Dajin Resources’ Energy Metals Quarterly

 



This edition is guest written by Peter Epstein, CFA, MBA of Epstein Research.To receive future editions of the Energy Metals Quarterly sign up HERE.
Disclosure: Several of the companies mentioned herein have small market caps, including Dajin Resources, Pure Energy, Western Lithium, Lithium Americas, Critical Elements, Galaxy Resources, Nemaska Lithium, Bacanora Minerals and Rare Earth Minerals. Small market cap stocks are highly speculative, not suitable for all investors. I, Peter Epstein, own shares of DJIFF and PE.V. Mr. Epstein, CFA, MBA is not a licensed financial advisor. Readers should take that fact into careful consideration before buying or selling any stock mentioned. Readers are encouraged to consult with their own investment advisors before buying or selling any stock, especially speculative ones. At the time that this article was posted, Dajin Resources and Pure Energy were sponsors of: http://EpsteinResearch.com. Please consider visiting:  http://EpsteinResearch.com for free updates on Dajin Resources, Pure Energy and others across a range of sectors. While at http://EpsteinResearch.com, please enter an email for instant delivery of my work.  Thank you for supporting my articles & interviews. 

 Peter Epstein, Special Edition:

Sentiment in the lithium sector has improved markedly in just the past few months. Improving sentiment and higher stock prices among lithium juniors, despite continued devastation in other natural resource sectors, is certainly noteworthy. Lithium is hot and attracting a lot of attention. That’s largely without even considering underlying lithium carbonate and hydroxide prices, marching higher this year and expected to be higher again next year. Renewed M&A, most notably the Western Lithium / Lithium Americas merger, could be a sign of things to come. Projections of lithium demand continue to increase. Looking back 10 years, annual lithium consumption grew at roughly 6%-8%. Estimates of annual growth looking forward in the 8%-12% range, could prove woefully low.

Tesla Motors launched the first globally accepted, fully electric, vehicle just 5 years ago. This year BMW announced that ALL of its cars will be electric within 10 years, multiple giga-factories are under construction, Apple and Google are poaching talent from Tesla, Tesla’s success continues to spark car manufactures to improve product offerings or leap into the fray and battery costs are falling rapidly. Nothing short of a paradigm shift appears to be at hand in the EV space.

Growth could clock in closer to 20% to 30% annually, (30% would be a doubling every 3 years), not so crazy with global EV adoption still below 2%. Nearly half of the 258 million vehicle fleet in the U.S. alone is at least 11 years old, and global car sales are approaching the one hundred million mark. Just 5% global EV penetration in coming years would blow away all lithium dmenad and price projections. The, “green movement” not only supports EVs, but increasing demands it. News of a Volkswagen diesel emissions scandal is hitting the newswires this week. This might be worth keeping an eye on.

On the supply side, lithium sources are stretched. Even if one believes that supply can increase by 20% or more, there’s no question that it’s far from secure and is highly uncertain. Of the four non-Chinese players, Chemical & Mining Co. of Chile Inc, “SQM,” FMC Corp, Albemarle and Orocobre Ltd. strong and steady supply growth is only expected from Orocobre in the near-term, and that’s off of a tiny base.

Severe weather events, technical issues and political challenges in the, “Lithium Triangle,” (Bolivia, Argentina & Chile) are plaguing the majors. Juniors need to step up. Of the relatively few Lithium juniors of merit, the ability to raise capital is difficult but improving, M&A, farm-outs, joint ventures and off-take agreements with a larger universe of partners, (including battery makers) is on the horizon.

The stocks of the majors and Tesla have failed miserably to keep up with the performance of many Lithium juniors and there’s no reason to fear that out-performance will end. Tesla’s market cap of $32 billion is difficult to budge, even on good news. Tesla’s market cap could buy every Lithium, Graphite and Cobalt junior on the planet, with room left over work on the Uranium juniors!

The majors also have multi-billion dollar market caps, but are far from being pure-plays for investors looking for exposure to Lithium. Even after a doubling or tripling of several pre-revenue Lithium juniors, only a handful trade with market caps near US$ 100 million. The majority sport market caps well below US$ 50 million, with most below US$ 25 million. A mere drop in the bucket for potential suitors and partners to be concerned with.

SQM

Like other Lithium producers, FMC, ALB SQM and ORE continue to trail the stock performance of the top 10-15 Lithium juniors. SQM is plagued with well known weather issues, (severe rains, the worst in 80 years), but other issues as well. Its Directors were fined for stock-price manipulation and SQM was charged in a tax-evasion case that led to the ouster of its billionaire Chairman Julio Ponce. Ponce was also fined $70 million last year. The company is in an arbitration case, threatening its leases in Chile, where SQM’s Lithium and iodine operations account for nearly 40% of sales. The company’s leases are in the Atacama Salt flat in Chile, Atacama containing 29% of the world’s known Lithium reserves. The cheapest way to produce the metal is via brine harvesting in giant evaporation ponds.

