Ever heard of a company called Piedmont Lithium Ltd [ASX:PLL]?
Not many investors had before the tail end of 2020.
Then a number of factors came together for the North American-based company, all at once.
It led to a chart that looks like the following:
From mid-September to mid-March, it tacked on more than 1,500%.
There was a bit of a kerfuffle around the announcement that triggered the meteoric rise in the PLL share price.
In a nutshell, a sales agreement with Tesla Inc [NASDAQ:TSLA] was reported early by accident.
Naturally, a deal with Tesla will generate hype.
Here’s perhaps the most intriguing passage of one of PLL’s announcements from September though (emphasis added):
‘The increase in the Company’s share price and volume during the week ending Friday, 18 September 2020, was not unique to the Company. The stock prices of a number of other ASX and North American lithium companies increased significantly during that week. Further, on 15 September 2020, Canaccord Genuity (Australia) Ltd (“Canaccord”), who has a current “Buy” rating on Piedmont, released an industry research report which called the “bottom” of lithium prices.’
So Canaccord thought the bottom was in.
On its long-term price slide, many commentators called a false bottom on lithium prices.
Lithium investors know the frustration well.
But there’s good reason to think that the bottom actually is in this time around.
Take for example, the long-term uptrend of Global X Lithium & Battery Tech ETF [LIT] through to December:
That was a big signal.
But a number of ASX-listed lithium companies took longer to pop.
Now they have well and truly taken off, as the lithium price starts to come back to life:
Watching the charts every day, we noticed a significant amount of action on lithium companies early on in the piece.
Indeed, we issued trade recommendations for one of our services (Small-Cap Momentum Alert) on a few of them.
[Editor’s note: We must emphasise that what follows in this report are not recommendations or financial advice. We do that in our paid publications, in particular Exponential Stock Investor. We encourage you to find out more about this service in the coming days and weeks.]
Before we get to those companies though, there’s an intriguing story to be told about lithium in Australia.
The strange book that kicked it all off
The book was the Guidebook to the Pegmatites of Western Australia.
Hardly sounds like a riveting read.
It was certainly no bestseller in 2007 when it was first published. I suppose that’s to be expected of a subject so particular.
An analysis of granite rock under WA’s desert sun…
It’s not exactly The Da Vinci Code, is it?
Only the most eager of geologists would’ve been interested enough to sift through its highly technical contents.
Back then, pegmatites were valued for their tin and tantalum content. A solid, if unspectacular, line of mining business.
Safe. Secure. Old-school…
But this report on WA pegmatites also contained a hidden gem. You see, it contained valuable data on the lithium content.
Lithium, before then, had often been considered a waste product.
Yet, in a fortuitous turn of events, the author decided to include it in his examination of the mineral make-up of the granite.
Fast-forward to 2015 and this obscure geology book turned out to be a godsend for a select few mining entrepreneurs.
All the information on where to find the best lithium deposits was laid out neatly on each page.
And over the next two years, it helped turn a handful of ‘penny-dreadful’ mining stocks into billion-dollar-plus mining unicorns!
Yes…we hear these stories and think amazing! And then, the inevitable ‘If only I had…’.
But to make exponential returns, you need to take exponential risks. And that’s what those mining entrepreneurs understood as they staked out their plots.
Don’t feel bad if you missed out back then. The speed and size of the growth took everyone by surprise.
The big miners missed out. As did Australia’s big banks.
‘Definitely on the lending side the banks weren’t there, they just weren’t there,’ recalls Neil Biddle, who ran Pilbara Minerals Ltd [ASX:PLS] when its shares were worth 2 cents. The stock traded as high as $1.22 at the start of 2018 and was fetching 39 cents in January 2020.
The new generation of Australian lithium mines were funded by foreign companies who needed lithium (such as Korea’s POSCO).
They rushed in to sign early supply agreements.
US debt markets, specialist resources funds and retail punters were also zealous supporters of the up-and-coming sector.
Check out the share price growth of one big lithium winner, Galaxy Resources Ltd [ASX:GXY]:
Source: Incredible Charts
That was 10 times your money for shareholders in just one year. Up from under 5 cents to over 50 cents. And it went as high as $4.54 the year after.
Now that’s what we call exponential growth!
There were heaps of other lithium miners you could’ve got into for equally spectacular results.
Unlike some stock market fads, this growth wasn’t a mirage either. It was real. You can see this in other ways too…
Source: WA Government
Employee numbers were up 660% and lithium prices were up fourfold over just a few years.
