The Lithium Bull

Published on
March 28th, 2019
Topic
Energy Commodities, Technology, Micro
Duration
18 minutes

The Lithium Bull

Investment Ideas ·
Featuring Howard Klein

Published on: March 28th, 2019 • Duration: 18 minutes • Topic: Energy Commodities, Technology, Micro

Will rising demand drive lithium prices higher? Howard Klein, CEO of RK Equity Group and RK Equity Advisors, has nearly two decades of experience in the mining and energy sector, and sees lithium as a unique opportunity for a short-term investment. Klein names three major players in this space and discusses how pollution control, clean energy, and e-mobility contribute to its increasing use. Filmed on March 20, 2019.

Comments

Transcript

  • MO
    Martin O.
    10 April 2019 @ 01:46
    Thanks Howard for a great interview and answering the thoughful follow-up questions. Well done all
  • BD
    Bruce D.
    31 March 2019 @ 16:48
    Great discussion Howard, thank you......IMO, you need all the battery metals in your portfolio, and NOW! Cobalt, Lithium, Nickel, and Copper.. when you look to 2025, even with avg. estimates, the growth is incredible. Also, the US is NOT the leader, so I could care less about Tesla going to zero. Watch what China and India do, as they are basically dictating to their people that they will own EV’s, and very soon. Own Cobalt 27; SCCO/COPX for copper; the 3 lithium ideas discussed, and any large new nickel producer you can find......even easier is the ETF BATT, which holds them all. If you wait until the real future demand is staring you in the face, you will pay up massively. This is a LONG TERM, GLOBAL trend, buy now, and be patient. Very similar to Uranium long term MASSIVE growth in demand. Stop thinking you will get them cheaper, as you probably have already seen the pullback.
    • TR
      Travis R.
      1 April 2019 @ 21:18
      NAK is sitting on a massive copper deposit. Stock is being given away because market doesn't believe NAK will ever receive permits. I believe they will. High risk.
    • HK
      Howard K. | Contributor
      1 April 2019 @ 21:33
      Thanks Bruce. Can't see a word in what you wrote that I disagree with.
  • AR
    Abishek R.
    31 March 2019 @ 09:33
    Found out after 10 months of my subscription that Real Vision is targeted towards a US audience: A “sophisticated” joe 6-pack who cannot buy stocks in Hong Kong, Australia or South Africa. Hahaha. The perils of VC money!!
  • DL
    Dan L.
    30 March 2019 @ 17:10
    Great investment idea. Ticker is actually "ALB" not ABL as was shown.
  • GN
    Glenn N.
    30 March 2019 @ 10:04
    So RealVision is going down the path of delivering content for the USA audience only. Here’s a suggestion Real Vision - put an American flag in the top right hand corner of your American market only content so the rest of the world doesn’t waste their time.
  • gg
    georgy g.
    29 March 2019 @ 12:00
    Howard, is not lithium oversupplied and more coming?
    • HK
      Howard K. | Contributor
      29 March 2019 @ 12:58
      The quality of lithium chemicals matters. Chemicals that go into batteries - in particular those in Electric Vehicles with 10-year warranties - have to be a particular, high standard. "Battery grade" or "Battery quality" lithium chemicals are forecast to grow 15-20%+ every year for the next 5-10 years. These demand growth numbers have persistently surprised to the upside. Supply in the last few years has been growing only 10-15% and supply additions continue to surprise on the downside. Demand > Supply = sustainable high prices/future shortages. Investments are being made in lithium production, but the quantum of investment - and the number of projects being developed - is low relative to the demand expectations which are based on battery plant ramp ups and OEM EV rollout plans/announcements. Today, the lithium market - and battery quality lithium market - is likely in balance and yes, more supply is coming thanks to ALB, Livent and others, as it needs to by 2021/22/23 to feed dozens and dozens of new EV models on the road. But comparing demand growth and growth forecasts with lithium projects that are financed and in construction points to not enough investment in supply and therefore sustained high prices and 35-45% EBITDA margins for ALB and LTHM. Project execution/volume growth is key for ALB and LTHM.
  • KE
    Kathryn E.
    29 March 2019 @ 09:03
    When I hear Tesla and bitcoin in just a few minutes of explaining a thesis, I can't stop thinking of bubble. I prefer to revisit this when Tesla goes bankrupt as these stocks might get dragged down
    • HK
      Howard K. | Contributor
      29 March 2019 @ 12:41
      Lithium equities have already been dragged down and are pricing in a lot of negative sentiment - worries about Tesla, China slowdown, aggressive oversupply fear mongering from sell-side analysts with large megaphones who hold outlier, much below consensus views on EV penetration and battery pack size and hence overall lithium market size; while at the same time greatly over-estimated the speed of supply addition. Wall Street's Lithium Bull/Bear debate continues to rage despite consistent evidence that demand continues to exceed forecasts and supply - in particular for battery quality lithium chemicals which much be rigorously qualified - continues to disappoint. I'm not betting on a Tesla bankruptcy, but were it to occur it would likely hurt EV sentiment short-term, but Albemarle and Livent's business will continue to thrive medium to long-term meeting the huge demand from VW, GM and other European, American and Asian auto OEMs. And new projects like Piedmonts' will continue to need to be discovered, financed and built
