October 26th, 2023 | 14:25 CEST
Lithium: The million-ton question! BASF, Standard Lithium, Edison Lithium, Varta - The Top List for 2024
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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
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.
BASF - The top dog in battery materials
The Ludwigshafen-based chemical giant BASF is the top dog among battery material producers. As the global market leader in various areas of chemical precursors, BASF has launched a sustainable value chain for battery materials. In addition to environmentally friendly production, recycling used batteries is also on the agenda. After all, electromobility is one of the key technologies that reconciles the global desire for individual mobility with the need to reduce local exhaust emissions. This is especially true when renewable energies are used. At the heart of this development are advanced technologies to limit emissions, which BASF is launching in cooperation with automotive companies. Extensive framework agreements are in place with CATL, the world's largest battery supplier, to achieve global climate neutrality targets. However, production conditions in Germany have become difficult due to energy intensity. High local prices are putting pressure on margins, so BASF is making its next mega-investments of over EUR 10 billion in China.
Currently, the Ludwigshafen-based company's figures are on a downward trend. BASF has had to issue increasingly smaller profit warnings to the market in the last 9 months; it should be exciting next week, on October 31. BASF will then report on the third quarter of 2023. Analysts expect average earnings per share of EUR 0.366, with a full-year projection of EUR 3.50. At prices around EUR 40, the market capitalization is just half the estimated sales of almost EUR 73 billion. 25 experts rate BASF shares on the Refinitiv Eikon platform. There are only 6 buy recommendations, and the average price target has gradually decreased from EUR 56.70 to EUR 49.10 in the last 12 months. The current poor economic development could once again weigh on the results. On a 2-3 year horizon, BASF's P/E ratio is already well into single digits, with an estimated payout of 7 to 8%.
Edison Lithium - Lithium and Cobalt in the Portfolio
Global lithium production is still limited to a few states. The white metal mined in Australian mines amounted to a volume of 61,000 tons in 2022. This means that the fifth continent produces the largest share of lithium globally. Taken together, Australia and Chile alone account for around 80% of international mine and brine production and thus currently play a key role in determining the supply of the coveted raw material on the global market. In addition to these two countries, other countries have significant resources and economically recoverable reserves, including Argentina. The South American country is already the fourth largest lithium producer in the world. Despite the current economic crisis with inflation of over 140%, the government intends to further increase its efforts to improve infrastructure and investment conditions. In the current presidential election, the left-liberal Economy Minister, Massa, is well in the running. He is expected to do well in the mining sector.
Argentina has vast lithium deposits, which come from salt pans or salt lakes and are processed by means of evaporation methods. The Canadian lithium and cobalt explorer Edison Lithium Corp. has a land area of 148,000 hectares in the Antofalla Salar and Pipanaco Salar geological zones. Geophysical surveys indicate the presence of a potential brine zone with a thickness of at least 300 meters. In addition, Edison owns the prospecting rights of the Kittson Property, with cobalt deposits totaling 4,440 hectares in northeastern Ontario. To continue drilling, the Company has now made a private placement at CAD 0.12 and raised CAD 480,000. The current 14.5 million shares add up to a market value of CAD 2.9 million. A bargain among listed lithium stocks with great potential.
Standard Lithium and Varta - Not out of the woods yet
US-based Standard Lithium owns two interesting large projects in Arkansas. The stock is one of the lithium blockbusters from 2021, with over 1000% performance. However, that former luster is now gone. Arkansas also has to face the realities of the lithium market. A recently published feasibility study shows an investment requirement of USD 365 million for the current construction project. After all, production is expected to last 25 years and ultimately yield 5,400 tons of lithium carbonate. The Phase 1A project, located at specialty chemicals company Lanxess' El Dorado site, is expected to be North America's first commercial direct lithium production facility. The share price is probably a bit scared of the huge capital requirement and has dropped 40% since July 2023. At CAD 3.60, there are technically only minor supports at CAD 3.00. **In the now-beginning tax-loss season, the share should see its lows. Additionally, it is still unclear how the financing for the planned mine will be secured.
Investors eagerly await clear signals from the German battery expert, Varta, regarding when the ongoing cost-cutting measures, in place for over 10 months, will lead to significantly reduced expenses. After several profit warnings, analysts at Refinitiv Eikon have agreed on a sales target of EUR 814 million, but Varta is not expected to report profits again until 2025. It is tragic, considering that Varta AG was once valued at almost EUR 10 billion and now, at EUR 19.40, carries a market capitalization of only EUR 850 million. On the positive side for newcomers, the technology stock is now valued at a price-to-sales ratio of only 1.1. Should the figures improve in the medium term, the long bottoming out between EUR 17 and EUR 22 should also end abruptly. Investors should pay close attention to the remarks of the new CEO, Markus Hackstein. He will report on the third quarter on November 14. In conclusion: Observe and consider getting involved when momentum picks up!
**If experts are to be believed, the lithium market is directing itself into an absolute shortage situation. However, this scenario has not yet hit the markets due to the current poor economic situation and many geopolitical upheavals. Nevertheless, investments in e-mobility and energy storage should pay off in the long run. BASF and Varta are waiting for the fundamental turnaround. Standard Lithium and Edison Lithium are suitable stocks for the next commodity upside speculation.
Conflict of interest
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