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Is Phosphate Rock Sexy? Yes! And, Arianne Phosphate is Looking Hot

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This article was originally published by Epstein Research.

Severe shortages of critically important commodities are highly likely this decade. For instance, there are legitimate concerns about the supply of copper & lithium. If demand is too strong, prices will reach a point where users try to substitute less expensive materials. Either that or higher prices get passed on to consumers.

Admittedly, not being able to buy an all-electric Ford F-150 pickup truck is not the end of the world. However, reliable access to some commodities can mean the difference between life & death. Water & food, for example. Or, consider the case of fertilizers. NPK stands for Nitrogen, Phosphate, Potash.

While farmers can fiddle with the ratios applied each season, all three are essential macronutrients. Reduced yields or diseased / failed crops due to deficient levels of NPK can lead to food shortages, famine, starvation. Soaring food prices can spark violence & food riots.

Readers might be familiar with giant agriculture/fertilizer companies like Nutrien or Mosaic. They and several others are vertically integrated, controlling an estimated 85% of all NPK production. In the past year, several trends have been coming together to make that vertical integration even more crucial.

 On-shoring (obtaining materials from, and selling products in, the same region) is incredibly important for a number of reasons. The practice facilitates speed, accuracy & reliability from raw material procurement to manufacturing, to sales & delivery of finished goods.

It cuts shipping costs & transport times, both of which have soared, with no easy answer or short-term workaround. Perhaps more important, it fosters the urgent need for security of supply. In addition to on-shoring, there’s also ESG – Environmental, Social, Governmental initiatives.

ESG mandates for industrial companies & miners require adherence to minimizing CO2 emissions, tailings, chemical use & fresh water in each step of the supply chain and through delivery to end-users. Moreover, investment funds increasingly have their own ESG criteria.

While there are > 800 gold & silver juniors, in N. America, how many nitrogen juniors are there? There are fewer than a dozen N. American-listed juniors focused mainly on N, P or K. Yet the fundamentals of macronutrient demand are strong & incredibly consistent.

Arianne Phosphate (TSX-V: DAN) / (OTCQB: DRRSF) has a world-class asset that’s larger, cleaner, and purer than almost any NPK project on earth. The Company’s Lac à Paul phosphate rock project in Quebec, Canada is at BFS-stage, in fact, it’s been at BFS-stage since 2013.

pastedGraphic.png

In the above chart, Arianne’s 100%-owned Lac à Paul is the largest & has the highest concentrate grade phosphate project not owned by a Major. It’s also one of the most advanced (shovel ready), with two long-term off-take agreements in place & good relations with local communities & First Nations.

I mentioned security of supply and on-shoring — look at the countries some of the other projects are in — the DRC, Guinea-Bissau, Angola… I’ll take Canada over those three. Quebec is well situated to serve both Canadian & U.S. farming interests, especially farms on both sides of the border near the Great Lakes.

With Lac à Paul management proposes to produce & sell 3M tonnes/yr. into a 200M tonne market that’s growing by 1.5%-2.0%/yr. {perhaps 2.0%-2.5%/yr. with LFP battery demand}.

Nutrien, CF Industries, Mosaic, Archer-Daniels-Midland Co. & Yara Intl. have operations around the globe, including in Canada. These companies should be very interested in Arianne’s project.

Despite a market downturn from 2012-2019, then prolonged somewhat by COVID-19, a very substantial de-risking of the story has occurred. Management continued to advance Lac à Paul, most notably by:

the signing of 2 long-term off-take agreements, (working on 1-2 more)

the full permitting of the Project (now shovel ready),

improving expected recovery rates from 90% in BFS to 91%-93%,

enhancing concentrate grade assumption from 38.6% to 40.0%,

reducing proposed op-ex by 15%!! from $93.7/Mt to less than $80.0/Mt,

streamlining trucking logistics & environmental footprint,

progressing on higher-margin specialty products,

identifying new opportunities in LFP [the P is for phosphate] batteries in EVs,

green hydro-electric power in Quebec rising in importance,

the signing of a collaboration agreement with first nations,

talking with banks, royalty companies & prospective strategic partners

 

Nutrien, Mosaic, CF Industries, Bunge Limited, and others need continued access to long-term supplies of NPK, the closer to their own facilities & customers as possible. World-class, advanced development assets, be they copper, gold, uranium … are few and far between.

