From TD Waterhouse:
If the twentieth century was the age of oil, will the twenty-first prove to be the era of lithium? It is certainly shaping up to be. The lithium market is one of the fastest-growing commodity markets in the world. Battery markets are set to become a $120 billion over the next two years, fueled by the immense new demand for electric vehicles (EV) and battery-powered technology.
Industry leader, Tesla, needs thousands of tons of lithium to feed its Gigafactory, which opened in January. But that's only 30 percent of the U.S. EV market, and with demand for EVs likely to increase immensely in Europe and Asia, two regions that are hoping to end the sales of gasoline-powered cars in the next few decades, demand for lithium will rise right along with it. In focus today includes: Alphabet Inc. (NASDAQ:GOOG), Raytheon Company (NYSE:RTN), FMC Corporation (NYSE:FMC), Advanced Micro Devices, Inc. (NASDAQ:AMD), Arotech Corporation (NASDAQ: ARTX)
The boom in renewable energy sources, which need lithium-batteries to compete at cost with fossil-fuels, is adding further fuel to the fire, so to speak.
Lithium is being sought after in larger and larger quantities, putting pressure on lithium miners to increase output and opening up the field to a new breed of hungry companies ready to get in on the action.
And the chances for securing fast growth are good, given the radical increase in lithium prices. Since 2002, the price per ton has skyrocketed, from $2000 to more than $9000. In the same period, costs have fallen for the major miners, as economies-of-scale have reduced per-ton production costs.
But while the big lithium players have some of the market cornered, the prospects for growth are bringing in a fresh crop of companies. Here are a few choice stocks to consider for investors hoping to take advantage of the lithium boom.
Lithium X
Lithium X is a well-positioned miner in Argentina, with two brine assets at Sal de Los Angeles (SDLA) and Arizaro, both entirely owned by Lithium X. While both operations are still coming on-line, the company has been moving fast to get them into production, with SDLA estimated to produce 15,000 tons per year by Q2 of 2019.
SDLA has 2 million tons of lithium carbonate equivalent (LCE) ready for the taking, though the company has stressed that this is a historic estimate, rather than a current estimate. Should the figure prove accurate, however, it should translate into considerable revenues.
Based on low lithium carbonate prices ($5000/ton), the pre-tax net-present value (NPV) of the SDLA mine is set at $964 million, but if prices increased the NPV could be anywhere between $1.45 and $1.85 billion.
Once the potential of SDLA and Lithium X's operation at Arizaro is realized, the company could rapidly increase in value.
The company benefits from a strong management team, including a number of renowned lithium miners with a strong track record in South American lithium mining,
Should its assets in Argentina prove their worth and production begins on schedule in 2018, Lithium X should see its price increase tremendously.
International Battery Metals (IBAT; RHHNF)
While most lithium stocks are in production/upstream activities, International Battery Metals (IBAT) is a tech stock with a bold new approach to lithium output, one that could potentially change how this mineral is produced and marketed.
Lithium carbonate equivalent is most often extracted from brine sources and spodumene mines. Once potent sources are found, solar evaporation is used to extract lithium from the brine and spodumene. That's how it's done in Chile and Argentina, two of the biggest lithium suppliers. Normally, solar evaporation takes months to extract lithium from salt brine, but IBAT has signed an LOI to acquire technology from North American Lithium (NAL) which has developed improved technology that can do process the brine in a matter of hours.
The proprietary method isolates lithium ions in the brine salt solution, removing lithium chloride while leaving the remaining salts behind. It's a process that's faster and much more environmentally friendly: no salt piles are left for farming, and no toxic ponds of brine are left to pool after extraction.
If proven on a commercial scale, it's the equivalent of fracking for lithium: an improved method that could radically speed-up production times. Right now, it can take 4 years for a lithium brine mine to come on-line, and other 3-4 years before the full capacity is reached. IBAT's technology could turn a mine productive and fully profitable in a fraction of the time.
Along with a quickened schedule, IBAT's to-be-acquired technology should cut down on production costs. The company plans on using a highly-mobile extraction unit that can operate fully remotely; it doesn't need teams of technicians and miners to monitor it, and the quick extraction times means no more 18-24 month-long tours.
Even without the massive capex of the big three lithium miners (Albermarle, Sociedad Quimica y Miner de Chile, and FMC), if everything works according to plan, IBAT could operate on a cost-per-ton equivalent. Once commercial production is proven using the improved technology and operations begin, the company could become profitable almost immediately.
Led by lithium pioneer John Burba, considered a genius in inventive lithium-extraction technology, IBAT entered the lithium field only this year. Already, it has evaluated three North American brine areas and secured one for potential lithium extraction. Plans for a pilot extraction facility for early 2018 are in motion, with possible new licenses on the table for March 2018.
IBAT has already signed an option agreement for a 37,500 acre play in the Woodbury Carper Lithium Resource Project in Illinois. If the soon to be acquired technology proves successful, it could auger a new North American lithium rush, as other miners try to get in on the action.
Suffice it to say, IBAT is an exciting company with some big, bold plans for the future. Its technology, if proved successful on a commercial scale could change lithium operations worldwide, paying off for any investor who believes that IBAT's technology will win out.
