New age commodities are in the early stages of a cycle and “upside is definitely there”, an analyst told investors at the RIU Resources Round Up conference in Sydney today.

That was true for lithium, cobalt, graphite and especially high purity alumina (HPA), Julian Babarczy, the head of Australian equities for Regal Funds Management, told a standing-room-only session.

“The growth rates we are seeing in these commodities are unlike any we have seen in a long time — at least for the last 15 years I have been in the industry,” Mr Babarczy said.

“While they may seem risky, the upside is definitely there.”

Despite some recent bearish comments on cobalt from Telsa’s Elon Musk, electric car makers would continue to drive the market, Mr Babarczy said.

“There is this race to call the top of the [electric vehicle] EV cycle but there is no denying it is still early stage.

“EV penetration currently sits at 2 per cent and with the push from government mandates that demand will only grow higher.”

Julian Barbaczy of Regal Funds Management
Julian Barbaczy of Regal Funds Management

The electric car market will likely transition from early deployment to mass market adoption in the next 10 to 20 years, the OECD’s International Energy Agency estimates.

“Assessments of country targets, [manufacturer] announcements and scenarios on electric car deployment seem to confirm these positive signals.

“The electric car stock may range between 9 million and 20 million by 2020 and between 40 million and 70 million by 2025.”

There has been a five-fold increase in battery capacity in the past decade which Mr Barbarczy said would continue to provide upside for under-valued — and lesser known — commodities like high purity alumina (HPA).

HPA — created from aluminous clay using various chemical procedures — is used as a base material for making lithium ion battery components, LED lights, electronic displays (including smart phone glass) and surgical tools.

The handful of ASX-listed HPA stocks have been among the best small cap resources performers over the past year.

Read Stockhead‘s guide to ASX-listed high purity alumina (HPA) producers here.

In battery metals HPA is used as a separator that sits between the anode and cathode.

As batteries get bigger, the separators will need to grow in size as well – to reduce the likliehood of  explosions suffered by Samsung’s Galaxy Note 7.

Those applications are set to drive HPA demand up by 400 per cent – dwarfing the rest of the metals in the sector, Mr Barbarczy said.

RIU Sydney Resources Round-up, Vertical Events

By comparison lithium demand was expected to increase by 325 per cent, cobalt by 225 per cent and graphite by 180 per cent, he said.

“From an institutions point of view there is a huge information asymmetry in these metals, and it really does pay to do the research yourself,” he said.

“While they may seem risky, the upside is definitely there.”

Companies discussed were:

Graphite: Syrah Resources

Lithium: Global Geoscience

Cobalt: Jervois Mining

High Purity Alumina: FYI Resources