Earnings, Pilbara’s bold move, and the Morgan Stanley conundrum

March 5, 2018

We’ve got a special news update coming to you from PDAC 2018 in Toronto!  

To kick things off, we’ll start with the topic of the week: Morgan Stanley’s bearish outlook for lithium.  The company put out a report downgrading Albemarle, stating that they believe the market will be in oversupply and prices will plummet beginning 2021. Shockingly, they decided to put this note out before listening to the SQM earnings call, which marked the first public presentation since their Corfo deal.  While there are many opinions out there on the matter, in our opinion, it seems Morgan Stanley was looking to make a bold call by preemptively calling the top in the lithium market.  But more on that later, so stay tuned!

Moving on to the actual companies operating in the space- it was a busy newsweek for lithium miners, but let’s start with the majors.  SQM and ALB both released earnings this week.  Albemarle had another positive quarter, with an upbeat call to go along with it, where they effectively doubled their lithium demand growth expectations, and announced accelerated capex investments into the lithium business.  The stock, however, did not fare as well, selling off as soon as the market opened after earnings.

Similarly, SQM had a positive, primarily lithium focused call, where they clarified their expansion plans, capex investments, and geographic lithium footprint expectations outside of Chile.  However, just like Albemarle, the stock sold off. It seems neither company did enough to quell oversupply worries and combat the bearish Morgan Stanley report.  

Looking beyond earnings, the biggest news of the week goes to Pilbara Minerals, with their trendsetting entry in the Korean markets.  They announced a deal with South Korea’s Posco to sell offtake from their stage 2 expansion project.  Posco will take close to an $80m equity stake in Pilbara, as well as another $80m convertible note.  The funds will be use to finance Pilbara Minerals’ stage 2 expansion as well as their share of expenses for a 30% stake in a downstream conversion plant JV that the two companies will develop.

However, Pilbara wasn’t the only miner making news this week. Neo Lithium Corp announced a discovery of a deep acquifer containing high-grade lithium.  During their presentation at PDAC, the company noted that the discovery was at around 500-600m below the surface.  Furthermore, the acquifer is surgent, which means that pumping is not necessary to bring the brine to the surface, it naturally flows out.

Another junior brine player announced some news as well- Advantage Lithium announced drilling results from the previously unexplored north west sector of their Cauchari property.  While the testing was conducted at flow rates of 3.5-17 l/s, the test suggests that a flow rate of 36 l/s may be feasible. President & CEO Mr. David Sidoo commented: “This outstanding result confirms we are starting to unlock the potential of the NW Sector, where no pumping tests had been conducted prior to the installation of hole CAU07. The high flow rate complements that which we recently announced from the deep sand unit in the SE Sector, flowing at 19 l/s. Drilling continues in both the NW and SE Sectors and we look forward to producing an upgraded resource for the NW and SE Sectors, once the drilling is completed.”

A much earlier stage and private company, North American Lithium just received an investment from major Chinese battery producer, CATL.  Nearby Jourdan Resources put out a press release saying that they expect global interest in lithium after CATL’s $66m investment.  Interestingly, on this news alone, Jourdan Resources’ stock finished Monday trading up 23%.

Although we hate to end this week’s update on a down note, we have to mention that Lithium X’s stock did not fare as well.  They saw increased volatility over the last week as concerns over Nextview Energy’s ability to deliver cash to close the acquisition fell on the market.  However the company did put out a press release saying that “in a conference call Tuesday evening with NextView’s personnel, financial advisor and legal counsel, the Company was advised that NextView continues to finalize the debt facilities to provide the remainder of the cash consideration to complete the Arrangement and, if it is not finalized before the end of next week, it will draw-down on its funding commitment from Tibet Summit in order to fund the Arrangement no later than March 9, 2018.

While we focused on the busy week for miners in this post, there was a ton (no pun intended!) of more news coverage in the industry as a whole.  As always, we’ve got you covered on any and all developments in the lithium, electric vehicle, and battery metals spaces as they happen. So stay tuned via twitter or email to get the latest news and analysis as it hits the tape!