All we hear is electric vehicles and lithium and it seems like that ain't changing anytime soon. Pic: Getty
Experts
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 hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from John So, co-founder and portfolio manager at VP Capital.
Green energy – which partly involves the electrification of vehicles as well as the reduction of petrol and diesel fuel vehicles (in time) – has been gaining momentum.
As an Australian investor looking for ASX opportunities, So said it is important to think about the companies with exposure to sectors that are here to stay for the very long run or in other words, multi-decade periods.
In an inflationary environment, this means metal commodities.
“We like commodities that have exposure to the clean energy space, including electric vehicles, and we have been paying very close attention to companies within the lithium upstream mining sector,” he said.
“There is a great push for the electrification of vehicles on the back of ambitious targets set in Europe and China and we think that will continue to underpin demand for lithium.
“Commodity prices, including spodumene and lithium carbonate, have gone up in the last 18 months to well over $1,400/tonne and there are very small quantities being sold in sporadic auctions for $2,000/tonne.”
For a lot of lithium spodumene producers, this means margins have expanded 10-fold.
“We have started to see a corresponding re-rating in the price of many producers on the ASX,” he said.
“Our first pick is a company called Core Lithium, which we have been following since it started trading at slightly lower prices of around 30c,” he said.
“It is now trading at 50c per share – the company is well funded and has offtake secured with one of the largest lithium companies in China.”
Core’s flagship Finniss Lithium project, near Darwin in the Northern Territory, will produce an average 173,000tpa of high-quality lithium concentrate at an opex of US$364/t and $89m capex.
Construction got underway towards the end of October with commissioning and production plans earmarked to take place before the end of 2022.
Second on So’s list is ASX-listed gold miner and lithium developer Firefinch.
The company has two assets in Mali – the Morila Gold Mine and the Goulamina Lithium Project.
“Next year there will be a de-merger of both assets into two separate companies, so I think there is probably a re-rating opportunity there,” he said.
“We like it at the current share price of 0.70c because with a $600 million market cap it is well below the potential net present value of the Goulamina Lithium Project alone.
“FFX did a capital raising recently and there is a probably going to be some short-term overhang of the share price, which represents a good opportunity to build a position within the company.”
Last of So’s picks is Galan Lithium, which has two early-stage lithium carbonate projects in South America – its flagship Hombre Muerto West Lithium Project and the Candelas Lithium Project.
Both projects are at the PEA study level and have a combined long term production potential of 34,000tpa LCE.
“Recently a preliminary economic assessment was released for the Candelas project which showed the company can generate a very high pet present value even with a discounted lithium price,” he said.
The economics demonstrated a competitive cash production cost for LCE of US$4,277/t, which GLN said positions the Candelas project as a low-cost developer in the lithium industry.
“South America is where some of the mid-stream products, such as lithium carbonate, are coming from and though it is at an earlier stage than the previous two picks there is more upside over the medium-term if they can get their funding in place and secure offtake partners,” So said.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article
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