Lithium had literally gone from a waste product to the hottest commodity in the world in three short years.
Turning a handful of savvy investors into multimillionaires.
And truth be told, it was mostly due to one man and one company…Elon Musk and Tesla Inc [NASDAQ:TSLA].
It was what we like to call a pivotal ‘collision’ point…
The electric car trend driven along by Musk’s Tesla was the catalyst for the wave of interest — and development of — into the electric car industry.
Competing car companies scrambled to catch up. Billions of dollars went into research and development.
And as the story played out, it became clear that massive amounts of lithium would be required to help power the soon to be unleashed fleet of electric vehicles around the world.
This is how exponential opportunities arise…
Several trends collide and create a pivotal impact point. It takes everyone by surprise and results in rapid share price growth for well-placed companies.
Battery tech is crossing the chasm
I (Ryan) personally made a lot of money back in 2015 when I was trading full time.
But in 2017, the hype started to fade.
The realities of timelines, cost overruns, mining problems, and the slower pace of electric vehicle (EV) sales set in.
Lithium prices fell and with it the share prices of most lithium miners.
It seemed like the lithium buzz was at an end.
But now could be the time to start looking at lithium stocks once again.
The fact is the EV revolution is real. Renewable energy technology is real. And battery technology is going to be a huge industry through the 2020s.
In terms of timing, lithium and battery companies are now ‘crossing the chasm’.
What do we mean by that?
Check out this graphic:
This is the famous Gartner Hype Cycle of innovation.
It shows how new technologies often go through several phases as they progress.
Lithium battery technology seems to be following the same path.
And by our reckoning, we’re just coming out of the ‘trough of disillusionment’ phase — the point where people stop believing in the idea.
It’s funny, but this is often an ideal time to invest.
Sure, investing early on in a new technology can be great too (such as 2015 lithium stocks), but in a strange way, getting in on the second act is a better way to invest in exponential tech.
There’s less hype and more reality to look at.
It just takes patience and a keen eye for timing.
So why do I think we’re crossing the chasm to the early majority now?
Let me explain in this next section…
2021 will be a pivotal year for battery tech and lithium stocks
Europe is hell-bent on a ‘green recovery’.
In the US, Joe Biden is mapping out an ambitious environmental policy platform.
This will be driven home by a mammoth infrastructure bill with a price tag of around US$4 trillion dollars.
And China’s EV subsidies remain in place, despite some tweaks.
Particularly around the range of the vehicles.
It all adds up to 2021 being a pivotal year for battery tech and lithium stocks.
Consensus is building around the world that we need to fix things.
And as an investor, you can’t let ideology guide where you put your money in the market.
You simply have to follow the money flowing from big trends, ideally before they go truly mainstream.
Now you may be thinking, is it too late?
Well we’ve got three unique lithium stocks for the watchlist for you coming up in just a moment.
But for now, it’s important to see how much EV sales starting to accelerate as parts of the world emerge from the pandemic slump:
That’s a big jump from February to March 2021, and we’re convinced the sales momentum will increase as the latest data gets released.
So what we have for you in the next section are three unique ASX-listed lithium stocks which we think should be on your radar in 2021.
Three unique lithium stocks for you to look at today
First up is Vulcan Energy Resources Ltd [ASX:VUL].
If you know your way around ASX-listed lithium stocks, this stock should be nothing new.
But Vulcan has an intriguing project in the works Europe — specifically in Germany.
Germany is forging ahead with their EV transition, so it’s well-placed.
They are branding the project as ‘zero-carbon lithium’. So it should appeal to environmentally-conscious European governments and companies.
With a market cap of around $720 million at time of writing, some may think the ship has already sailed for this particular lithium company.
That being said, when you look at some of the metrics in their Pre-Feasibility Study (PFS), there’s an argument to be made that there’s more to come.
Check out the numbers in the ‘full project’ where they combine Phase 1 and 2 at the same time:
Source: Vulcan Energy Resources Ltd
Yearly revenue of €652 million is a strong number to go with a net present value of €2.25 billion.
They are progressing towards a Definitive Feasibility Study (DFS) which should tighten up these numbers for investors.
2024 would put them firmly in the driver’s seat to provide Europe the lithium it needs as major automakers like Volkswagen push hard at EVs.
On top of that, Europe is firmly committed to sourcing its lithium domestically.
Policies are in place to ensure the domestic supply chain is strong, which is particularly important for lawmakers who know that currently has zero domestic supply.
