June 13th, 2023 | 07:50 CEST
Standard Lithium, Grid Metals, Volkswagen - Lithium is essential for electromobility
Electric vehicle sales continue to outpace sales expectations, driving demand for lithium, nickel and other battery raw materials. At the same time, the supply of these raw materials faces challenges, including technical problems with new types of lithium deposits, permitting procedures and social issues. This situation could lead to a 5-6 year opportunity for sustained higher lithium prices. First-to-market projects can achieve significant market valuation, so companies are focused on rapid implementation and revenue generation. We, therefore, look at two lithium companies and examine how Volkswagen plans to address the challenges in procurement.
time to read: 4 minutes
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Author:
Armin Schulz
ISIN:
STANDARD LITHIUM LTD | CA8536061010 , GRID METALS CORP. | CA39814L1076 , VOLKSWAGEN AG VZO O.N. | DE0007664039
Table of contents:
"[...] 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
Author
Armin Schulz
Born in Mönchengladbach, he studied business administration in the Netherlands. In the course of his studies he came into contact with the stock exchange for the first time. He has more than 25 years of experience in stock market business.
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Standard Lithium - On the road to commercialization
General Motors' USD 650 million investment in Lithium Americas demonstrates the importance of securing a long-term lithium supply chain. With less than 1% of the world's lithium mined in the US, developing domestic capacity is critical, and the US government is committed to supporting green technologies. This is good news for Standard Lithium. The drilling program in Texas has revealed lithium grades ranging from 298 to 634 mg/l. The Company has strategically expanded its resource holdings in East Texas and secured rights to existing and new drill holes.
The partnership with KOCH was intensified at the beginning of May. Together with Koch Technology Solutions, Standard Lithium plans to develop integrated lithium brine processing operations. Progress is also being made in Arkansas, where the Company reported the highest lithium brine samples with a grade of 581 mg/l. At the end of May, a mandate was awarded to BNP Paribas to act as a financial advisor on debt financing. This will be the first commercial project to be implemented in Arkansas.
With its partners Lanxess and Koch, Standard Lithium has well-known companies on its side. If more carmakers consider investing in lithium companies to secure their supply chains, Standard Lithium could also be on the radar. After bouncing off its support level at USD 3.17 in early May and the announcement of the high lithium grades in Texas, the stock price climbed from USD 3.15 to USD 4.69. Currently, the stock is trading at around USD 4.63.
Grid Metals - New drill results
Grid Metals (Grid) is active in Canada, more precisely in the province of Manitoba, and is becoming a hot spot for critical metals such as lithium and nickel. The Company has meanwhile acquired a product portfolio of lithium and nickel projects. Currently, the most promising project is the Donner Lake Lithium Property, in which the Company holds a 75% interest. Grid Metals is working hard to submit a preliminary economic assessment (PEA). A memorandum of understanding has been signed with the already producing Tanco Mine, whereby Grid can use Tanco's capacities. This creates a win-win situation for both parties, as Tanco expands its resource base, and Grid can accelerate its path to production.
An advanced exploration permit has been applied for to take bulk samples and make them available to Tanco. On May 31, the Company announced the results of the latest drill program. Based on these results, an initial resource estimate is expected to be provided by SGS Canada later this month. Spodumene mineralization was encountered in all drill holes and currently has a strike length of approximately 715 m. Drilling has encountered lithium grades ranging from 1.13% to 1.6%. A total of 19 holes were drilled for a total length of 4,379 m. In order to complement the Donner Lake project, the Falcon West project was acquired, which is 100% owned by the Company and has a core area of 1 km with historical resources.
In addition to the lithium properties, there is also the nickel portfolio, which consists of 6 projects. Makwa and Mayville stand out, which are at the PEA stage with a lot of exploration potential. In addition to nickel, copper, cobalt and PGM metals can also be found there. Makwa has mainly nickel (0.61%) and palladium to offer. Mayville hosts copper (0.44%) and nickel (0.18%). Both resources can be mined in favourable open pit mining. At the beginning of February, the share was still at CAD 0.245; it then went down like almost all lithium companies. Currently, one share pays CAD 0.14. With the resource estimate, the share could make a turnaround. If the Company works together with Tanco in the future, it will have revenues with which the other projects can be further upgraded.
Volkswagen - Cost-cutting program
Even though Volkswagen recently lost ground in China, 42% more electric vehicles were sold in the first quarter than in the previous year. The Company committed early to electric mobility and invested billions of euros in electric vehicle software. The group is planning giga-factories in Salzgitter, Valenzia and Ontario. There are partnerships with Northvolt and QuantumScape with the aim of optimizing batteries for electric cars. The group does not yet have a stake in a lithium producer, but the Company certainly wants to avoid supply chain problems like those with microchips in the future.
The Handelsblatt reported on June 12 that the supervisory board will meet tomorrow to discuss the upcoming savings program. In total, at least EUR 3 billion are to be saved in order to bring the return on sales from 3% to 6.5%. The switch from the combustion engine to the electric car will entail far-reaching changes in the group. The current production processes will be put to the test, and conclusions will be drawn for the future. Recently, the Company could not keep up with the price war on the Chinese market and lost market share.
VW boss Blume wants to announce exact plans on June 21 at the Capital Markets Day. Investors should keep this day in mind. The cost-cutting program was well received by shareholders. The share is currently available for EUR 129.14. The price-earnings ratio looks favourable at around 5. With the cost-cutting program, the value could fall further if margins increase. Moreover, the supply chain problems of the microchips are almost completely solved, and thus more can be produced again.
The more electric vehicles are adopted by the market, the greater the need for raw materials to meet demand. This is good for lithium producers. Standard Lithium is looking to commercialize its first project. Grid Metals offers nickel and copper in addition to lithium. One advantage is that the mined material is processed by Tanco, and they do not have to build any plants. Volkswagen is currently investing primarily in battery factories in order to become less dependent on battery manufacturers. The cost-cutting program is intended to increase profit margins.
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