January 5th, 2022 | 11:23 CET
Noram Lithium, Varta, Allkem - Profit from the growing hunger for lithium!
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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
Noram Lithium - Potential low-cost producer
There are two processes for lithium extraction. The first is brine, which is concentrated by means of an arrangement of different evaporation ponds until lithium hydroxide or lithium carbonate can be separated at the end with the help of various solvents. Second is the mining of rock, from which the lithium is extracted and crystallized by chemical processes. While the latter method often proved too expensive in the past, the sharp rise in lithium prices is now making open-pit mining of lithium more attractive again.
The long-term strategy of the Canadians is to take a leading role in the development of lithium deposits as a low-cost producer and supplier. To that end, Noram is advancing its 100% owned Zeus lithium project in the Clayton Valley of the US state of Nevada. The Zeus project is characterized by its immediate vicinity to the Silver Peak lithium project of the US company Albemarle, which has been in production since 1967, and by its proximity to Tesla Gigafactory 1 for the production of lithium-ion batteries for electric cars and stationary power storage.
In August 2021, the NI 43-101 compliant resource estimate for Zeus was updated and showed a significant increase. The confirmed resource increased by 60% to 363 million tonnes grading 923 ppm lithium. The inferred resource multiplied (+369%) to 827 million tonnes grading 884 ppm lithium. In total, this equates to a Lithium Carbonate Equivalent (LCE) of approximately 3.89 million tonnes.
Recently, the Canadians published the results of a project economic analysis (PEA). The Zeus project's calculated value (NPV) is USD 1.299 billion after tax. The project's after-tax rate of return is 31% at an assumed price of USD 9,500 per ton of LCE. However, at the end of 2021, the price was much higher at USD 33,000. Assuming a price per ton of LCE of USD 14,500, the NPV doubles to USD 2.665 billion! The study assumed an annual production of 31,900 tons of LCE and a mine life of 40 years. Given a current market capitalization of CAD 72 million, the potential for Noram Lithium appears enormous. The analysts at Fundamental Research also see it this way and recommend the share certificates as a buy with a price potential of around 80%.
Varta - No energy
For the last two months, the shares of the battery specialist have been hovering around the EUR 115 mark with little energy. With business in 2021 expected to be weaker and growth targets also moderate, the stock appears expensive with a 2022 value of over 30. The analyst community is very divided. The ratings are primarily "hold" and "sell," with an average price target of EUR 113.
While Varta is still the market leader in microbatteries, competition from Asia is increasing strongly and is likely to put pressure on margins in the medium term. Most recently, Apple reported declining demand for the new iPhone 13. Varta supplies the microbatteries for Airpods, Apple's headphones. Perhaps there are signs of falling demand here as well. The southern Germans have announced the production of batteries for electric cars in 2021. There is still far too little known about this to help the share out of its lethargy. After all, the Germans will then be competing in a completely different category against strong and more experienced global players.
Allkem - Production to start in Québec in 2024
Allkem, as one of the world's leading lithium producers, is in a perfect position to benefit from further price increases of the raw material. The Company recently released the feasibility study and first ore reserve of the 100% owned James Bay lithium project in Québec, Canada. The feasibility study confirms a sustainable, high-grade hard rock lithium operation using renewable hydropower. The calculated value of the project could be increased by a factor of about 2.5 compared to the preliminary economic assessment from March 2021. Construction is scheduled to start in the third quarter of 2022, with production expected to commence in early 2024 with an output of 321ktpa of spodumene concentrate p.a. for a planned 19 years.
Noram Lithium has the potential to mature into a low-cost lithium producer. Other advantages of the Zeus project include stable and mining-friendly jurisdiction and proximity to Tesla's Gigafactory. Allkem is equally a beneficiary of rising prices. At Varta, we currently prefer to stand on the sidelines.
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