By Chris Berry (@cberry1)
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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.
By Chris Berry (@cberry1)
For a PDF version of this note, please click here.
If anything is clear after the start of 2016, the global economic rebalancing that central banks around the world are trying to engineer is not proceeding according to plan. The circuit breaker fiasco in the Chinese equity markets is the latest example giving investors pause with respect to what is truly “going on” in China. The Shanghai composite equity index has lost almost 15% of its value YTD and few see good reason for this slide to halt aside from intense government support and RMB devaluation. Money continues to flow out of China as we speak.
By Chris Berry (@cberry1)
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As is the case this time of year, we start to close the books on 2015 and position for 2016. While we have effectively and indefinitely moved “to the sidelines” with respect to stock picking in the junior mining space, there were some notable successes, in particular with the merger between Western Lithium (WLC:TSXV) and Lithium Americas. This combination positions the new company in a unique strategic light as electrification, underpinned by the lithium ion battery, gathers steam in 2016. Galaxy Lithium’s (GXY:ASX) restructuring is another positive development. We’ll be watching the developments with these two companies closely.
In 2015, there was very little to be cheerful about in the metals markets and to be blunt, we expect this malaise to continue into 2016. China’s RMB devaluation last summer...
By Chris Berry (@cberry1)
For a PDF version of this note, please click here.
It’s been interesting to read the mainstream media’s impression of the recently announced lithium hydroxide supply deal between Tesla Motors (TSLA:NASDAQ) and Rare Earth Minerals PLC (REM:LON) and Bacanora Minerals (BCN:TSXV, BCN:LON), a joint venture with lithium concessions in Mexico. Arguably the biggest misconception is that TSLA has consummated a deal with companies operating an existing mine. This is not the case as the deposit at the center of the agreement is just that – a deposit.
Semantics aside, the agreement between the companies offers an interesting window into TSLA’s supply chain strategies, and in the end what the company has really done has purchased an out of the money call option on future lithium supply.
