This text first appeared on Development Investing on October 13, 2020, however has been up to date for this text as we speak.
A mix of two latest occasions has seen demand for EV steel miners start to considerably decide up:
1) Quickly bettering electrical automobile [EV] gross sales particularly in Europe but additionally in China. Particulars are here.
2) Tesla’s (TSLA) Battery Day’s huge forecasts for future battery manufacturing. Tesla plans to go from 0.035TWh (35GWh) pa of battery manufacturing in 2019 to 3TWh pa by 2030, for a 86x enhance. Moreover Tesla indicated the world would wish to develop from present ranges of 0.23TWh (230GWh) pa (Bloomberg estimate) to get to 20TWh pa, additionally representing an 86x enhance, for the world to be 100% EVs (10TWh) and the grid to assist 100% renewable vitality with battery storage (10TWh). If this was to happen by 2030, at the moment the world would wish 55x extra lithium (than 2019 ranges), 20x extra cobalt, 26x extra graphite, and 7x extra nickel. You possibly can learn extra on this in my article here.
A battery metals miner’s super-cycle appears to be like set to start quickly
With a possible super-cycle of battery metals demand set to start and run for 1-2 a long time, I check out my present prime 2 battery steel miners for every of the important thing battery metals. In selecting my prime 2, I contemplate the businesses high quality and development potential to increase to satisfy the anticipated demand surge publish 2023.
After all in such a super-cycle of demand many of the high quality battery steel miners can do very properly. There are various others not talked about on this article that may do very properly. Right here for article brevity I choose simply two, and for graphite and manganese only one every.
My order of desire for the battery metals
So as of desire for the battery metals right here is my present order of most most popular to least most popular: Lithium, cobalt, nickel, graphite, and manganese. Lithium is my most most popular as it’s utilized in all battery choices (EVs, vitality storage and so on) and has the strongest forecast demand enhance, is a small market, and is unlikely to be substituted. Cobalt is my second favourite as a result of it’s uncommon, a small market, and has restricted provide. Threat of being partially changed by different chemistries [LFP, NM] is one thing to remember. Nickel in battery grade can also be more likely to see provide facet limitations and powerful demand, however the general nickel market is massive making the battery demand influence decrease. Graphite and manganese are each massive markets and may be fairly properly provided. The anode precursor market (spherical battery grade graphite) is a a lot smaller market and offers producers the sting over manganese miners for my rankings.
Neo Lithium Corp. [TSX:NLC] [GR:NE2] (OTCQX:NTTHF)
Neo Lithium 100% personal (totally paid) the Tres Quebradas (the “3Q Mission”) lithium venture in Argentina, with lithium wealthy brines hosted in salars and reservoirs protecting 160Km2. The 3Q Mission has excessive grade lithium brine with extraordinarily low impurities (very low magnesium/lithium ratio). Importantly Neo Lithium has the whole salar to themselves.
“3Q is without doubt one of the greatest lithium brine tasks underneath any metric. When it comes to grade, it’s prime three worldwide. When it comes to dimension, it’s the seventh largest brine venture with vital blue-sky potential. Lastly, by way of impurities, it has the bottom impurities of any identified salar. These qualities would enable us to develop a low-cost course of with a really low capital depth when in comparison with different brine tasks worldwide.”
The up to date PFS resulted in a post-tax PFS results of NPV8% of US$1.14b and IRR of 49.9%, payback of < 2years with a 35 yr mine life. The PFS was primarily based on an preliminary 20kt pa LCE manufacturing and has a CapEx of US$319m.
The 3Q Mission is kind of superior with some pilot ponds already constructed and infrastructure already in place. The BFS is underway and the EIS is at the moment underneath evaluation.
In latest information China’s largest battery producer Up to date Amperex Expertise Ltd (‘CATL’) [SHE:300750] agreed to invest C$8.5 million, representing an 8% fairness stake in Neo Lithium, at C$0.84 per share. CATL additionally acquired “board illustration and pre-emptive rights”. This implies to me that CATL presumably intends to later assist the venture financing in return for vital off-take and a potential share of the venture. After all this isn’t but priced in and is barely my ideas.
Valuation is extraordinarily engaging on a present market cap of simply C$153m because of the reality the venture isn’t but funded. Analyst’s value goal is C$2.55 representing 96% upside. My value goal is C$2.64 in 2024 (2x upside), primarily based on carbonate costs of 8,000/t. Additional upside if manufacturing is expanded.
