Elon Musk, the "cosmic Internet celebrity", once again "stirred up the storm" with his words. Musk shouted that lithium refining can be called a "money printing machine"! Which lithium mining concept stocks can get a piece of the pie?

After the US stock market opened on July 20, Musk was in the$Tesla, Inc. (TSLA.US) $The issue of lithium resources was discussed in the second quarter earnings call. Mr Musk said the problem with the surge in lithium prices due to limited supply was not that lithium resources were too scarce, but that there was not enough global capacity to extract battery-grade lithium.

He believes that the global lithium reserves are very large, and there is no shortage in itself, but in the short term, lithium will still limit the development of the new energy vehicle industry, and the key constraint lies in high-purity, battery-grade lithium refining, especially in the large-scale speed of lithium refining and the supply chain. "you have to refine lithium into battery-grade lithium carbonate (lithium carbonate) and lithium hydroxide (lithium hydroxide), which requires a very high purity," he said. "

At the same time, Musk called for more investment in global lithium refining to ease the shortage of battery materials, saying it was very profitable, "like having a money printing machine". "the current gross profit of the lithium refining industry is similar to that of the software industry," he said. Once again, I would like to encourage you to set up enterprises that refine lithium, and you will never lose. "

After Musk gave this "get rich secret", stock investors poured into the lithium mining sector, and lithium mining stocks soared. Data displayETF-Global X (LIT.US) $Lithium BatteryMusk's comments rose 1.64% the next day. Among them$Lithium Americas (LAC.US) $、$Chile Mining and Chemical Industry (SQM.US) $And$Piedmont Lithium (PLL.US) $Increased by 5.3%, 3.6% and 3.5% respectively, compared with$Ford Motor (F.US) $Australian lithium boron miners who have reached a five-year lithium carbonate supply agreement$IONEER LTD SPON ADS EACH REP 40 ORD SHS (IONR.US) $Led the ETF with a 6.4 per cent increase.

First, lithium prices continue to rise and high prices may still be the main theme under the mismatch between supply and demand.

In March this year, the average price of battery-grade lithium carbonate in China historically broke through the 500000 yuan mark, reaching 500400 yuan per ton, compared with less than 100000 yuan per ton in the same period last year. As of press time, the price of battery-grade lithium carbonate was 476500 yuan per tonne, still close to the all-time high set in March, up 430 per cent from a year earlier.

Although lithium is called "white oil", it is not a scarce resource. According to the Chinese Academy of Sciences, the global economic recoverable reserves of lithium resources is 21 million tons, which is expected to produce 2 billion electric vehicles; according to the global demand of 606200 tons in 2021, it can be used for at least 200 years.

The main reason for the sharp rise in lithium prices is that the demand for new energy vehicles and electrochemical energy storage has continued to break out in recent years, and it is difficult to guarantee the supply of upstream lithium ore mining and smelting. On the lithium resource side, the pre-development cycle is as long as 3-5 years, and the smelting end production cycle also takes 1-2 years. The difficulty and progress of medium-and short-term lithium resources development are difficult to match the speed and magnitude of downstream demand growth, and the situation that supply falls short of demand continues to worsen, leading to rising lithium prices.

It is worth noting that the contradiction between supply and demand may continue to expand in the short term in the future, which will push lithium prices higher. Based on the capacity of the lithium industry and future demand for electric passenger cars, supply shortages will delay production of about 3.3 million electric vehicles with 75kWh batteries by 2027, according to Rystad Energy, an energy consultancy.

Judging from the current capacity situation, the situation that supply exceeds demand is difficult to reverse in a short period of time. According to Rystad Energy, with the current mining project pipelines unchanged, mining capacity is expected to reach only 2 million tons in 2028, while manufacturers' lithium demand will reach 2.8 million tons.

Although companies are trying to expand capacity, in addition to mining, refining capacity also limits the supply of lithium resources. The data show that it takes three to five years to explore the storage of new lithium resources, two to three years to install refining facilities, and a long time to organize the supply chain and train the labor force. Therefore, market participants said: "in the second half of the year, the high price of the basic lithium salt market is the main theme." "

James Ley, senior vice president of the Rystad Energy Energy Metals team, said: "We expect lithium prices to return to the past volatility if supply fails to catch up with the development of electric vehicles. Prices may even triple as a result of market imbalances. The International Energy Agency (IEA) also said lithium prices are likely to continue to rise. In the case of high lithium prices, perhaps, as Musk put it, refining lithium will be as lucrative as "a money printing press".

