May 2nd, 2022 | 10:27 CEST
Standard Lithium, Power Nickel, Varta - Shares for the e-mobility of the future
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"[...] Nickel, therefore, benefits twice: firstly from its growing importance within batteries and secondly from the generally growing demand for such storage. [...]" Terry Lynch, CEO, Power Nickel
Standard Lithium - Strong connection with Lanxess
Lithium is a central component of every e-car battery. The switch from internal combustion to e-mobility is creating a high demand for lithium, but this is offset by an excessively short supply. According to Benchmark Mineral Intelligence, the deficit is expected to increase even further in the coming years and will thus cause prices to rise. In order to increase supply, new players are trying to get a foot in the business. One of them is Standard Lithium, which is on its way to becoming a producer. The Smackover project in Arkansas is being advanced in partnership with Lanxess. It is expected to be in production in 2024.
Since February 24, Standard Lithium has been quiet after an agreement with Lanxess was announced. According to the agreement, Lanxess can acquire up to 49% of the project. In the first step, Standard Lithium will control all development until the Front End Engineering Design (FEED) study is completed. Lanxess will provide the brine supply and handle the lease of the project site and other infrastructure for the project. The Cologne-based chemical company has the right to purchase the lithium carbonate at market prices less a processing fee. Furthermore, two additional projects are possible on Lanxess' land.
Standard Lithium thus already has a buyer for the lithium it produces. With these revenues, the Bristol Lake project can be advanced. But until then, some time will pass, and the lithium market is extremely volatile at the moment, as can be seen in the share price. At the end of October, the share price peaked at 15.92 Canadian dollars (CAD). From there, it went down to CAD 6.31 on March 7. In the meantime, the downward trend has been broken, and the share is trading at CAD 8.24. Above CAD 9.11, the picture would brighten considerably and a test of CAD 11.58 would then be likely.
Power Nickel - Expanding nickel resources
If you look at the commodity prices in a year-on-year comparison, nickel has increased by over 100%. A closer look makes it clear where the increase comes from. The demand for nickel is increasing significantly due to the switch to e-vehicles and is no longer only needed in steel production. One of the beneficiaries could be Power Nickel. The Canadian explorer recognized the signs of the times early on and secured the NISK project in Quebec in February 2021. The property has nickel, copper, cobalt, palladium and platinum deposits that are historically NI 43-101 certified. The Company's focus is on the NISK project.
Following the acquisition, a 4,000m drill program was set up to confirm the historical data. Estimates are for about 3 million tons of nickel. But management expects much more. CEO Terry Lynch said in an interview, "We believe we can more than triple that number over the medium term...". In March, the Company released results from its 2021 drill program. In that, resource grades were up to 1.45% nickel, 0.63% copper, 0.1% cobalt, 1.21g palladium and 0.45g platinum. This confirmed the high-grade nickel mineralization and demonstrated good grade and thickness continuity. A new NI 43-101 compliant mineral resource estimate is expected to be submitted with the data before the end of the second quarter. The next 5,000m drill program is being planned and is already fully funded.
In addition to the flagship project, the Company has other gold and copper projects in Canada and Chile. A spin-off is planned for these projects. Power Nickel shareholders are to receive 20% of the new Company while the Company retains 80% of the shares. The Company will also receive a 3% net smelter return royalty from a subsidiary of Teck Resources, which purchased the Copaquire project in Chile for about 3 million Canadian dollars (CAD). If production starts, this project would bring regular cash into the coffers. Power Nickel's stock is currently trading at CAD 0.175. There are several potentials to increase the value. Those who want to hear for themselves can join Terry Lynch live at the next International Investment Forum on May 19. Registration is free of charge.
Varta - Does the V4Drive bring new growth?
Battery manufacturers like Varta are booming. The German battery manufacturer is still the leader primarily in button cells, but the Ellwangen-based company wants more. The goal is to provide batteries for the electric vehicle market. If the Company succeeds in transferring its expertise and battery quality to this new market, golden times lie ahead. Last year, the Group presented its V4Drive round cell, which has now been manufactured in pilot production and passed on to customers for testing purposes. If the Company succeeds in convincing one of its customers of the benefits of its batteries, major orders from the automotive industry will be in the offing.
When the V4Drive cell was presented, a lot of emphasis was placed on fast charging. That would be a huge step forward because electric cars still have to be charged over several hours. But there is a catch. Series production is not expected until 2024. The Group wants to use the time and has secured a favourable loan of EUR 250 million, which it intends to use to expand production capacity in the lithium-ion sector. In addition, the expansion will also depend on whether the Company manages to keep the continuously rising raw material costs for lithium and nickel under control.
The figures for 2021 looked promising. Nevertheless, the Corona Crisis did not leave the Company unscathed. Many of Varta's customers bought less because they had to deal with supply chain problems. Since there is currently a lot of congestion in China's ports again, this could also ultimately fall back on Varta. Due to the uncertain outlook, Berenberg has put the stock on hold. JPMorgan and Warburg see the share as a buy with price targets up to EUR 113. Currently, the share is trading at EUR 89.78.
Demand from the automotive sector is higher than supply in many areas, leading to rising prices for critical raw materials for electrification. Standard Lithium is on its way to becoming a producer and has a strategic partner in Lanxess. Power Nickel is currently expanding its resources and hopes to reach 9 million tons of nickel. That would make the Company a takeover candidate. Varta has a hot iron in the fire with its V4Drive, but the question remains whether the new product will convince customers.
Conflict of interest
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