Now onto a completely different, much smaller lithium company that’s on the more speculative end of the spectrum.
This one is called Global Lithium Resources Ltd [ASX:GL1].
Listed in May this year, GL1 is a lithium explorer as opposed to a producer or developer.
It’s tiny compared to Vulcan, with a market cap (at time of writing) of just $24 million.
Explorers are particularly risky because drilling might not turn up anything.
However, GL1 has a few things going for it.
For starters, they’re in what looks like a good spot for their operations as you can see below:
Source: Global Lithium Resources Ltd
Their Marble Bar Lithium Project is relatively close to major lithium projects like the Wodgina mine, which is 40% owned by Mineral Resources Ltd [ASX:MIN] and importantly, close to Marble Bar Road and Port Hedland which services the Pilbara.
They have an ‘aggressive’ exploration program in place, an inferred mineral resource of 10.5Mt @ 1.0% Li2O at the Archer Deposit, and a pretty decent runway for drilling.
By runway we mean $10 million in cash, which will be used to fund the drilling.
The company also notes that less than ‘10% of the prospective area has been drilled tested.’
So definitely one to watch as those drill results come in.
Now for a more established lithium company…
This one is called Pilbara Minerals Ltd [ASX:PLS].
You may think this is an obvious one, but it has some serious lithium street cred.
For one, it’s got a long operational history as a producer.
Check out the long-term chart below:
As you can see, it survived the ‘lithium winter’ and is now punching higher.
Operating a mine in Western Australia, they have offtake agreements in place with Korea’s POSCO and the Chinese car company, Great Wall Motors.
Great Wall Motors specialises in cheap EVs, so Pilbara stands to benefit from the rejigged EV subsidy scheme in China.
They also have an agreement with China’s largest EV battery manufacturer, a mammoth company called CATL.
More recently, they’ve signed a Memorandum of Understanding (MOU) with Calix Ltd [ASX:CXL] to form a joint venture and:
This is particularly appealing because (emphasis added):
At time of writing, they have a market cap of $3.2 billion, so they’re an ASX lithium giant at this stage.
As of late May, they also have cash of $112 million and debt of $142 million.
Bit light on cash by most standards, so a capital raise could be in the offing at some stage.
It’ll be interesting to see how that plays out.
There are of course many more opportunities in lithium and battery tech for you to look into.
These three are just a taster to get you started.
An exciting decade ahead
At the end of the day, like any mining venture, lithium miners are a risky proposition.
And yet with the tailwinds of the EV and renewables industry, it could be a very exciting place to park some of your speculative capital for the decade ahead.
These are just some of the opportunities you’ll read about in the free e-letter you just subscribed to, Money Morning.
We also write a specialist investment newsletter where we recommend exponential stocks in clean energy and many other exciting industries poised for strong growth ahead.
You can go here to find out more on that if you’re interested. We trust you will find it a very useful resource as an investor.
Editor, Money Morning
Analyst, Exponential Stock Investor
All content is © 2005–2021 Fat Tail Investment Research Pty Ltd All Rights Reserved
Fat Tail Investment Research Pty Ltd holds an Australian Financial Services Licence: 323 988. | ACN: 117 765 009 ABN: 33 117 765 009
All advice is general advice and has not taken into account your personal circumstances.
Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.
Calculating Your Future Returns: The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in this report are forecasts and may not be a reliable indicator of future results. Any potential gains in this letter do not include taxes, brokerage commissions, or associated fees. Please seek independent financial advice regarding your particular situation. Investments in foreign companies involve risk and may not be suitable for all investors. Specifically, changes in the rates of exchange between currencies may cause a divergence between your nominal gain and your currency converted gain, making it possible to lose money once your total return is adjusted for currency. The Reader acknowledges that the contents of this newsletter and all associated intellectual property rights of Fat Tail Investment Research Pty Ltd (FTIR) including copyright, design rights, property rights, rights to data and databases, trademarks, service marks and any other rights created or developed in the course of the provision of the newsletter shall be and remain the sole and exclusive property of FTIR. No person is permitted to copy, forward or reproduce the newsletter and/or its contents without express consent of FTIR.
Subscribers to the newsletter are permitted to use this material for their own personal and investment use.
If you would like to contact us about your subscription please call us on 1300 667 481 or email us at firstname.lastname@example.org
Fat Tail Investment Research Attn: Money Morning 96/98 Bridport St, Albert Park VIC 3206 | Tel: 1300 667 481