Second, which lithium mining concept stocks are worthy of attention?

While the refined lithium business is indeed profitable, few companies focus only on this business, and integrated lithium producers that can extract and extract low-cost lithium carbonate / lithium hydroxide will benefit a lot from energy transformation and car electrification.

1、$IONEER LTD SPON ADS EACH REP 40 ORD SHS (IONR.US) $

Australian lithium boron miner ioneer has a lithium-boron project called Rhyolite Ridge in Nevada, USA, which is the only known large, shallow lithium-boron deposit in North America and one of the two largest lithium-boron deposits in the world.

According to ioneer's estimate, the project will produce an average of about 20600 tons of lithium carbonate (1-3 years) or about 22000 tons of lithium hydroxide (4-26 years) and 174400 tons of boric acid per year over a 26-year life expectancy. The project is expected to start production in mid-2023. Thanks to the diluted cost of by-product boric acid, the project has a record low operating cost of US $2510 per tonne of LCE (lithium carbonate equivalent), which is unmatched by other lithium mining projects.

According to the final Feasibility study (DFS) report released by ioneer in May 2020, under the assumption that the price of lithium carbonate is $10650 per tonne, the expected total revenue of the project is $10.7 billion, the profit before interest, tax, depreciation and amortisation (EBITDA) of the project is $7.3 billion, the net present value is $1.265 billion, and the after-tax internal rate of return is 20.8%.

In addition, in March this year, ABB won a major power and automation engineering and equipment supply contract for ioneer's US mining project, a deal that marks significant progress in Rhyolite Ridge's lithium-boron project. In the future, the Rhyolite Ridge project is expected to develop into a lithium-boron resource with global influence, long life and low cost, and will provide the company with long-term revenue visibility.

2、$Lithium Americas (LAC.US) $

Lithium Americas has a 100 per cent stake in the Thacker Pass project in Nevada, USA, whose lithium resource is mainly lithium clay, adjacent to paved highways and high-voltage transmission lines, 60 miles from railway lines. According to the announcement issued by Lithium Americas in October 2021, the first-stage target lithium carbonate capacity of the Thacker Pass project is 40,000 tons / year, followed by a second-stage expansion, and the target lithium carbonate capacity after the expansion is 80,000 tons / year.

The economic data related to the Thacker Pass project are still based on the pre-feasibility study report released by the company in August 2018. Under the assumption that the price of lithium carbonate is $12000 / ton, the estimated after-tax net present value of the project is $2.6 billion, the average annual EBITDA is $520 million, the after-tax internal rate of return is 29.3%, and the initial capital investment is $1.059 billion. The project is expected to be put into production in 2022, with a production capacity of 30, 000 tons of LCE in the first phase.

On Feb. 25, Lithium Americas announced that it had won the final key state license for the Thacker Pass lithium project, according to the data. Deutsche Bank analyst Corrine Blanchard believes that the US federal court's decision at the end of the third quarter on whether Lithium Americas can build the Thacker Pass lithium project in Nevada will serve as a catalyst for the company. If Lithium Americas is able to build the Thacker Pass lithium project, the location of the project will be very favorable for Lithium Americas to become a lithium carbonate supplier to Tesla, Inc. 's Nevada super factory and other companies on the west coast of the United States.

In addition, Lithium Americas also owns 49 per cent of the Cauchar-Olaroz lithium project in Jujuy, Argentina. The chairman of the board of Lithium Americas has said: "Cauchar-Olaroz is expected to become the largest new lithium brine business in more than 20 years." "

Lithium Americas has risen more than 72% in the past 12 months. Wall Street analysts have a consensus rating of the stock as a "moderate buy", with an average target price of $39, meaning analysts believe the stock has more than 53% room to rise.

3、$Chile Mining and Chemical Industry (SQM.US) $

Chile's mining and chemical industry has benefited from the rise in lithium prices and its long-term business strategy. The company's production has almost tripled in the past three years and remains a leader in lithium, potassium nitrate, iodine and hot solar salts.

In the first quarter of 2022, Chilean mining and chemical revenue was US $2.02 billion, an increase of 282.18% over the same period last year and 86.28% month-on-month; net profit was US $796 million, an increase of 1070.74% and 147.54%, respectively. The net profit in the first quarter alone exceeded the full-year profit of 2021.

