The Lithium industry dynamics have been on doldrums basis the market becoming bearish with respect to the supply demand scenario as noted in the recent months. Though different experts have outlined different views on the lithium supply in long-term; however, the medium-term outlook seems to suggest that new energy vehicle market will still boost the lithium players that have decent fundamentals. Amidst this scenario, three stocks that are trying to regain their lost momentumstill hold the potential to leverage from the sinusoidal trends.
Pilbara Minerals Limited
Encouraging Outlook: Up 10.3% in last five days as on March 13, 2018, Pilbara Minerals Limited (ASX: PLS), a key lithium and tantalum producer, is majorly focusing on the development of its world-class 100% owned Pilgangoora Lithium-Tantalum Project located at Pilbara region of Western Australia. Recently, Steel manufacturer Posco signed a partnership deal to buy lithium from Australia based Pilbara Mineral Limited and set up a downstream processing joint venture in South Korea. Under this agreement, Posco will purchase an initial 80,000 tonne per annum of chemical grade spodumene concentrate from Pilbara’s Pilgangoora Stage 2 Project. Moreover, Atlas Iron Limited has signed an agreement with Sinosteel Australia Pty Ltd for the export of lithium Direct shipping ore (DSO) that will be sourced from the Pilgangoora Lithium Project which is owned by Pilbara Mineral Limited. Under this agreement, Atlas will sell up to 1.5 million tonnes of lithium DSO to Sinosteel over 15 months of period on fixed priced basis. As a part of this deal, Sinosteel will advance funds to cover prepayments due to Pilbara Minerals for DSO mine development costs. Therefore, PLS has commenced its mining program for the lithium DSO while Atlas will transport the ore. The recent developments and rise in demand of lithium batteries will boost overall growth of the company. On the other hand, PLS stock has risen 82% in last six months with a 5.2% drop witnessed in last three months as on March 13, 2018. Basedon the above developments and medium-term view on lithium prices, we give a “Hold” recommendation on the stock at the current price of $0.925
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Lithium Battery demand Trend (Source: Company Reports)
Orocobre Limited
Strategic Alliance for growth:Up 5.6% on March 14, 2018, Orocobre Limited (ASX: ORE) is positioning itself as a top global lithium producer in the world and has announced the finalization of the 15% strategic placement to Toyota Tsusho Corporation. Of which, the total value of the tranche 1 and 2 shares issued to strategic partner Toyota Tsusho Corporation are a part of 15% placement which is approximately A$281.6 Mn. Under this arrangement, Orocobre and Toyota Tsusho Corporation will raise their existing long-term project partnership to a new level of strategic alliance. The capital will be used primarily for the expansion of the Olaroz Project (Phase 2), which targets 25,000 tonnes per annum(LCE) of additional capacity. The expansion will potentially bring the total nameplate capacity of the Olaroz Project to 42,500 tonnes per annum. The Stage 2 expansion plan is expected to reach its final investment decision in mid-2018 once financing, approvals and engineering are completed, with commissioning in 2H 2019. With this development, the company will accelerate not only the expansion of the Olaroz Project via development of Phase 2, but also develop the value-chain via joint investment in a Lithium Hydroxide project in Japan. On financial front, the company recorded top line growth of 18.7% YoY (year on year) to US$ 10.2 Mn in 1HFY18 from US$8.6 Mn in 1HFY17. EBITDA was down against previous period on the back of higher administrative expenses in Borax division and high inflation mixed with currency devaluation in Argentina. Nonetheless, NPAT surged up by 10.8% YoY to US$8.2 Mn in first half of the year from US$7.4 Mn in 1HFY17. Drill results also continue to expand the Cauchari Basin and indicate good prospects. With the potential the stock has to regain its lost momentum in view of the strategic long-term alliance; we give a “Hold” recommendation at the current price of $6.23
Olaroz Joint Venture Structure (Source: Company Reports)
Galaxy Resources Limited
A Long-Term Player:Galaxy Resources Limited (ASX: GXY) is an Australian public mining company that engages in exploration for minerals and the production of lithium carbonate. At Mt Cattlin operation, the company has done the production of 52,139 dry metric tonnes (dmt) lithium concentrate during the December quarter, and this is an increase of 11% over Q3 2017; with record sales of 58,094 dmt of lithium concentrate, marking an increase of 39% over Q3 FY17. During the period, the company has signed offtake agreement with multiple customers for 5 years for 100% of total planned lithium concentrate production. The company has already discussed pricing for FY18 with the headline pricing to be achieved higher than FY 2017 pricing. Late last year, Australian based lithium companies Galaxy and Lepidico came together to support the commercialisation of Lepidico's L-Max processing technology. GXY had agreed to subscribe $A2.9 Mn at 1 cent per share for a 12.0% shareholding in Lepidico, with a board seat attached, alongside a $4M, 1-for-6 entitlement offer to fund a Phase 1 Feasibility Study on L-Max through to a final investment decision. Meanwhile, GXY share has fallen 12.33% in three months as on March 13, 2018 given the lithium sector volatility but rose about 10% in last five days with the returning optimism on lithium sector. We reiterate our “Hold” recommendation on the stock (up 9% on March 14, 2018) at the current price of $3.49
Global Lithium Demand (Source: Company Reports)
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