If Arianne can deliver a growing volume of products into specialty applications, project margins could be greatly expanded. One area of great interest in the P in LFP batteries. Tesla made the LFP chemistry, a version of a Li-ion battery, famous in China for smaller, entry-level vehicles.

A year ago, pundits thought LFP was just a niche market. However, Elon Musk changed that view by announcing last week’s plans to expand its use of LFP batteries across more models & regions of the world. Some pundits now believe LFP batteries could capture a quarter of the global market for EV batteries by 2030.

China’s BYD (a top-selling EV manufacturer), battery manufacturer CATL (China’s largest battery maker), Tesla & Stellantis have announced plans to use LFP cathodes. Volkswagen & Ford are also pursuing LFP.

If the LFP battery chemistry really takes off, where will the EV market get all the phosphate it needs? This is a very new development worth watching, how big a part of the market could batteries become? 

How large a premium could be obtained vs. selling phosphate concentrate to fertilizer Majors? Will other phosphate producers be able to make suitable material to sell to LFP companies?

The main takeaway here is that Arianne delivered a strong BFS in 2013, but the economics are meaningfully better today. Leaving pricing the same, recoveries are up and op-ex is down 15%.

The concentrate grade has been improved & trucking logistics streamlined to save on costs & lower traffic emissions. Arianne has key ESG credentials, sourcing power from a green hydro-electric grid & the cooperation agreement with First Nations groups.

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That BFS, if updated for today’s reality, would generate a notably higher NPV & IRR. A hidden gem in the financial workings of the BFS model is that the USD$/C$ exchange rate has moved significantly in the Project’s favor. How much of a move?

As the decline in op-ex, (down 15%) the improvement in the FX rate is currently +15% (this could change). These enhancements would increase the NPV by hundreds of millions of dollars. Better recoveries & a higher concentrate grade would also help the economics. Management believes the Project will be in the bottom (best) quartile on the cost curve.

Near-term catalysts include new off-take agreements, plus updates on funding discussions (debt + royalty/streaming), possible upfront payments for off-take & equipment financing. These options are being pursued to keep the equity component of a construction funding package manageable.

If these and other milestones are met in the coming months, I imagine the share price could move much higher than today’s C$0.49. The Company’s Enterprise Value {market cap + debt – cash} is currently ~C$112M. The Company has a moderate amount of net debt, but it’s not due until 2026.

With a strong strategic partner, Lac à Paul could be in production by 2024, in time to repay and/or refinance the debt.

The province of Quebec, and various agencies & investment funds there, are known to be very supportive of major metals & mining projects. Arianne Phosphate (TSX-V: DAN) / (OTCQB: DRRSF) is in the right place, at the right time, with the right team and the right products.

Disclosures / Disclaimers: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Arianne Phosphate, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market-making activities. [ER] is not directly employed by any company, group, organization, party, or person. The shares of Arianne Phosphate are highly speculative, not suitable for all investors. Readers understand and agree that investments in small-cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Arianne Phosphate was an advertiser on [ER] and Peter Epstein owned shares in the Company.

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reason whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector, or investment topic.

Author: Peter Epstein

Energy & Critical Metals

Rivian Stock Alert: RIVN Shares Just Lost Out on Market Cap to LCID Stock

Step aside, Rivian (NASDAQ:RIVN)! There’s a new electric vehicle (EV) startup leader based on market capitalization, and its name is Lucid (NASDAQ:LCID)….

Step aside, Rivian (NASDAQ:RIVN)! There’s a new electric vehicle (EV) startup leader based on market capitalization, and its name is Lucid (NASDAQ:LCID). Recently, Lucid’s market cap of $62 billion surpassed Rivian’s market cap of $58 billion. After Rivian ballooned to as high as $179 following its initial public offering (IPO), shares have slumped lower to the mid-$60 range. Furthermore, shares of RIVN stock are down more than 35% year-to-date (YTD). While LCID stock is down roughly 7% YTD, Lucid’s superior YTD performance has allowed Lucid to surpass Rivian in terms of market cap.