Highlights of Neo Lithium’s 3Q Mission
Galaxy Assets [ASX:GXY] (OTCPK:GALXF)
Galaxy Assets (‘Galaxy’) is an Australian pure play lithium miner with 3 lithium tasks (100% owned) globally – Spodumene producer (Mt Catlin, Australia), brine developer (Sal de Vida, Argentina), and spodumene developer (James Bay, Canada). If issues went properly then Galaxy has the potential to be a 100kt pa Lithium Carbonate Equivalent [LCE] producer by 2025 or shortly thereafter. Sal de Vida is a excessive grade, low impurity, world class asset that has a possible 40 yr mine lifetime of reserves and is already fairly superior with improvement (ponds, pilot plant) and is focusing on first manufacturing of main lithium carbonate in 2022, with a staged ramp as much as comply with. James Bay has nice potential to provide Tesla maybe publish 2025 and ought to be a comparatively low CapEx and straightforward begin up for spodumene manufacturing.
Valuation is at the moment extraordinarily engaging because of the present low lithium costs. Low spodumene costs are hurting Galaxy (Mt Catlin) at current (Mt Catlin June HY2020 working lack of US$400,000), however Galaxy has the money (money & monetary property as of June 30, 2020 had been US$108.6m) and low prices to outlive, in addition to the longer term tasks to dramatically increase lithium capability as demand surges. In addition they haven’t any debt.
Present market cap is A$670m. Analyst’s consensus is a maintain with a value goal of A$1.18 representing 27% draw back. My 2025/26 value goal is A$3.22 (~2x increased) and it assumes spodumene costs are US$500/t and carbonate costs are US$8,000/t, that are each above present low spot costs.
You possibly can learn extra in my article “Galaxy Resources Plan To Be A 100,000tpa Lithium Producer By 2025″, and my CEO interview here, and the most recent firm presentation here.
Galaxy’s technique with timeline for focused new venture improvement
Sal de Vida (lithium brine improvement stage venture in Argentina)
Jervois Mining [ASX:JRV] [TSX-V: JRV] [FRA: IHS] (OTCQB:JRVMF)
Jervois Mining personal the superior improvement stage Idaho Cobalt Operations (‘ICO’) which additionally has excessive grade cobalt, copper and gold. The ICO Mission is significantly de-risked by way of funding of ~US$100m to-date. Primarily based on the BFS, the CapEx to achieve manufacturing is simply US$78.4m. Mission post-tax IRR is 40.6%, however it’s primarily based on a cobalt value of US$25/lb properly above present costs round US$15/lb. Common annual contained manufacturing is forecast at 1,915mt cobalt, 2,900mt copper and 6,700oz gold.
Only in the near past the Firm announced a deal to amass the São Miguel Paulista nickel-cobalt refinery in Brazil. The SMP Refinery has annual refined manufacturing capability of 25,000 metric tonnes of nickel and a couple of,000 metric tonnes of cobalt and is at the moment on care and upkeep. Jervois plan to refine focus from their ICO Mission and return cobalt steel to the USA. This implies to me they plan to promote in the future to Tesla, or at the very least a US primarily based battery/cathode producer or EV producer.
Jervois Mining additionally personal a nickel-cobalt useful resource in NSW Australia and a few exploration tenements in Uganda.
The present market cap is A$231m. Analyst’s value goal is A$0.49, representing 64% upside.
I just like the inventory because of its superior stage and being the most probably first US cobalt mine producer. Market cap is probably honest given the cash spent and superior stage and excessive grade US asset. Low CapEx makes it straightforward to fund, so I see the venture as very more likely to go forward and to be extra worthwhile as soon as we hopefully get increased cobalt costs after say 2023 when deficits are anticipated.
Jervois Mining’s superior stage Idaho Cobalt Operations (‘ICO’) within the USA
Source: Firm web site
Source: Firm presentation
First Cobalt [TSXV:FCC] [ASX:FCC] [LN:0UVX ][GR:18P] (FTSSF)
First Cobalt is positioning to provide North America with cobalt. First Cobalt has 3 tasks – Their Idaho USA copper-cobalt sulphide venture, their Canadian cobalt-nickel refinery, and their potential bulk tonnage cobalt operation within the Canadian Cobalt Camp. First Cobalt hope to have their Canadian cobalt/nickel refinery operational with ore feed from Glencore by 2022, in addition to potential for silver revenues from their Canadian Cobalt Camp that additionally has vital historic silver manufacturing. First Cobalt owns virtually half of the 100+ historic silver-cobalt mines within the Canadian Cobalt Camp. Any revenues will assist enhance their money circulation and hopefully springboard the Firm to additional develop one or each of their cobalt property into manufacturing.
