Money Talks: Mathew Walker runs the ruler over EVs and energy storage stocks
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Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for. Today, we hear from Mathew Walker, chairman of boutique corporate advisory firm Cicero Group.
While investor excitement around battery metals has waned quite a bit in the past year and a half, one expert says the fundamentals driving the electric vehicle and energy storage markets are still very solid.
“All the attention and liquidity in the microcap space at present remains focused on technology metals, not only the battery metals used in the production of batteries to power electric vehicles, but also on the metals able to provide scalable energy storage solutions to facilitate the competitiveness of renewable energy, such as wind and solar,” says Mathew Walker, chairman of boutique corporate advisory firm Cicero Group.
“The fundamentals driving these megatrends remain sound for the foreseeable future and I would urge investors to resist wholesale shifts in their portfolio based on the inevitable volatility in these markets.”
Walker particularly likes the vanadium and graphene sectors.
“The investment case for vanadium is compelling,” Walker said.
“Underpinned by its historical use in the steel industry, and with recent changes to Chinese legislation to increase steel quality now in the implementation stage, it’s the emerging demand from the alternative energy sector that is most exciting.”
Industry forecasts have annual global production as reaching 112,000 tonnes of vanadium by 2025, with annual global consumption expected to exceed 133,000 tonnes over the same timeframe.
“A single power station in Dalian, China, now being constructed will use 7,000 tonnes of vanadium oxide,” Walker said.
Graphene, meanwhile, has the ability to “revolutionise the world” like no other metal can.
“It is 100 times stronger than steel and the thinnest and toughest material known to man,” Walker said.
“It can stretch, is transparent, impermeable, and the best electrical conductor that exists. Not a lot it doesn’t do really.”
Walker’s top pick in the vanadium space is Technology Metals Australia (ASX:TMT).
Technology Metals Australia wants to have its Gabanintha mine near Meekatharra in Western Australia up and running in 2021.
“Of the emerging producers, Technology Metals Australia appears most likely to succeed,” he said.
“Having been listed for little over two years the company delivered a robust pre-feasibility study in June last year and is scheduled to deliver its definitive feasibility study next quarter.”
The 2018 pre-feasibility study estimated that Gabanintha would generate $3.1 billion of total earnings before interest tax, depreciation and amortisation.
It is expected to take only 2.5 years to pay back the initial construction costs of $380m.
Operating costs are tipped to be just above $US4 ($5.58) per pound, with a long-term vanadium pentoxide price of about $US13 per pound.
“With a market capitalisation of around $20m and a post project net present value of $850m, TMT offers significant leverage to investors,” Walker said.
“The next critical step for the company will be project financing and I would expect a significant re-rating on any favourable news in this regard.”
In the graphene space, Walker is partial to Comet Resources (ASX: CRL), which has recently defined a high-grade graphite resource at its Springdale project in Western Australia.
Walker said metallurgical test work demonstrated that high-grade rock may be readily converted to graphene using low-cost methods.
“The challenge for any company that produces niche metals is procuring and developing a market for your products,” he explained.
“In this regard, the recent board appointment of the highly experienced and respected industry executive and financier Alex Molyneux positions the company ideally to meet the challenges in its next stage of development.
“At a modest $7m market capitalisation, it offers wonderful leverage to those investors with a predisposition for risk.”
Walker holds shares in both TMT and CRL.
Unfortunately, according to Walker, volatility is almost certainly guaranteed when it comes to megatrends like electric vehicles and energy storage.
But it’s not necessarily something to fear.
Walker said metals prices will continue to determine sentiment toward the sector and the individual stocks that form part of the sector.
“We see the greatest volatility for metals whose demand is most dependent on the emerging megatrend, specifically, those metals that do not have a historically strong demand case in the absence of the technology user case,” he said.
“Take cobalt as an example, before we had heard of Tesla, it was almost exclusively produced as a by-product of nickel and copper production for use as an alloy and catalyst. Ho hum, pass the beer nuts.
“Now over 40 per cent of global cobalt production is used in the battery sector, the majority of which is sourced from the often ‘not so’ Democratic Republic of Congo.”
On the other hand, the success of battery metals is strongly dependent on the electric vehicle and energy storage markets living up to their promised success and producers not flooding the market.
“[Cobalt’s] fortunes, along with its partner in crime lithium, are inextricably linked to the fortunes of the electric vehicle market, and particularly in the case of lithium, to supply side production increases from the major producers.
“Although I believe in the case for continued strong demand, volatility is the only certainty and many of the emerging producers appear fully priced.”
Mathew Walker is co-founder and chairman of Cicero Group, co-founder and general partner of technology incubator Alchemy Venture Capital and founder and director of beef cattle enterprise Stone Axe Pastoral Company.