November 29th, 2021 | 12:40 CET
Standard Lithium, Noram Lithium, American Lithium, Orocobre - Lithium at USD 25,000?
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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.
E-mobility and scarce Lithium
An important contribution to effective climate protection is the shift to e-mobility. Battery-powered vehicles have a better climate footprint over their entire life cycle than other drive systems. This is confirmed by a study conducted by the Mercator Research Institute on Global Commons and Climate Change (MCC) with the Potsdam Institute for Climate Impact Research (PIK). The most important statement is: The climate advantage of e-cars has grown significantly in recent years!
Lithium is one of the indispensable raw materials for e-mobility. Although there are enough deposits of the white metal on the planet, the suppliers of the raw material cannot sufficiently meet the current high demand from the automotive industry. As a result, the lithium price is rising sharply and has reached a new 5-year high of CNY 165,000 per ton of lithium carbonate.
Standard Lithium - Denial to the short seller
Arkansas-based Standard Lithium (SLI) is sitting on a next-generation brine production area. The Company is currently focused on the immediate development of its flagship 3.14 million ton LCE resource-indexed joint venture project with Lanxess. The project is already permitted for extensive brine extraction and processing activities.
In November, there was a dubious report from Blue Orca Capital. The lithium company's stock then plunged 20% after Blue Orca publicized its short position and accused the Company of misleading investors. The pilot plant in southern Arkansas is running nowhere near as smoothly as Standard Lithium portrays. According to the Arkansas Oil & Gas Commission (AOGC) records, actual recovery rates are far lower than projected. So the claim goes.
Standard Lithium immediately responded and sent out a denial. The report contains numerous important inaccuracies and misunderstandings that Standard Lithium believes are misleading and designed to favor Blue Orca Capital. Standard Lithium points out that the information misinterprets the scope of the data reported to the AOGC. It says that the demonstration plant operated by SLI continuously produces lithium chloride solution under normal conditions, which is then mixed back into the wastewater brine stream and discharged back into the geological formation via Lanxess' existing brine disposal system.
It is evident that Blue Orca Capital has strong vested interests here in taking a short position. For Standard Lithium, it is now a matter of regaining the confidence of the market. The best way to do this is to develop the asset further and be transparent about the data obtained. The stock has completed the S-K-S formation we last described and has rushed down through the neckline. As a result, the chart technique has been severely violated, and the stock is exposed to high volatility. Analytically, the SLI stock is still overpriced. Take a look from the sidelines to see what happens in the coming days.
Noram Lithium - The newcomer is highly interesting
Noram Lithium Inc. (NRM) is the next Canadian-based junior explorer to secure an interesting project in the US resource state of Nevada. Nevada has been a mining state for 250 years and has a friendly jurisdiction and excellent infrastructure.
Noram has owned the lithium project called "Zeus" in Clayton Valley since 2021, and it can prove a cutoff grade of 400 ppm lithium with a current resource estimate. The deposit has a total of nearly 1.2 billion tonnes of proven, indicated and suspected resources. The goal for the next few years is to develop the prospective lithium deposits and establish itself as a low-cost supplier. The pre-feasibility study (PEA) is on schedule and is expected to be released in the fourth quarter of 2021.
The project is timely, as one of the largest infrastructure and climate finance packages of up to USD 1.5 trillion is currently up for a vote in the US Congress. The US has many of its own lithium deposits, which are now being realized with appropriate political pressure to reduce the domestic auto industry's dependence on foreign supplies. Noram's long-term strategy of building a multinational lithium company specializing in the production and sale of Lithium in the European, North American and Asian markets could therefore be right on target.
With a market cap of EUR 38 million, Noram Lithium is certainly still at the beginning of its journey. A dust-off limit in the current correction could deliver a cheap entry.
American Lithium versus Orocobre - Buy explorer or producer?
Those who take a closer look at the lithium market will recognize differences in the valuation of resource companies and current producers. For example, we have contrasted American Lithium and Orocobre, a pure explorer and a successful producer.
Explorer American Lithium (LI) is a member of the TSX 50, actively engaged in acquiring, exploring, and developing lithium projects in mining-friendly areas throughout the Americas. Its primary focus is the development of a strategically located TLC lithium claystone project in the Esmeralda lithium district in the US state of Nevada. The Group also includes the Falchani and Macusani lithium and uranium projects in southeastern Peru, and they are currently undergoing a preliminary economic assessment. They are also presently undergoing legal clarification regarding the concessions. With about 183.6 million shares, the explorer is already worth about CAD 1 billion. The share price has quadrupled in the recent lithium hype, without any meaningful success stories published so far. The long-term potential of the properties is obviously valued here.
With the Galaxy merger, the new Orocobre moved directly into fifth place among the world's largest lithium producers. Analysts described the merger as "ideal", the similarities are significant, and real synergies are created through meaningful additions. Orocobre shares reached a new all-time high of EUR 6.35 in November and are up 145% for the year. This is no comparison to the hopeful American Lithium, where the gain of 343% was more than twice as much. Conclusion: Buy the rumor - Sell the fact. Hopeful stocks run much stronger in hype phases than already established mining companies because producers still make operating losses after years due to the immense investment costs. Explorers live on capital increases, which have always attracted interest in the current environment. Today, one can only hope that the capital floodgates continue to fill with investor billions.
In the last two weeks, the favorite sectors of investors in the environment of climate rescue, e-mobility and strategic commodities have had to lose some ground. Last Friday, there was even a small sell-off; many stocks plunged more than 10%. Corrections are healthy as long as they do not turn into a trend reversal! Therefore, trading opportunities exist in all titles considered, but in the case of the still young Noram Lithium, one should have a longer investment horizon in mind.
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