This lithium stock might be flying under the radar

Monday, 1 January 2018
Melbourne, Australia
By Terence Duffy

  • We’ll need 35 more Gigafactories in the next decade
  • Keep watching this space
  • One for the watchlist

Editor’s note: Kris Sayce, Bernd Struben and the staff at Port Phillip Publishing are taking a break for the holidays. We will be returning to our posts on 2 January, 2018. While we’re away, we’re bringing you some complimentary back-issues of Money Morning Trader.

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The following article was originally published on 11 September 2017.

At the end of 2015, fears of a lithium shortage saw prices almost triple in the space of a few months.

It was all to do with the projected demand for electric vehicles (EVs). Suddenly EVs were competing with laptops and smartphones for lithium-ion batteries.

Although that initial hype has died down, potential demand for the metal is unlikely to slacken anytime soon. On the contrary, electric car production is expected to increase more than thirtyfold by 2030, with global EV sales forecast to hit 24.4 million annually.

On those estimates, by 2030, the major producers will have to supply enough lithium to feed the equivalent of 35 plants the size of the Tesla Gigafactory now being built in Nevada.

Battery makers are needing more mines to support production quicker than anyone thought. That’s because EVs are moving quicker than many people expected.

Lithium supply is likely to remain tight, keeping demand strong for the remainder of 2017 and into 2018. And, if that’s the case, there is a significant upside for stocks that can properly develop and execute projects within the next year or so.

Australia’s next lithium producer, Altura Mining Ltd [ASX:AJM], could be one such candidate. They have a world class, low cost lithium deposit. And their first production of lithium concentrate is expected to come in the first quarter of 2018.

Trading at multiples below its peers, Altura Mining could be one that’s flying under the radar.

With low operating costs, and close proximity to Port Hedland — the quickest route to Asian markets — the project has many positives.

With funding and offtake agreements secured for initial production, the company has 50% of the site construction completed.

Let’s bring up the chart:

chart image

Source: Optuma
Click to enlarge

After the hysteria of early 2016, when the lithium price went in the stratosphere, the share price has come off its April 2016 highs — eventually finding support at 11 cents.

From the August low, the share price has simply been trading in a range for the past year and is finding resistance at 19 cents. That gives you something to work with to do your own analysis.

The company has a scoping study underway to double initial estimates of production, based on a 24-hour production model. That would have a significant impact on projected future earnings if Altura Mining can execute.

Initial production is destined for China, primarily for the electric car market. China, the world’s largest auto market, has also begun studying when to ban the production and sale of cars using traditional fuels.

The United Kingdom and France have said they will ban new petrol and diesel cars from 2040.

China has already set goals for electric and plug-in hybrid cars to make up at least a fifth of Chinese auto sales by 2025. Largely to improve air quality in its choking cities.

EVs could move quicker than many expect, providing further upsides for a company like Altura Mining.

Supply is tight. If Altura comes online on schedule, the stock could be good investment over the short term as they take advantage of elevated pricing and strong demand.

Still, there’s a lot of execution risk between now and then. Production may get delayed for a number of reasons, and maybe EV demand won’t live up to projected forecasts.

Risks aside, Altura Mining remains one for the watchlist.

This is not the first time Altura Mining has been profiled on Money Morning Trader. I’ll have more to say on that in a further update this week.

Good trading,

Terence Duffy,
Editor, Money Morning Trader

I (Bernd) thought you might like to see how this one played out. Below you can see what the chart did tell you, as updated on 6 December:

chart image

Source: Optuma
Click to enlarge

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