Technical Commentary: 3 year Chart with a 40 day moving average, 14 period RSI. Stock appears to have undergone a reversal and is possibly overbought and forming a bottom.

FMC

Due to heavy rains and the failure of the Argentinan peso to depreciate at nearly the same rate as local inflation, FMC’s lithium supply has remained flat for years. Developers in Argentina are likely to face more disruptive meteorological conditions than rivals in neighboring Chile. Lithium supply from Argentina is considerably more vulnerable to weather-related disruption than that sourced from projects on the other side of the Andes, in Chile. FMC continues to have technical problems expanding its production in Argentina. Readers should note, FMC is a conglomerate with less than 10% of revenues coming from its Lithium segment.

Technical Commentary: 3 year Chart with a 40 day moving average, 14 period RSI. Stock has been in a long-term decline and is probably still oversold, but improving.

ALBEMARLE

Albemarle has experienced delays in its expansion goals in Chile as well. ALB has suffered production issues in Argentina for the past 4 years. When one considers production, the one producer that has expanded capacity is the joint 50% JV between Sichuan Tianqi Lithium Industries and Albemarle in Australia. The Greenbushes mine in Australia is the largest Lithium mining complex in the world and has been supplying incremental demand for the past three years. Additionally, the Lithium coming out of the Greenbushes mining complex has experienced annual price increases over that same time frame.

Technical Commentary: 3 year chart with a 40 day moving average, 14 period RSI. Stock still oversold.

OROCOBRE

Orocobre’s Flagship Olaroz lithium facility commenced production in 2015 and is producing product suitable for technical and battery markets. Production ramp up has been much slower than expected due to equipment sourcing problems and operational issues. These conditions continue, meaning that the company’s initial 2015 production guidance will not be achieved. The question is 2016, Orocobre’s guidance is now considered aggressive given this year’s growing pains. Still, Olaroz is essentially the first new Lithium mine in 20 years.

Technical Commentary: 3 year Chart with a 40 day moving average, 14 period RSI. Stock still oversold, yet to form a bottom.

DAJIN RESOURCES CORP.
Dajin’s stock price has moved up considerably, on heavy trading volume. The company continues to execute on time and on budget in Nevada regrading permits, approvals, and applications to the applicable parties. Dajin Resources not only controls roughly 7,000 prospective acres in Nevada, it has roughly 250,000 acres in the Jujuy Province of Argentina covering regions known to, or believed to, contain brines rich in Lithium, Potassium and Boron.The Salinas Grandes Guayatayoc salt lakes basin was chosen as Dajin’s principal focus for Lithium exploration on the basis of data published in scientific publications, indicating both permissive brine chemistries, accompanied by Lithium concentrations in and near surface brines within the range of Lithium concentrations harvested elsewhere. The excitement regarding Orocobre’s newly open brine operations is spreading to other companies with property in Argentina, including Dajin Resources.Technical Commentary: 3 year Chart with a 40 day moving, average, 14 period RSI. Stock recently broke out of $0.10 resistance range.
PURE ENERGY MINERALS

As can be seen in the chart, Pure Energy’s stock spiked even before Tesla’s comments about sourcing raw materials in Nevada. In speaking about non-Chinese players so far,  my commentary has been on Chile, Argentina, Australia and Nevada. Pure Energy, Dajin Resources and Western Lithium are important emerging players with major plans in Nevada. Pure Energy’s stock price took another leg up after Tesla’s Elon Musk was forced to reiterate his commitment of sourcing Lithium from Nevada. Pure Energy is a pure-play Nevada Lithium play. Coincidentally, both Pure Energy and Dajin Resources have 30 day average trading volumes of roughly 525,000 shares.

Technical Commentary: 3 year Chart with a 40 day moving average, 14 period RSI. Stock appears overbought, but also appears to be in the beginning of an uptrend.

WESTERN LITHIUM/ LITHIUM AMERICAS (merger completed as of September 2015)
Consolidation is a good thing for the industry. I believe the Western Lithium / Lithium Americas deal was better for Western Lithium, who is further away from production, does not have a great deal of funding opportunities and has a technically challenging project in Nevada, involving a separation methodology whereby clays mixed with Lithium needs to be removed. To be fair, Western Lithium received a vote of confidence from Lithium Americas by it agreeing to the merger, which was billed as a merger of equals.

Technical Commentary: 3 year Chart with a 40 day moving average, 14 period RSI. Stock post-merger, Western Lithium appears very oversold.

CRITICAL ELEMENTS
Critical Elements announced the signature of a strategic collaboration agreement with a leading chemical company , including take or pay off-take for all products produced from its Rose Lithium-Tantalum project. A Feasibility Study will be completed in collaboration with the strategic technical and commercial partner. Should the Feasibility Study support technical and economic viability, the strategic partner will have the option of participating in project funding by providing equity capital in the project financing phase for an interest of up to 25%.

