August 2nd, 2022 | 12:43 CEST
How much lithium do BYD, VW, Tesla and Co. need? Standard Lithium, Edison Lithium - Who can deliver quickly?
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"[...] In 2020, the die is finally cast in the automotive industry towards electromobility. [...]" Dirk Harbecke, Executive Chairman, Rock Tech Lithium Inc.
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.
The mystery of lithium prices
According to Benchmark Mineral Intelligence, the deficit in the supply of lithium carbonate is expected to increase from the current 26,000 tons to more than 80,000 tons by 2025. That means the prices for the white metal will remain high, and the search for new resources will have to be accelerated. Whether e-mobility, aircraft technology or renewable energies, virtually all high-tech segments are looking for suitable energy storage. The driver of development is climate protection, which will put mobility, energy generation, and distribution on a new footing in the future. The electric boom is thus creating an incredible pull for battery metals, above all, lithium. The price of the white metal recently peaked again on the spot market with a 600% increase in 24 months.
BYD, Tesla and Volkswagen - In search of suitable suppliers
Tesla has reported a new framework agreement with Chinese battery material suppliers such as Zhejiang Huayou Cobalt and CNGR Advanced Material. Both companies are listed as official suppliers to Tesla, but with the new agreement, they are again expanding their sales to the electric vehicle manufacturer. Elon Musk's strategy is clear: He wants to secure all available capacities early on so that he can continue to play a leading role with Tesla. Because if the shortages continue to worsen, only the manufacturer that has secured access to raw materials will be able to sell. Tesla is very present in China and has a large production center in Shanghai.
BYD and Volkswagen are also looking at expansion. Volkswagen is working very closely with battery suppliers to ensure the use of sustainably mined lithium in the supply chain. Last year, VW signed an initial memorandum of understanding with Chinese lithium supplier Ganfeng to this end. Ganfeng sources the raw material from several mines in Australia, among other places. In addition, lithium from Chile is also used in Volkswagen electric models. The Volkswagen Group plans to put around 26 million pure e-vehicles on the road by 2029.
The Chinese technology group BYD has signed further cooperation agreements with the Chinese supplier Sichuan Road and Bridge. The subject is the supply of battery systems. BYD and Sichuan Energy Investment have also been strategic investors in Sichuan Road and Bridge since October 2021. It is easy to see that the market is on the move.
Edison Lithium - Argentina morphs into a lithium giant
With huge political changes, the South American country of Argentina is striving to move up the list of lithium suppliers. Argentina is already the fourth largest lithium producer in the world. But the government wants more. Thus, the provinces are hurrying to comply with the political wishes and are building more and more logistical hubs and access roads in their mining regions. Above all, they are abolishing regulations that hinder the sector - all to attract investors and rapidly expand production.
The well-known Lithium Triangle covers an area in the tri-border area of Argentina, Bolivia and Chile, between the Argentine Puna, the Bolivian Altiplano and the Chilean Atacama Desert. Major producers such as Albemarle, Livent, SQM and Allkem are located here. The local lithium comes from salt pans or salt lakes, and complex evaporation and purification plants are used for extraction.
Also on site is the Canadian lithium and cobalt explorer Edison Lithium Corp. (EDDY), which already owns lithium concessions in Salar Antofalla and Salar Pipanaco in Argentina. In total, there are 24 claims covering an area of approximately 100,000 hectares. Geophysical surveys indicate the presence of a potential brine zone with a thickness of at least 300 meters. This now needs to be drilled to determine the grades and qualities. The investigations are proceeding at full speed.
In order to provide greater clarity for investors in its shareholding structure, the Canadian cobalt operations in Quebec have now been distributed to shareholders via a spin-out. The Kittson cobalt concession comprises three historic cobalt-silver mines: the Kittson cobalt mine, the Shakt-Davis mine and the Edison mine (also known as the Darby mine). These mines, unlike those in the nearby cobalt-silver camp, were developed primarily for their cobalt content and, interestingly, also had significant gold content.
EDDY shares have been unable to escape the sell-off in resource values in Canada and stand at just CAD 0.08 despite the high attractiveness of the properties. Thus, the explorer has fallen in market capitalization to below EUR 10 million. If you bet on battery metals, you will find an interesting portfolio addition here.
Standard Lithium - Insiders buy and bet on progress
The US-based Standard Lithium owns two interesting projects in Arkansas. The stock is one of the lithium blockbusters from 2021 with over 1000% performance. Since this hype, however, the value has more than halved. However, interest remains high, as evidenced by insider trading. CEO Robert Mintak, President Dr Andy Robinson and CFO Kara Norman recently exercised a total of 1,400,000 stock options. Standard Lithium received USD 1.344 million as a result.
In April 2022, important strategic partnerships have already been established with the USD 100 million entry of the large corporation Koch Industries. Both the investment and the know-how gained are beneficial for Standard Lithium, as the market eagerly awaits the results of the proof-of-concept on the LiSTR-DLE technology in the Company's demonstration plant. The feasibility and commercialization of the acquired assets also depend on this. In 2021, there was an agreement with the German Lanxess Group for accelerated commercial use of the Arkansas plant. Under the agreement, Standard Lithium will carry out the entire project development until the completion of the feasibility study, which is expected to be completed in the fourth quarter of 2022. The current rebound in the share price of +20% in just 2 weeks does not make Standard Lithium shares a bargain, as the market cap is still just under USD 1 billion.
The battery metal shortage will likely be a constant companion over the next few years. Which companies will jump ahead here remains interesting. In any case, the increase in the price of fossil raw materials is acting as a catalyst for e-mobility. After the significant correction in the sector, investors are advised to spread their capital appropriately across large and small companies. However, investments in the e-mobility sector should pay off in the long term.
Conflict of interest
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