Chile's mining and chemical industry's first-quarter performance growth was mainly due to high lithium prices and strong market demand during the reporting period. In the first quarter of 2022, Chilean mining chemical lithium business revenue was 1.446 billion US dollars, an increase of 969.82 per cent year-on-year and 219.21 per cent month-on-month, accounting for 71.58 per cent of the company's total revenue. Sales of lithium and derivatives were 38000 tons, up 58.33% from a year earlier and 22.58% from a month earlier. The average sales price of lithium and derivatives was $38000 / ton, up 566.67% from a year earlier and 160.27% from a month earlier.

Thanks to strong demand, the company expects the global lithium market to grow by at least 30 per cent this year; sales of lithium and derivatives for the whole year are expected to be about 140000 tonnes, up 39000 tonnes from a year earlier.

By the end of 2021, the effective capacity of Chilean mining and chemical industry in Chile is 120000 tons / year of lithium carbonate and 21500 tons / year of lithium hydroxide. According to the company's announcement, its board of directors has approved an investment of US $900 million in 2022 for the expansion of lithium carbonate, lithium hydroxide and other projects, and the company is expected to put into production 60,000 tons of lithium carbonate as planned in the next few months. The company's production capacity of lithium carbonate and lithium hydroxide is planned to be 210000 tons / year and 40, 000 tons / year respectively in 2023.

In addition, Chile Mining and Chemical Industry and Wesfarmers joint venture Western Australia Mt. The Holland lithium project is actively under way, with an annual production capacity of 400000 tons of lithium concentrate, which is expected to be put into production in 2024. In May, the company also signed a memorandum of understanding with LG Chemical's Energy Solutions (LG Energy Solution) to jointly research and develop joint investment projects in the value chain of the electric vehicle industry at different stages.

Chile's mining and chemical shares have risen 114 per cent in the past 12 months and have received a "strong buy" consensus rating from Wall Street analysts, with an average target price of $114.2, still more than 16 per cent higher than the current share price.

4、$Piedmont Lithium (PLL.US) $

Piedmont Lithium has a 100 per cent stake in Piedmont Lithium's Carolina lithium project, which is located in the tin-spodumene belt (TBS) in Carolina.

According to the Economic Feasibility study (BFS) released by Piedmont Lithium in December 2021, the life of the Carolina lithium project is expected to be 11 years, with an annual production capacity of 242000 tons of lithium concentrate and 30, 000 tons of battery-grade lithium hydroxide (integrated project). Under the assumption that the price of lithium hydroxide is $18000 / ton and the price of lithium concentrate is $900,900 / ton, the EBITDA of the project is expected to be $459 million, the net present value after tax is $2.041 billion, and the after-tax internal rate of return is 27%. The total initial capital expenditure of the project is $988 million and the expected payback period for investment is 3.50 years.

In September 2020, Piedmont Lithium and Tesla, Inc. signed a five-year binding off-take agreement. According to the agreement, Tesla, Inc. will purchase 1/3 of the company's annual output of 160000 tons of spodumene concentrate from Piedmont Lithium at a fixed price within five years, which is expected to begin between July 2022 and July 2023, followed by an agreement by both parties for another five years.

In addition to the Carolina lithium project, Piedmont Lithium's lithium project includes a 16.5 per cent stake in Sayona Mining, a listed Canadian company, and a 25 per cent stake in its subsidiary Sayona Quebec, a 9.9 per cent stake in Atlantic Lithium and a 50 per cent option for a future lithium concentrate, as well as a second phase of lithium hydroxide with a design capacity of 30,000 tons per year. With the layout of several lithium resources projects, Piedmont Lithium is expected to become one of the most important lithium compound manufacturers in North America in the future.

Although Piedmont Lithium's share price has fallen about 19 per cent in the past 12 months, Wall Street analysts still give a consensus rating of "moderate buy", with an average target price of $90, with nearly 100 per cent room to rise from the current share price.

Other lithium mining concept stocks that are also noteworthy include$Yabao (ALB.US) $和$Livent (LTHM.US) $、$LI-CYCLE (LICY.US) $Such companies engaged in lithium-ion battery recycling also have reason to be an integral part of the lithium supply chain.