Masayoshi Son’s Lithium Vision

April 11, 2018


Last week, Nemaska Lithium announced that Softbank will be taking a 9.9% stake in the company.  After a long wait and tremendous uncertainty over whether the company would raise the necessary capital to bring their potentially large scale, low cost lithium project online, this is a seemingly huge endorsement for the company and a step in the right direction.  Note the company will receive $99m from Softbank and thus will still need to raise over $700m from other sources.

So far, lithium has been an under the radar sector of the market.  Sure, some funds have heard about it, and Canadian and Australian analysts cover the sectors, but the broader investing class either has only topical knowledge of the space or is completely oblivious to the rapid development taking place.  That is why we believe Softbank’s endorsement of Nemaska is a big deal for investors as a whole. Media outlets like CNBC and others cover autonomous driving, electric vehicles, and even cobalt after the Apple news. But they have yet to even mention lithium, let alone cover any major stories in the industry. But with Masayoshi Son’s celebrity status, and the Vision Fund’s massive size and headline grabbing investments so far, this could lead the tide to increased awareness in the space.

One Time Deal, or a New Trend?

It wouldn’t be shocking to see that this is just the warm up round for Masa and Co.  $99m is a drop in the bucket for them, and as their name suggests, they’re looking to invest in the future of this world.  Lithium is arguably the oil that will be driving that future, and most of the companies in the space are in the very early innings of their lifecycles.  So investing at this stage would ensure that Softbank gets to truly make “moonshot” bets on the future. For example, looking at someone like Pilbara with a top tier project, great management team, and potentially entering the market this year while trading at single digit 2019 EBITDA multiples would be a no brainer for the fund.

Furthermore, the fund announced as recently as a few weeks ago that they are partnering with Saudi Arabia to create the world’s largest solar project.  With Saudi Arabia committing to spend $200bn by 2030 on this venture, they likely want it to be top notch, and very reliable. Thus, large energy storage systems would likely be needed to accompany the project.  And with the fight to secure lithium supplies in full gear right now, we’ll certainly be keeping an eye on whether the Vision Fund makes more forays into upstream lithium production to secure supply for such projects.  

Bottom Line for Lithium Investors

The lithium sector has already been heating up with the recent merger rumors and activity.  Most recently, Altura Mining’s been in the middle of takeover speculation, and Tawana Resources merged with their JV partner Alliance Mineral Assets which we think is a very smart move for a number of reasons.  With valuations pulling back to start the year, expect these types of stories to continue coming out. But if the Vision Fund or other high profile companies and investors do get more actively involved in the lithium space, it’ll start getting hard for the broader media and analysts to not cover the stories, potentially leading to increased investor awareness.  

With that awareness will likely come re-ratings of valuations in the sector as more knowledge is accumulated on the space and investors start to come in.  For the juniors needing funding, it would mean a wider pool of capital available to finance projects and help meet the growing lithium demand.

But look, we get it- these are big ifs.  We’re not in the business of speculating on what could, or we hope will happen.  We see great opportunities in the space everyday, and call them out for our readers.  But with a big shot investor like Masayoshi Son coming into the space, one can’t help but think that more capital is on its way.  Whether it’s tomorrow, or a year from now, as the scramble to secure lithium intensifies, it’s more a question of when will we see the general population start looking at lithium, than whether we will see it at all.

 

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