The present market cap is C$54m, properly under asset substitute worth, and ridiculously low. Analyst’s value goal is C$0.40, representing 186% upside.
Source: Firm presentation
Amur Minerals Corp. [LSE:AMC] [GR:A7L] (OTCPK:AMMCF)
Amur owns the huge scale Kun-Manie nickel-copper sulphide deposit in Russia. Grades are cheap and if the venture will get funded and into manufacturing there’s potential for a 40kt pa nickel manufacturing operation which ought to be very worthwhile. The typical nickel grade is 0.75%, copper is 0.21%, cobalt is 0.015%, platinum is 0.16 g/t and palladium is 0.17 g/t. Extra minor quantities of gold and silver can even be recovered however haven’t been estimated. The Mission has a useful resource estimate of 1,581,000 nickel equal tonnes, with greater than 76% of the useful resource recognized as Measured and Indicated. You possibly can learn extra particulars on their venture in my article here.
In a new recent development Amur has purchased a 19% fairness stake in Australian iron ore close to time period producer Nathan River Assets, who personal the Roper Bar Mission in Northern Territory, Australia. It has an estimated 446m tonnes of JORC sources with an iron grade of 39.9% and presently 4.76m tonnes of JORC reserves at 60.1% iron. Anticipated close to time period manufacturing is 4-5m tonnes pa. The US$4.67m funding was achieved utilizing the vast majority of a latest £6.1m capital increase. The aim is to achieve close to time period constant future money flows for Amur that may assist progress their Kun-Manie Nickel-Copper Mission. The anticipated return is a 14% convertible bond, which might later be transformed to fairness in Nathan River Assets. You possibly can learn extra here and here.
The present market cap is barely GBP 30m. Analyst’s value goal is proven on Yahoo Finance as 0.34. I assume that is kilos [GBP]. If I’m appropriate then that compares very favorably to the inventory value of 0.0219 kilos [2.19 pence], being 15.5x increased. This would wish some double checking earlier than being relied on.
You possibly can view a superb investor presentation here.
Amur’s Kun-Manie Mission is properly positioned to feed China, Korea, Japan, and Europe
IGO Restricted [ASX:IGO] (OTCPK:IPGDF) (previously Independence Group)
IGO Restricted is an Australian smaller nickel producer with a prime tier nickel sulphide useful resource in Australia [Nova]. Their optimistic over among the bigger world nickel producers (Nornickel, Vale (VALE), BHP Group (BHP), Glencore (OTC:GLNCF)) is that they’re extra of a purer play on nickel. In addition they have a really low OpEx. There detrimental is that the Nova Mine life is at the moment simply 7 years; nonetheless there’s vital close by exploration potential.
IGO’s nickel mine is the Nova nickel-copper-cobalt sulphide mine in Western Australia [WA]. Nova ought to produce about 27-30kt of nickel in FY2020. IGO additionally has a number of different exploration stage tasks and a 30% curiosity within the Tropicana Gold Mission in WA which is forecast to provide 500,000 oz of gold this yr.
The present market cap is A$2.85b. Analyst’s value goal is A$5.10, representing 6% upside.
The world class Nova nickel-copper-cobalt sulphide mine in WA
Source: Firm presentation
Syrah Assets Restricted [ASX:SYR][GR:3S7](OTCPK:SYAAF)
Syrah Assets state they’ve “the world’s largest pure graphite useful resource”. Syrah, at full manufacturing, was the biggest flake graphite producer on the earth. Syrah’s manufacturing has been closely in the reduction of in 2020 because of low graphite costs from graphite oversupply, partly brought on by Syrah. Syrah has trade low prices of manufacturing from their producing Mozambique graphite mine.
Syrah is progressing their Battery Anode Materials [BAM] plant in Vidalia, Louisiana, USA. The following step for Syrah is to provide anode precursor (spherical graphite) and energetic anode materials at their BAM plant which might then be offered at a lot increased costs than graphite. Clearly Syrah has potential to be rather more worthwhile as soon as their BAM plant is operational. A BFS due for completion in This fall 2020 is assessing the economics of increasing the capability of the present facility to 10kt pa of Energetic Anode Materials manufacturing functionality initially, after which scaling as much as 40kt pa. It appears to be like potential for some anode materials gross sales to start out from 2022, all going properly.