Rivian sign outside the company's HQ in Silicon ValleySource: Michael Vi / Shutterstock

Both Rivian and Lucid offer investors an opportunity to invest in an early stage EV startup. However, the valuation of these two names is what is holding some investors back. Furthermore, competition from legacy automakers like Ford (NYSE:F) and General Motors (NYSE:GM) is also heating up. On top of that, investors should be aware of the elephant in the room, namely Tesla (NASDAQ:TSLA).

Last quarter, Rivian reported revenue of $1 million on top of a $1.23 billion loss. On the other hand, Lucid reported revenue of $232,000 with a $524.4 million loss. While these two EV makers remain unprofitable, investors should be reminded that it took Tesla 18 years to become profitable. Tesla achieved this accomplishment in 2020 and delivered 500,000 vehicles that year.

What’s Next As Lucid Overtakes Rivian Stock

An investor should also factor potential growth into their investment thesis. Rivian currently has 71,000 reservations for the R1T and R1S models. Meanwhile, Lucid has 17,000 reservations for its Air sedan, representing a book value of $1.3 billion. Lucid has also confirmed its goal of producing 20,000 vehicles in 2022. Furthermore, CEO Peter Rawlinson is “confident in our ability” to achieve the goal.

Rivian has not yet released a 2022 production goal, although the EV maker stated that it expects its 2021 target of 1,200 vehicles produced to fall “a few hundred vehicles short.” Rivian is also working on a new $5 billion EV plant in Georgia. Construction for the plant will start this year, with a finalization date set for 2024. The new plant is expected to be able to produce 400,000 vehicles per year. However, building new plants isn’t cheap, and Rivian is expected to report $8 billion of capital expenditures through 2023.

Both companies are currently spending billions of dollars to power future growth. Investors will want to keep up to date with reservation reports and company updates as these two EV producers try to make a name for themselves.

On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Energy & Critical Metals

What Will Be China’s Impact On Uranium Markets?

Coming back to the Daily Dive is Joe Kelly, CEO of Uranium Markets. He joins us to talk about the
The post What Will Be China’s Impact On Uranium Markets?…

Coming back to the Daily Dive is Joe Kelly, CEO of Uranium Markets. He joins us to talk about the impact of Kazahkstan on the uranium market (0:54), Japan’s play for the nuclear power (4:41), and the prospect of US giving tax credit to nuclear firms (5:53). Joe also discusses China’s shift from coal to nuclear on the uranium space (7:29), the effect of Belgium shutting its nuclear plants (9:28), and his outlook for uranium in 2022 (10:48).

Uranium Markets has a full-service nuclear fuels brokerage desk assisting its customers to optimize their positions in the uranium market. The firm takes pride in combining its strong financial brokerage experience and a deep understanding of the uranium marketplace.

 

The author has no securities or affiliations related to any organization mentioned. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post What Will Be China’s Impact On Uranium Markets? – The Daily Dive appeared first on the deep dive.

Author: Jay Lutz

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Energy & Critical Metals

Without a Doubt, Lithium’s “White Gold” Label is Merited

2022.01.21
Electrification and decarbonization are anticipated to be one of the biggest investment trends of 2022.
Just two weeks into the new year, we’re…

2022.01.21

Electrification and decarbonization are anticipated to be one of the biggest investment trends of 2022.

Just two weeks into the new year, we’re already witnessing a big rally in EV battery minerals, perhaps a precursor to what could be a historic year for metals considered vital to the energy transition.

Nickel prices last week surged to its highest in a decade, with investors betting on a global scramble for supplies of the EV battery material.

Another key battery mineral that has seen its prices soar is lithium, which started 2022 on a record high, continuing its strong form from last year. Data from S&P Global Platts last week showed that lithium carbonate prices in China have now risen 35% on month and are up 531% on the year.

And this uptrend in lithium (and other EV battery metals) is only going to continue, according to those within the battery metals industry.

Caspar Rawles, chief data officer at Benchmark Mineral Intelligence, the world’s leading lithium price reporting agency and EV supply chain data provider, notes that the early transactions from 2022 suggest that “lots of legs” are left in this rally.

