Disruptive Discoveries Journal

Q2 Energy Metals Earnings Review - Crunch Time for the Lithium Majors

Chris BerryComment

By Chris Berry (@cberry1)

 

With earnings season winding down and news of vehicle electrification hitting the wires daily, it makes sense to take stock of Q2 results from some of the major players in the Energy Metals space and position as necessary. After all, this is a cycle. There is a great deal of “macro” news I could discuss here, but decided to keep this note short and focused on the producer side of the Energy Metals business.

·         Lithium segment results from Albemarle (ALB:NYSE) and FMC (FMC:NYSE) were unsurprisingly strong (Ed note: SQM doesn’t report until later this month, but based on previous guidance, results similar to ALB and FMC can be expected).

o   ALB reported lithium segment sales of $244M in Q2 up 55% driven by higher pricing (up 31%) and volume (up 25%). Adjusted EBITDA margins of 47% continued a streak of at least eight straight quarters of +40% operating margins in the lithium segment. The company forecast higher costs going forward due to expansion and exploration expenses and also LOWER average lithium pricing for customers saying that Q3 and Q4 lithium results are likely to match Q1 – perhaps managing investor expectations downwards. The stock sold off hard, falling as much as 6% and is down another 2% as I write this. Given that ALB has returned over 40% in the past year and pundits on CNBC are recommending buying the stock at close to all-time highs, perhaps a pullback was long overdue.

Takeaways from the Recent Industrial Minerals Lithium Conference in Montreal

Chris BerryComment

What follows is an abbreviated version of  the most salient points from the recent lithium conference in Montreal with some context added. The full and more complete version was sent out to clients earlier this week. 

·         Attendance has risen by 100% each of the last three years with this year being the most diverse across the lithium supply chain. While upstream players were the most widely represented group, some new names from the automotive and tech sectors were in attendance – a difference from years past. The institutional investment community was more prevalent this year, but still a minority at the conference. This is likely due to the fact that the conference is less focused on investors.

·         My thesis of valuing “execution over exploration” seems to have taken hold as the most advanced development stories including Lithium Americas, Orocobre, Nemaska, and Neometals garnered the most attention at their respective presentations. Everyone is watching to see how the Nemaska and Lithium Americas capital raises unfold as an announcement on each is anticipated shortly. There was much more forward thinking at this year’s conference relative to years past.

Lithium Q1 2017 Review and Risks - The Train Keeps a Rollin'

Chris Berry3 Comments

By Chris Berry (@cberry1)

 

As I’ve discussed before, all commodities are cyclical and the Energy Metals are no exception. Anecdotal evidence suggests that battery grade lithium pricing remains healthy in the $14,000/t USD range even as lithium share price returns have moderated from their triple digit returns in 2016. Despite this, lithium shares continue to post impressive gains. Year to date in 2017, an equally weighted basket of lithium names I track has returned 45.1%. This is compared to a return of 5.98% for the SPX, 2.42% for the TSX, and 4.07% for the ASX.  

Here are the year-to-date returns for select lithium names sorted by USD market cap:

Lithium in 2017: Quacking Ducks, Execution, and Continuation of the Secular Bull

Chris Berry1 Comment

By Chris Berry (@cberry1)

 

There is a famous phrase in resource investing:

“When the ducks are quacking, you feed them.”

The “ducks”, of course are the investment community and the “feeders” here are the companies with shares for sale.

In 2016, the ducks quacked loud and continually for lithium, and rightfully so. The price of lithium chemicals rose dramatically and almost all publicly traded lithium juniors rose as well with some well into the triple digits. Other than zinc or iron ore, lithium was a star performer in 2016.

As I said in June, managing risk and profit taking in the face of lithium’s impressive strength and secular bull market seemed to be the prudent strategy. My warning turned out to be accurate as many of the high flyers in the lithium space ran out of steam.

Unicorns Vs. Dinosaurs - Who Wins in the Debate Over Growth Versus Profitability

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF of this note, please click here.

Ed. Note: This piece was originally submitted to Benchmark Mineral Intelligence in late August 2016 which may explain why some of the data is off. It was recently officially published in their magazine which is why I am now putting it on this site.

 

 

“Getting to profitability is the only way to build a sustainable business…”

-UBER CEO Travis Kalanick in response to UBER’s merger with Didi Chuxing

 

As convergence across industries continues apace and business models evolve, Mr. Kalanick’s statement above is a reminder to investors in early stage companies. As startups across various industries attain unicorn status – a valuation of at least USD $1 billion - the argument around growth at all costs versus profitability has become louder. There are over 170 unicorns in existence today, so the hunt for the “next big thing” is indeed on. With an abundance of cheap capital looking for yield, many investors appear to have set aside a preference for profitability in favor of parabolic growth. Here are the 20 largest unicorns (all privately held): 

 

Strategic Overview of the Cobalt Market

Chris BerryComment

It's been a busy few months and I'm pleased to announce that I've completed a thorough review of the cobalt market which is available for purchase. 

The report covers all aspects of the cobalt supply chain from mining, to refining, to end uses with supply and demand forecasts as well. 

I'm offering the Executive Summary and a portion of the Introduction for free. You can download a PDF version here. The cost of the full report is $500 USD which can be paid through PayPal (or we can make arrangements for a wire if necessary). As an added bonus, I'll give the first 20 people to purchase the report an opportunity for a 20 minute phone call to ask any question they want regarding the outlook for the cobalt market. 

To be clear, this is not a "stockpicking" report and so you won't find any "flavor of the month" stock picks here. What you will find is in depth data and insights into the cobalt supply chain and how the companies along it are shifting their business to capture the anticipated high growth of downstream industries. 

For more info on purchasing the report, please email me at info@house-mountain.com.

Thanks,

Chris

Lithium in Las Vegas: A Closer Look at the Lithium Bull

Chris Berry3 Comments

By Chris Berry (@cberry1)

 For a PDF of this note, please click here

 

I'm just back and recovering from a week in Las Vegas where the 8th Annual Lithium Supply and Markets Conference hosted by Metal Bulletin took place. Sentiment in the industry is overwhelmingly positive as the ubiquity of technology and the cost deflation associated with that technology (EVs, consumer electronics) means that lithium ion battery chemistry will remain central to this growth. The event was attended by  major lithium producers including Albemarle (ALB:NYSE), SQM (SQM:NYSE), and FMC (FMC:NYSE), cathode manufacturers, investment professionals, and junior mining companies, so coming away with a clear view of the market was facilitated.

It looks like my demand estimates of ~270,000 tonnes LCE by 2020 will be met. Supply, on the other hand, is always a wild card in the mining sector and my proprietary estimates