Technical Commentary:3 year Chart with a 40 day moving average, 14 period RSI. Has recently broken out of its $0.25 trading range.

NEMASKA LITHIUM
Nemaska announced the signing of an agreement in principle with the City of Shawinigan for the acquisition of land and existing manufacturing facilities in Shawinigan, Quebec. Nemaska will have the right to occupy and use the buildings required for the Phase 1 plant, as of October 1, 2015. The facility will house Nemaska Lithium’s Phase 1 plant and the future commercial Hydromet plant that will convert it into high purity Lithium hydroxide and carbonate along with the spodumene concentrate produced. Nemaska Lithium now has both Federal & Provincial support to move forward with the construction of the Whabouchi mine and concentrator.

Technical Commentary: 3 year Chart with a 40 day moving average, 14 period RSI. Stock was recently overbought, but looks to be forming a longer uptrend.

BACANORA MINERALS

Bacanora Minerals announced that it has signed a lithium supply deal with Tesla Motors. On the condition that Bacanora’s JV partner Rare Earth Minerals’ Sonora Lithium project in Northern Mexico reaches certain performance milestones during the next two years, Tesla Motors will buy Lithium hydroxide to feed the manufacturing of batteries to its giga-factory in Nevada. One of the conditions attached to the deal is that the Sonora project has to be capable to produce Lithium hydroxide in accordance with parameters determined by Tesla.

Technical Commentary: 3 year Chart with a 40 day moving average, 14 period RSI. Stock appears neutral but looks like it could pull back slightly.

TESLA MOTORS

Tesla Motors sparked strong demand for Lithium juniors last year with the announcement of its giga-factory and headlines continue to move markets. By the time its Model X is released in 2017, dozens of global, lower-priced alternatives, many with 200 + mile ranges, will be in showrooms. Just as third-world countries went directly from very low penetration of cell phones (or any phones at all) to high penetrations by skipping land line networks, EVs could gain penetration much faster than many expect. Over time, range anxiety will fall by the wayside as multiple electric vehicles, with ranges of 200-300 miles or more, become the norm and EV prices plummet.

Technical Commentary: 3 year Chart with a 40 day moving average, 14 period RSI. Stock appears to be neutral, needs to break out above $250/share.

GLOBAL X LITHIUM ETF

The Global X Lithium ETF (ticker: LIT) is down 23% over the past 3 months. This seems counter-intuitive, but the reason is not hard to find. The top 10 holdings account for 78% of the ETF. Each is a global, multi-billion dollar company, including SQM, FMC and ALB, but also companies like Panasonic, Tesla & Johnson Controls. Even though a number of Lithium juniors have soared, LIT is a market-cap weighted investment vehicle. Therefore, the top 10 holdings dominate, obscuring the relative performance of Lithium juniors.

Technical Commentary: 3 year Chart with a 40 day moving average, 14 period RSI. LIT is very oversold, but it looks at points A, B, & C, a reversal in price could be imminent.



Drone flies over Elon Musk’s ‘gigafactory’ in US; captures the Tesla plant’s expansion

“This battery facility, “the giga-factory,” is part of Musk’s plans to slash the cost of renewable energy, powered by Lithium-ion batteries. Scheduled to be complete by 2020, the factory is forecast to produce 500,000 Lithium-ion battery packs a year to be used in Tesla cars & home storage applications. Initial production could be as soon as 2016, sooner than expected.
Read Full Story

Tesla’s Musk says lithium deal doesn’t rule out Nevada

Read Full Story

Motor Mouth: How electric highways could save EVs

Imagine roads that charge your electric car as you drive. It’s a grandiose vision to be sure, but one worth contemplating.
Read Full Story

The Market for Lithium Ion Batteries for Vehicles Is Expected to Reach $30.6 Billion in 2024

Growth in electric vehicle batteries is expected to be driven by premium, long-range vehicles and more affordable vehicles with higher driving ranges, report finds.
Read Full Story

Lithium demand from Electric Vehicles, “EVs,” alone could grow 30% annually for years to come

Peter Epstein – I’m on record as stating that demand for lithium will grow faster than most believe. Conventional wisdom seems to say that  overall lithium demand will grow by 8%-12% annually.
Read Full Story

To receive future editions of the Energy Metals Quarterly sign up HERE.
Share

Tweet

+1

Share

Forward

Facebook
Facebook

Twitter
Twitter

Website
Website

LinkedIn
LinkedIn

Copyright *|CURRENT_YEAR|* *|LIST:COMPANY|*, All rights reserved.
*|IFNOT:ARCHIVE_PAGE|* *|LIST:DESCRIPTION|*Our mailing address is:
*|HTML:LIST_ADDRESS_HTML|* *|END:IF|*unsubscribe from this list    update subscription preferences*|IF:REWARDS|* *|HTML:REWARDS|* *|END:IF|*

Leave a Reply