The present market cap is A$235m. Analyst’s value goal is A$0.46, representing 13% draw back.
BAM Mission timeline
Supply: June 2020 Quarterly Actions report presentation
My newest Development Investing article (see linked under) discusses and selects my prime manganese miners picks. Aspect 25 [ASX:E25], Euro Manganese [ASX:EMN] [GR:E06][TSXV:EMN] and Manganese X [TSXV:MN](OTCPK:MNXXF) are amongst my prime picks.
Amplify Superior Battery Metals and Supplies ETF (BATT)
For traders preferring an ETF to cowl the battery metals area then Amplify Superior Battery Metals and Supplies ETF is an efficient selection. BATT is a professionally managed ETF that seeks to supply publicity to lithium, cobalt, nickel, manganese and graphite through publicly-traded shares (principally miners).
The fund has had a tough previous 3 years because the battery steel costs fell from their early 2018 peaks; however appears to be like to have bottomed and will proceed to recuperate from right here if demand for battery metals surges this decade as I anticipate.
BATT fund value historical past
Notice: You possibly can view some extra up to date knowledge here on BATT.
- Battery steel costs can decline (lithium, cobalt, nickel, graphite, and manganese) which might influence the respective miners negatively. Most look to be close to a backside now, close to the marginal prices of manufacturing, so a requirement surge might assist enhance costs as soon as deficits seem. This will nonetheless be 2-3 years away because the EV increase accelerates after 2022, boosted by EV/ICE buy value parity which I anticipate after 2022.
- Technical dangers akin to modifications in battery chemistry might imply some metals are much less wanted, or not wanted in any respect, in future batteries.
- Mining dangers – Exploration dangers, funding dangers, allowing dangers, manufacturing dangers, venture delays.
- Firm dangers – Debt, administration, and foreign money dangers.
- Sovereign threat – Usually excessive in lots of poor and corrupt nations. Low for USA, Canada and Australia however allowing may be gradual and prices increased.
- Inventory market dangers – Dilution, lack of liquidity (greatest to purchase on native alternate), market sentiment.
My prime two lithium miners proper now are Neo Lithium and Galaxy Assets. Each are valued low because of present low lithium costs. Each are properly funded and have potential to convey on the subsequent world class brine tasks by about 2023, and to massively increase lithium capability to satisfy surging demand later this decade. Galaxy has each brine and spodumene and three lithium tasks.
My prime two cobalt miners proper now are Jervois Mining and First Cobalt. Each are within the improvement stage with high quality North American property. Valuation is cheaper for First Cobalt as they’re much less superior and seem to me to be miss-priced by the market. Talking of miss-priced, a speculative very early stage cobalt junior with property in USA, Canada, and Australia and a market cap of simply C$4.8m is International Vitality Metals Corp. [TSXV:GEMC][FSE:5GE1](OTCQB:GBLEF). You possibly can learn my latest article on them here.
My prime two nickel miners proper now are Amur Minerals and IGO Restricted. IGO is a present low price producer (extra a nickel pure play than the massive nickel producers) with exploration potential. Amur is a promising junior with excessive threat and reward.
My prime graphite miner proper now could be Syrah Assets as they need to profit from a graphite demand restoration and by about 2022 onward promoting a better valued anode precursor materials.
My prime manganese miners are Aspect 25, Euro Manganese and Manganese X.
My prime battery metals ETF that covers roughly lithium (31% publicity), cobalt (26%), nickel (30%), and graphite/manganese/vanadium/recycling (13%) is the Amplify Superior Battery Metals and Supplies ETF.
As standard all feedback are welcome.
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Disclosure: I’m/we’re lengthy TSLA, Galaxy Assets [ASX;GXY], Neo Lithium [TSXV:NLC], Jervois Mining [TSXV:JRV], First Cobalt [TSXV:FCC], Amur Minerals [LSX:AMC], Syrah Assets [ASX:SYR], Lithium Americas [TSX:LAC], Aspect 25 [ASX:E25],BHP, VALE, Glencore [LSX:GLEN]. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (apart from from Searching for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.
Extra disclosure: The data on this article is basic in nature and shouldn’t be relied upon as private monetary recommendation.
Editor’s Notice: This text covers a number of microcap shares. Please pay attention to the dangers related to these shares.