Gavin Montgomery, research director for battery raw materials at Wood Mackenzie, recently said in a Financial Times article that lithium prices are unlikely to crash, as they did in previous cycles.

“We’re entering a sort of new era in terms of lithium pricing over the next few years because the growth will be so strong,” he added.

According to a December report from S&P Global, further demand growth in 2022 will mean a lithium deficit this year as use of the material outstrips production and depletes stockpiles.

Supply is forecast to jump to 636,000 tonnes of lithium carbonate equivalent in 2022, up from an estimated 497,000 in 2021 — but demand will jump even higher to 641,000 tonnes, from an estimated 504,000, the report said.

Lithium Supply Problem

Driving the latest lithium rally are near-term risks that are threatening deeper shortages in the metal’s supply, from plant maintenance and Winter Olympics curbs in China to pandemic-related labor shortages in Australia.

“The lithium market is extremely tight at present, so spot prices are very sensitive to any supply disruptions,“ Alice Yu, analyst at S&P Global Market Intelligence, recently wrote in a note to Bloomberg.

As we speak, lithium prices are still rising in China as consumers look to restock ahead of the Chinese New Year festivities at the end of the month and early February. The high level of buying in the world’s biggest EV economy also pushed prices higher in other regions such as Europe and the US, according to Fastmarkets.

Beyond the short-term issues, there are challenges for lithium supply to expand fast enough to avoid a prolonged market squeeze over the coming years.

Skeptics point to Rio Tinto’s controversial lithium project in Serbia, which is now on hold due to environmental protests, and the growing concerns around the sustainability credentials of South America’s brine-based production, as long-term threats to global supply.

“Customers are realizing that new supplies are very difficult to bring on,” said Tony Ottaviano, CEO at Australian lithium miner Liontown Resources, in the Bloomberg report. His company recently signed an agreement to ship lithium to South Korean battery giant LG Energy Solution from 2024, when its project is scheduled to start.

Last week, BlackRock’s Evy Hambro, global head of thematic and sector-based investing, told Bloomberg TV that commodity prices may stay high for decades as mining companies struggle to keep up with demand from the energy transition.

“We’ve got decades worth of high rates of investment into infrastructure as the world seeks to decarbonize. That’s a widely held consensual view,” he said.

Among the key raw materials listed was lithium, which is set to face fresh demand from the creation of a “greener world”.  Bloomberg New Energy Finance (NEF) estimates that, by 2030, consumption of lithium (and nickel) will be at least five times current levels.

Hambro still sees the mining sector as remaining undervalued, given its importance in providing the materials like lithium needed to decarbonize the global economy.

“It seems as though this core element of the transition has been completely ignored by many investors,” he said. “At some point people will realize how essential these businesses are for the transition and capital will flow into them, and that should change the valuations.”

More Expensive EVs

The tightening supply of metals is happening just as EV uptake around the world is about to explode, which is exerting serious cost pressure on battery production.

In fact, we could see the first rise in battery prices since 2010 this year, potentially undermining global efforts to speed up the adoption of EVs and clean energy technologies, analysts say.

Between 2010-2021, battery pack prices had dropped a staggering 89%, from above $1,200/kWh to $132/kWh in real terms, BloombergNEF’s annual battery price survey showed in November.

Li-ion battery prices dropped by 6% from $140/kWh in 2020 to $132/kWh in 2021, but could now rise to $135/kWh in 2022 in nominal terms due to higher raw material prices, BloombergNEF estimated.

According to the research provider, even low-cost chemistries like lithium iron phosphate (LFP), which have been used more in 2021 and are particularly exposed to lithium carbonate prices, have felt rising costs throughout the supply chain in recent months.

Since September, Chinese producers have raised LFP prices by between 10-20%, according to BloombergNEF estimates. Indeed, the average price of these cells is now the same as the average price of high-performing nickel-based cells in the first half, at around $100/kWh.

If other technology improvements cannot mitigate the higher cost of raw materials, the point of breaking below the critical threshold of $100/kWh battery pack price could be pushed back by two years from BloombergNEF’s current expectation of 2024.