Arotech Corp. (NASDAQ: ARTX)
Arotech has had a strange journey to becoming a lithium stock. Going public in 2001 under the name Electric Fuel Corp., the company couldn't hack it as a battery manufacturer and tried instead to rebrand as a defense contractor. It acquired a training and simulation company as well as a military battery supplier and changed its name to Arotech.
Now, the company has two divisions, Training/Simulation and Power Systems. The latter division specializes in low-cost batteries used in military vehicles and weapon systems, utilizing lithium and zinc-air technologies.
While both divisions attract contracts and a proven record of profitability, T&S can't match P&S for growth potential. In 2016, the company attracted some activist capital and underwent significant re-tooling.
Arotech now has a strong profile and some healthy prospects for growth, having seen its share price grow from $2.95 in March to the current price of $4.30. The company expects year-over-year earnings to exceed 200 percent for the current quarter and 28 percent for the year, according to Nasdaq.com.
Orocobre Limited
An Australian miner with a major operation underway in Argentina, Orocobre experienced some serious set-backs in the first half of 2017. Last fiscal year the company missed its projections and posted a $22 million loss, chiefly due to cost overruns.
But now it's turned its game around. In August the company posted a profit for the year of $19.4 million. While the figure was boosted by a $14.8 million asset sale, stocks responded favorably and Orocobre is now back on its feet. In FY 2017 the company sold more than 12 thousand tons of LCE for sales equaling $120 million.
After its struggles in 2016, the company is now one of the lowest-cost producers around, with gross operating margins of 62 percent and lithium production costs of just $3,700 per ton.
Shares in Orocobre in September gained momentum, rising from $3 to $4.30 and catching investors off-guard. The rise came as most lithium producers saw their shares boost off the news that China was hoping to increase the number of EVs in circulation, but Orocobre's price rose faster and higher than its contemporaries thanks to its recovered profitability.
With current production at 11,000 tons LCE and a nameplate capacity of 17,000 tons LCE, the company has strong prospects for growth, and if its August earnings report is anything to go by, has escaped the doldrums of last year.
Galaxy Resources
With three separate lithium projects in three different countries and a steadily rising production profile, Galaxy Resources is certainly a lithium stock to watch.
At Mt. Cattlin in Australia, Galaxy's mine is set to produce 160kt in 2017 of spodumene. With costs factored in the off-take for Mt. Cattlin is $905/t for 6 percent spodumene, making the mine a considerable source of funds for Galaxy's operations elsewhere.
The company's flagship project, Sal de Vida in Argentina, is one of the largest concentrations of lithium carbonate equivalent (LCE) yet discovered. Low concentrations of magnesium and sulphate means the cost of production should be low, making SDV another gold-mine (so to speak) for Galaxy and its investors.
Sales took off in the second half of 2017 and should increase in 2018, according to company projections. Right now Galaxy is trading at just above $2.60 on the ASX, up from $1.75 in early September.
If the company's three mines meet expectations, high-level production at low costs should turn Galaxy into a significant player in upstream lithium.
Other companies to watch in the lithium and tech space:
Alphabet (NASDAQ:GOOG): With a market cap of over $657 billion, this is the second-largest by market capitalization in the S&P 500. We love Alphabet because its foundation is intellectual property-not tangible assets.
Oh, and self-driving cars ... definitely a huge part of the innovation in energy and artificial intelligence. As an early entry into the self-driving car world, Alphabet's innovations have paved the way for a transportation revolution.
Alphabet is set to continue to bring value to its investors and even as one of the largest companies in the S&P 500, Google's parent company continues to reach new heights.
Raytheon Company (NYSE:RTN) is an emerging tech company specializing in defense and other government markets. Raytheon's major selling point is its strong command of cybersecurity. While its specialty is in government-centric markets, Raytheon also develops products, services, and solutions in various other markets.
Raytheon reach is far reaching and its potential market share is huge. Smart investors are looking toward cybersecurity firms early. With the recent high-profile attacks, and likely more to come, cybersecurity companies will be the saving grace of the tech boom.
FMC Corp. (NYSE:FMC) founded in 1883, FMC has been around the block and back. FMC has a long history stretching between many different industries, but within all of them, FMC has remained a leader in innovation.
FMC's involvement in the lithium industry is particularly notable. The company is one of the top three in lithium and associated technologies. It is one of the largest suppliers into electric vehicle applications using lithium hydroxide.
Strong growth in lithium is expected to drive margins for FMC and major expansion, leading analysts to give it an outperform rating. The company's full year 2016 results were impressive, with lithium segment earnings of $21 million-up an amazing 90 percent from Q4 2015.
Advanced Micro Devices Inc (NASDAQ:AMD) is Nvidia's biggest competitor. The company has developed a cult following among gamers, leading to many a Reddit debate. AMD's groundbreaking technology not only rivals that of Nvidia, some even argue that it outperforms it. As the two square off, one of the key areas to keep an eye on is in the GPU race. Widely purchased across the world as Bitcoin frenzy heats up, AMD is making a particularly hard push toward conquering that emerging demand.
While Nvidia has a significantly higher market cap (and stock price), AMD provides investors a much cheaper entrance into the gaming market. Those looking to get into tech industry stocks, mine Bitcoin, or play their favorite game on the highest quality are definitely not ignoring AMD.
By. Joao Piexe