High Voltage: A ‘false narrative’ is driving lithium stocks down, Benchmark says
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Each week our High Voltage column wraps all the news driving ASX battery metals stocks with exposure to lithium, cobalt, graphite, manganese and vanadium.
Let’s start with the “fake news” about lithium.
Battery metals stocks lovers take heart, Benchmark Mineral Intelligence reckons past rumours of a lithium oversupply has created a “false narrative” (or fake news as US President Donald Trump would say) that the “industry was awash with battery-grade lithium chemicals”.
But in actual fact there is still far from enough lithium to meet the needs of tomorrow’s electric vehicle (EV) expansions, according to Benchmark.
While the slide in the lithium price has led to producers reporting weaker financials, Benchmark said the more worrying trend was the mass exodus of investors from lithium stocks, which sent share prices into a nosedive for many and created a growing shortfall of capital to fund the next generation of lithium expansions.
“Spectators that flocked to the market in 2016 on the promise of an EV super-cycle have left before the warm-up, let alone the main event,” Benchmark said.
“While a downturn in prices has reflected a necessary correction towards near-term market fundamentals, it fails to represent the increasing possibility of another major deficit in the market by the early-2020s, creating a deceptive narrative in both share prices and surrounding markets.”
This is largely due to delays or projects shelved in weaker market conditions.
“These delays and misleading timelines add to the myth of oversupply,” Benchmark said.
“If all expansions had been taken at face-value at the height of the market, we would see almost an additional 500,000 tonnes of lithium chemical capacity by 2020. In reality this figure will be less than 40 per cent of this number.”
Demand for lithium is also going to be substantial from the energy storage market, according to Lithium Australia boss Adrian Griffin.
“Australia at the moment leads the pack in terms of energy storage applications, as indeed it leads the pack in solar installations,” he told Stockhead on the sidelines of this week’s Diggers & Dealers conference in Kalgoorlie.
“The two to some extent go hand in hand. People are just starting to back up their solar with batteries. It has already been a very lucrative market in Australia.”
This “false narrative” is definitely reflected in the one-year returns of the 150+ stocks in Stockhead’s battery metals list.
Over 81 per cent of the ASX-listed players with exposure to lithium, cobalt, graphite, manganese and vanadium have wiped off between 2 per cent and 94 per cent of their value in the past 12 months.
In the past week though the picture looks a little better, with around 27 per cent making gains of up to 167 per cent, 32 per cent remaining steady and around 41 per cent losing ground.
Sabre Resources (ASX:SBR), which has exposure to vanadium, was the biggest mover of the week with a 167 per cent increase.
Though its advance was due to it picking up a gold project in the Youanmi region of Western Australia and completing an oversubscribed capital raising.
Meanwhile, Lithium Australia (ASX:LIT) made a maiden discovery of up to 3 per cent lithium oxide close to surface on its exploration ground in the Youanmi region.
The region has proven to be a hot spot for high-grade gold, but just like other highly fertile gold regions, such as the Pilbara, Youanmi is now proving prospective for lithium.
Even better for Lithium Australia is the fact the lithium looks like it could be amenable to the company’s patented processing tech.
“The lithium is hosted in lepidolite, a lithium mica ideally suited to processing by our proprietary SiLeach® technology,” Griffin said.
“Initial results suggest Youanmi could provide critical local feedstock for our lithium-cathode and battery business units.”
Lithium Australia shares didn’t budge this week though.
Lithium Consolidated (ASX:LI3) is up 37 per cent after raising $3.2m.
MetalsTech (ASX:MTC) got a nice 27 per cent kick after it told investors it banked $2m – 95 per cent of its original claim – from a Canadian tax refund.
Lithium Power International (ASX:LPI) is up 12 per cent in the past week after landing a pretty sweet deal with Chile’s largest copper miner, state-owned Codelco.
Besides being one of the largest copper producers in the world, Codelco owns a big portion of the Maricunga Salar (salt lake) in Chile and now plans to combine its assets with Lithium Power’s Maricunga project.
Lithium Power CFO Andrew Phillips told Stockhead late last week that Codelco wasn’t as advanced on its landholding as Lithium Power was.
“They’ve got a team of people on the salar now, but they’re way behind where we are and it made sense that we would join together,” he said.
The public-private alliance is expected to make the joint venture the third lithium producer in Chile.
Here’s a table of ASX battery metal stocks with exposure to lithium, cobalt, graphite, manganese and vanadium>>>
Scroll or swipe to reveal table. Click headings to sort. Best viewed on a laptop: