnesium-lithium ratio of 2.8:1; the potash salt content is given as 1.3%. Overall, a very interesting deposit.
For the three months ending September 2020, Orocobre reported a decline in production compared to the previous period as Covid-19 restrictions took their toll. Lithium production reached 2,352 tons, a decrease from the 2,511 tons produced in the previous comparable period, while sales volumes for the quarter, however, increased 112% from the previous quarter to 3,393 tons. Sales revenue for the same period increased 68% to USD 10.5 million following the sale of excess inventory. The average selling price achieved in the quarter dropped by a remarkable 21%, due to a strategic marketing decision to reduce competitors' excess inventories. However, the price is now on its way back up.
Orocobre shares are trading close to their 3-year high at EUR 3.15, with the peak resulting from 2018 at around EUR 4.85. In the short-term view, the rise can be described as euphoric, but the momentum is correspondingly high