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.
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:
By Chris Berry (@cberry1)
The Trump-induced reflation trade has been a popular one on Wall Street with the major equity indices such as the SPX at all-time highs and up slightly YTD (+5.57), and the US 10 Year Government debt market and the USD both range bound.
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
By Chris Berry (@cberry1)
For a PDF version of this note, please click here.
This isn’t a bubble…yet, but there are reasons to be cautious and a strategy reassessment is in order.
In the wake of Tesla Motors (TSLA:NASDAQ) introduction of the Model 3 “mass market” EV, lithium development and exploration company share prices have absolutely exploded higher. This is despite the fact that TSLA hasn’t actually sold (or even built) a single Model 3 yet, won’t have it on the road for years, and continues to hemorrhage money. The $1,000 refundable reservation fee is simply a free option for a potential car buyer and gives TSLA an opportunity to defray dilution.
In the wake of this news, lithium developers are “making hay while the sun shines” through some truly impressive capital raising efforts.
My estimates year-to-date show that the lithium mining industry has raised a collective $198,000,000 USD with multiple offerings oversubscribed. For an industry that only generated $1 billion USD in revenues last year, this is impressive. Especially when you consider the overall funk in the commodity sector and that no major lithium producer is included in this total.
By Chris Berry (@cberry1)
For a PDF copy of this note, please click here.
If recent mainstream media, sell side, and newsletter writer coverage wasn’t enough to convince you, it is all but obvious that lithium has emerged as an investible asset class for 2016 and beyond as the broader commodity sector continues to struggle with overcapacity and slack demand. While the excitement is born of strong growth in technologies requiring lithium (mainly electric vehicles and energy storage), the real reason for investor excitement boils down to one issue: price.
As The Economist shows, the lithium carbonate spot price has gone parabolic.
