February 7th, 2022 | 13:56 CET
Edison Lithium, Standard Lithium, Varta - Winners of the lithium shortage!
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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
Edison Lithium - Well positioned
Lithium is a crucial raw material for the mobility revolution. The light metal is needed to manufacture rechargeable batteries with a very high energy density, such as those used in electric cars. Experts predict a long-lasting gap between supply and demand. The effects have been impressively demonstrated in the last almost two years with the multiplication of the lithium price. The beneficiaries are producers and also explorers and developers such as Canada's Edison Lithium.
On the supplier side, but also geographically, the lithium market is highly concentrated. The raw material is extracted from brine (salt lakes) or ore. Experts estimate that around 60% of the world's lithium reserves are stored in the salt lakes of the South American states of Chile, Argentina and Bolivia. In the process, Argentina is on track to overtake the world's No. 1 producer of lithium, currently Chile, in the next few years.
Edison Lithium, operating under the name Battery Metals until the end of 2021, focuses on the exploration and development of cobalt, lithium and other energy metal deposits. It acquires projects exclusively in regions with proven geological potential. Last summer, Edison acquired Argentina's Resource Ventures SA for USD 1.85 million. The deal enabled the Canadians to secure prospective lithium brine claims in Catamarca Province, Argentina. The area covers 148,000 hectares and is primarily located in the two geological basins Antofalla Salar and Pipanaco Salar in the so-called "Lithium Triangle".
In Canada, the Company also owns a cobalt project in northeastern Ontario. The property includes several historic mines and pits. Edison Lithium is currently only valued at a market capitalization of CAD 16 million.
Standard Lithium - Short attack
Standard Lithium is dedicated to innovative extraction processes for lithium recovery. The flagship project on over 150,000 acres is located in the southern US state of Arkansas. As part of the project, the Canadians aim to demonstrate the commercial viability of lithium extraction from brine on an industrial scale. The demonstration plant uses the Company's proprietary LiSTR technology to selectively extract lithium from Lanxess' final brine. The scalable, environmentally friendly process eliminates the need for evaporation ponds and reduces processing time from months to hours, significantly increasing the effective recovery of lithium.
The Company is also pursuing the development of over 30,000 acres of separate brine leases in southwest Arkansas (Southwest Arkansas Lithium Project) and approximately 45,000 acres of mineral leases in the Mojave Desert in San Bernardino County, California.
Recently, the share certificates came under significant pressure due to a short attack. Hindenburg Research had claimed in a report that Standard Lithium was unlawfully not providing information on the pilot project in Arkansas in its publications. In addition, the memorandum of understanding with Koch Minerals & Trading LLC for the purchase of lithium chemicals and the procurement of key raw materials reported in January was criticized. Koch is a significant shareholder in Standard Lithium.
The Canadians' management published an extensive rebuttal to Hindenburg Research's statements. As a result, the stock recovered significantly, and the market capitalization increased again to CAD 1.3 billion. However, the kink in the chart has not yet been ironed out.
Varta - Without impetus
The Varta share continued its downward trend in 2022 and fell below the chart level of EUR 100. The Company is thus valued at just under EUR 3.9 billion. It has been quiet on the news front for some time. Tangible news was last reported in November. After the stock market had previously punished the restrained growth prospects of the South German Company, the battery manufacturer confirmed the outlook for 2021, according to which adjusted EBITDA is to increase and the operating margin is to improve to around 30%.
Given the significantly weakening profit momentum - competition from Asia in micro-batteries is increasing - and the still little resilient plans to enter the business with large batteries for e-cars, the share has become less promising in the eyes of most analysts. On March 31, the Group will present its figures for the past fiscal year. Investors are likely to follow the Company's statements and forecasts with interest on this occasion.
(Aspiring) producers of battery metals will be among the beneficiaries of the demand boom in the coming years. Edison Lithium is worth considering for those who want to bet on the ranks of explorers apart from the more established players such as Standard Lithium. The Canadians have two promising projects and are beneficiaries of higher lithium or cobalt prices. In our opinion, the risks still outweigh the opportunities at Varta.
Conflict of interest
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