“This would impact EV affordability or manufacturers’ margins and could hurt the economics of energy storage projects,” the research provider warned.

“Higher battery price creates a tough environment for automakers, particularly those in Europe, which have to increase EV sales in order to meet average fleet emissions standards,” said James Frith, BNEF’s head of energy storage research and lead author of the report.

Automakers may now have to make a choice between reducing their margins or passing costs onto consumers. Either way, some carmakers are likely to lose out in the global race to produce affordable EVs after failing to meet their ambitious targets.

In the grand scheme of things, the clean energy transition could be costlier and more distant than initially thought. Fatih Birol, executive director of the International Energy Agency (IEA), said last year:

“Today, the data shows a looming mismatch between the world’s strengthened climate ambitions and the availability of critical minerals that are essential to realizing those ambitions.”

US Falling Behind

The United States still lags behind both China and Europe when it comes to the production and domestic uptake of EVs, and the world’s biggest economy has made it loud and clear it wants to challenge its rivals’ dominance.

In an executive order, US President Joe Biden has already set a national goal for 50% of new car sales by 2030 to be electric. Jumpstarting his EV initiative is a proposed $7.5 billion spending package to build a network of 500,000 EV charging stations across the country.

Meanwhile, its EV industry is also making more noise than ever. Nearly every major automaker in the US has announced a transition to electric vehicles; Tesla delivered almost one million cars in 2021, while new electric vehicle companies like Rivian and Lucid are rolling out new models off the line.

However, to power these new EVs requires more batteries — and the materials to build them.

According to Benchmark Mineral Intelligence, EV growth will be responsible for more than 90% of demand for lithium by 2030. The UK-based consultancy forecasts that demand for lithium is set to triple by 2025, rising to 1 million tonnes and outpacing supply by 200,000 tonnes.

So for the US to really become an EV powerhouse, it needs to first solve its lithium supply problem.

Over 80% of the world’s raw lithium is currently mined in Australia, Chile and China. Moreover, China controls more than half of the world’s lithium processing and refining, and has three-fourths of the lithium-ion battery megafactories in the world, according to the IEA.

The US, meanwhile, mines and processes only 1% of the world’s lithium, according to the US Geological Survey (USGS). There is only one lithium mine in operation, Albemarle’s Silver Peak, which extracts lithium from brine outside of Tonopah, Nevada, outputting a paltry 5,000 tonnes of lithium carbonate a year.

However, this is not to say we can rule out the US as a major producer of lithium, dubbed “white gold” for its vital role in rechargeable batteries and high demand.

Next Lithium Hub?

The US had been the leading producer of the metal until the 1990s, so scarcity is not a problem.

Within its borders are almost 8 million tonnes of lithium in reserve, ranking it among the top five countries in the world, according to the USGS.

So, with the right amount of investment, a burgeoning domestic “mine to battery to EV” supply chain is certainly within reach. Several projects are already in the works across the states of Nevada, North Carolina, California and Arkansas.

Nevada looks to be the focal point of the next “white gold rush” given the abundance of lithium-rich brines and clays, plus its history of lithium production dating back to the 1960s. It currently hosts the only US lithium mine, for now.

Conclusion

Lithium prices have already set new records to begin the year; China’s lithium carbonate prices jumped to over $47,500 last week, representing a six-fold increase over January 2021.

The BMI lithium index has already shot up by 280% year-on-year, and nearly 12% over the past month alone.

Some are predicting that this run is far from done. Australian lithium miner Allkem told Reuters this week that lithium carbonate prices could explode in the second half of the year, rising by about 80% to over $20,000/tonne in the six months to December.

“It’s a very, very tight supply market and as a result of this we’re seeing this very rapid increase in pricing,” the company representative said.

Strong demand for lithium-ion batteries for EVs and other applications is expected to put a strain on the global supply of battery raw materials, which will likely invoke a string of new investments.

China’s biggest battery makers and miners are already gobbling up lithium assets left, center and right, with more deals still left to be done. Without a doubt, lithium’s “white gold” label is merited.

With the global race to secure minerals in full throttle, there will be calls made to companies holding lithium projects within the most prolific regions of the world.

Richard (Rick) Mills
aheadoftheherd.com
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