    • HK
      Howard K. | Contributor
      29 March 2019 @ 13:08
      Lithium stocks have already been substantially dragged down. The electric vehicle and energy storage thematic - of which Tesla is an important, but by no means only and a relatively small part of the overall story - is real. Blockchain technologies - of which Bitcoin is prominent - is also real. Tesla is overvalued by traditional investment analysis metrics. I know little about Bitcoin, but know traditional investment analysis metrics don't apply. Like EV and blockchain, specialty chemical lithium growth is real. Proxy equities, like ALB and LTHM, using traditional, fundamental equity analysis, represent Value (not Deep Value, but Value), or Growth at a Reasonable Price (GARP). Certain earlier stage lithium development companies - which are essentially Public Venture Capital - look to me to represent Deep Value relative to their upside potential, but are obviously riskier.
  • Po
    Pedro o.
    29 March 2019 @ 00:41
    Why not SQM?
    • HK
      Howard K. | Contributor
      29 March 2019 @ 12:26
      Corporate governance, sovereign risk, growth challenges, Chinaoligarch board dynamics. SQM doesn't own their Chilean lithium - they lease it. The Chilean government has a very heavy hand in SQM's operations - as they do, admittedly with ALB, but less so. China via Tianqi is further encroaching. As a minority shareholder I don't feel I have interest alignment with management and Julio Ponce and difficult for me to get comfort from reading their filings/listening to their conference calls. I also believe Mr. Market continues to price their lithium volume growth from Chile too optimistically. I considered mentioning SQM in this interview as a possible "pair trade" short for those more cautious about my directional call on lithium and looking to make a hedged bet.
  • OC
    OTTO C.
    28 March 2019 @ 21:13
    Lithium chats look bearish, I'll wait until there is a significant sell off.
  • HJ
    Harry J.
    28 March 2019 @ 20:56
    There are numerous schools and individuals working on a different type of battery. Ie: the man who invented the original lithium battery is at univ of Texas and he says he is close to. A metal batt. Reducing the value of lithium and its producers. If not him then one of the other researchers. Slow charge time and cold related issues has the door propped open for the next wave of invention./ disruption. Tesla may be in trouble with the huge investment in the battery arena.
  • KC
    Kenneth C.
    28 March 2019 @ 17:48
    Ed, like what you're doing.
  • BB
    Brian B.
    28 March 2019 @ 16:35
    Howard, Simon Moores, from BMI, has mentioned numerous times that graphite anode is their number 2 on the 4 critical materials needing investment in the battery material space. It is my understanding that China controls 100% of the graphite anode production. It is also my understanding that the U.S. produces zero natural flake graphite and North America in aggregate has one producing mine that is in terminal decline. In your opinion, why is no one interested in allocating much needed capital to this space in North America if this secular trend is so important?
    • HK
      Howard K. | Contributor
      28 March 2019 @ 21:17
      Great question. I devote nearly 100% of my time to lithium but am likewise taking note/cues from Simon's observation and expect perhaps graphite will begin to get more attention.
    • PS
      Paul S.
      1 April 2019 @ 12:48
      Graphite is abundant
    • BB
      Brian B.
      1 April 2019 @ 18:04
      Battery grade graphite anode is not even close to being "abundant". These are special chemical materials that are nothing like traditional commodities. According to BMI, the demand profile for graphite anodes is 9x the current supply. Also, there are many forms of graphite that are specific for different applications. You can't just lump them all together.
  • JS
    John S.
    28 March 2019 @ 11:01
    Brent Cook at Exploration Insights holds Piedmont and Advantage Lithium (AAL.V)
    • HK
      Howard K. | Contributor
      28 March 2019 @ 15:08
      Brent Cook and Joe Mazumdar of Exploration Insights are highly selective with the companies they support and are right to focus on North Carolina-based Piedmont as a unique, plain vanilla, hard rock lithium development story.
  • sm
    stephane m.
    28 March 2019 @ 10:56
    The world in awash with lithium. Bad timing, not buying right now but will be in the next 2 years when everybody will leave the sector!!
    • AP
      A P.
      28 March 2019 @ 13:20
      Hi stephane, could you please provide with some sources/more details on how you see the sector and why? Thanks.
    • sm
      stephane m.
      2 April 2019 @ 08:53
      According to Katusa Research, in 2016, the reserve life index for lithium was 600 times (gold was around 13), It's calculated by dividing the global reserve & resources by the global production. Don't forget that everything is cyclical and there will have a shortage of supply one day... I just think the timing is off a little bit...as you say in english:" Can't kiss all the girls!!"
  • AP
    A P.
    28 March 2019 @ 10:43
    Could'nt agree more with the last sentences: more time on the topic would have been really great, but thank you for this introduction.
    • HK
      Howard K. | Contributor
      28 March 2019 @ 21:14
      AP - visit libull.com for all my newsletters and LithiumIonRocks! podcasts