Aluminum prices soared to a new decade high after a military coup in Guinea stoked concerns over the supply of bauxite, a sedimentary rock with high aluminum content, according to Bloomberg.
Aluminum prices increased in London and Shanghai. London Metal Exchange (LME) contracts rose nearly 2% to $2,775 on the news of the military coup in the West African country on Sunday that could threaten bauxite supply.
According to UK-based commodity research firm Marex, Guinea is one of the world's largest bauxite exporters. The country mines about a quarter of the world's supply. So far, there are no signs yet of supply disruptions.
Guinea exported 82.4 million tons of bauxite to make alumina that eventually produces aluminum in 2020. For the last half-decade, exports from the country have surged. Some of the top buyers of bauxite are Australia and China.
The coup "might have a speculative impact on the price of aluminum but will have a bigger impact on the alumina price because it's more immediately exposed to the event," said Tom Price, head of commodities strategy at Liberum Capital Ltd. "It's an event which will create a new risk of security to supply."
Aluminum prices on the LME have surged more than 40% over the past year and are at a new decade high, not seen since 2011.
Shares of aluminum producers are also rallying over the political unrest in the country. Industry leader Aluminum Corp. of China or Chalco is up 10%, United Co. Rusal traded 15% higher, and Norsk Hydro rose to the highest intraday level since November 2017.
The head of the elite military unit in the West African nation, Colonel Mamady Doumbouya, declared the country's takeover on Sunday and immediately imposed a curfew around 8 pm local time.
Doumbouya told the nation the coup was essential to address the gross financial mismanagement and corruption under President Alpha Conde. He added the president is safe.
"If you see the condition of our roads, of our hospitals, you realize that it is time for us to wake up," Doumbouya said. "We are going to initiate a national consultation to open an inclusive and peaceful transition."
The unexpected events of the coup added more fuel to the fire for aluminum prices as smelters in top producer China faced stricter power controls measures by Beijing to curb carbon emissions.
"Investors are quite concerned given China buys a big chunk of bauxite from Guinea," Xiong Hui, the chief aluminum analyst with Beijing Antaike Information Development Co. He said there have yet to be any reports of supply disruptions. The situation is ongoing and comes at an inopportune time as China's Guangxi province cuts production, tightening the market.
A combination of political unrest in Guinea and China's smelter crackdown has resulted in challenges for the aluminum market that has pushed prices to decade highs. So much for the Federal Reserve's transitory narrative.
Millennial Lithium Bidding War Reads Well For Peers
On September 8, Millennial Lithium Corp. (TSXV: ML) announced that it received an unsolicited takeover bid from a foreign-based lithium
The post Millennial…
On September 8, Millennial Lithium Corp. (TSXV: ML) announced that it received an unsolicited takeover bid from a foreign-based lithium battery production company. The bid is reportedly $0.25 per share superior to the $3.85 all-cash takeover bid it received and accepted in July from China-based Ganfeng Lithium Co., one of the largest lithium producers in the world.
Bloomberg reported on September 14 that the mystery bidder was likely Contemporary Amperex Technology Co., Ltd. (CATL), another China battery giant. Millennial has given Ganfeng until September 27 to amend its bid to counter the mystery bidder’s proposal.
The Ganfeng bid for Millennial equates to $377 million in cash. Factoring in Millenium’s net cash position of about $52 million as of February 28, 2021, Millennial’s takeover enterprise value per the Ganfeng bid is about $325 million. Millennium’s principal asset is its flagship Pastos Grandes lithium brine project in Argentina. Lithium, the lightest of all metals, is used extensively in the batteries of electric vehicles.
Millennial’s Pastos facility should begin production in 2024. Its projected battery and technical grade lithium carbonate output is 24,000 tonnes per year (tpy). Ganfeng’s willingness to pay $325 million – and another party at least $25 million more than that — for a project which is not scheduled to commence production for three years is noteworthy.
The bidding war between two very well-capitalized lithium battery producers is clearly a positive for Millennial shareholders. In addition, there are two key read-throughs for other stocks.
More specifically, the purchase price highlights the value of another South American-based lithium producer, Sigma Lithium Corporation (TSXV: SGMA). In June 2021, Sigma broke ground on its Grota do Cirilo hard rock lithium project in Brazil. It is scheduled to begin lithium carbonate production in 4Q 2022.
Its projected Phase 1 output, 33,000 tonnes of lithium carbonate equivalent, is 40% larger than Millennial’s target capacity. Phase 2 production could begin in 2023. Sigma’s enterprise value is nearly $650 million, or about twice Millennial’s likely takeout value. Given Sigma’s two-year time advantage to market, that differential may be too small.
Secondly, Ganfeng owns 51% and Lithium Americas Corp. (TSX: LAC) 49% of the Cauchari-Olaroz lithium brine project in Argentina. Cauchari-Olaloz, which has projected stage one output of 40,000 tpy of battery- quality lithium carbonate, is expected to commence production in mid-2022. If the facility operates well, it is certainly possible that Ganfeng (stock market capitalization of around US$38 billion) at some point could decide to buy Lithium Americas’ stake or Lithium Americas itself.
Sigma and Lithium Americas Have Solid Balance Sheets
Both Sigma and Lithium Americas are well capitalized. As of June 30, 2021, the companies have net cash positions of $40 million and $446 million, respectively. Sigma’s enterprise value is $849 million, and Lithium Americas’ is $3.18 billion.
|(in thousands of Canadian $, except for shares outstanding)||Sigma Lithium Corporation||Lithium Americas Corp.|
|Cash – as of 6/30/21||$40,577||$641,250|
|Debt – as of 6/30/21||$531||$195,112|
|Enterprise Value||$849, 364||$3,183,862|
Lithium is a key element in most electric vehicle batteries. If electric vehicle demand were to reverse the trends of the past few years and start to slow, all lithium miners would likely be negatively affected. Also, if engineers at some point can develop a cheaper, more effective option than lithium, lithium producers would likewise be impacted.
A bidding war for Millennial at a rich price for a junior miner which is unlikely to produce lithium carbonate for three years, is a positive for more advanced lithium development companies like Sigma Lithium and Lithium Americas. Equally important, Sigma and Lithium Americas seem to be attractively valued relative to the ultimate takeover price for Millennial Lithium.
Millennial Lithium Corp. last traded at $4.09 on the TSX Venture.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. 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 Millennial Lithium Bidding War Reads Well For Peers appeared first on the deep dive.tsx tsxv lithium batteries electric vehicle
Benchmark: lithium’s price rally accelerates
Lithium price rises accelerated in the first half of September as surging demand and raw material supply concerns combined to push Chinese domestic prices…
Lithium price rises accelerated in the first half of September as surging demand and raw material supply concerns combined to push Chinese domestic prices up to their highest levels since mid-2018 according to data from Benchmark’s Lithium Price Assessment.
Lithium hydroxide and carbonate price rises accelerated to new levels in the first half of September. Source: Benchmark
Technical and battery-grade lithium carbonate prices increased by more than 20% in the first two weeks of September and are now up 188.9% and 215% respectively in the Chinese domestic market this year.
Carbonate price increases are once again outpacing lithium hydroxide, last seen in Q1 2021, and could soon race ahead, Benchmark said. China EXW lithium hydroxide prices rose 14.2% in the first half of September, up 162.7% year-to-date.
Throughout August and early September, the price rally for lithium chemicals and feedstock has been re-ignited on incredibly strong downstream demand, especially within the Chinese domestic market, which acts as a bellwether for the rest of the world’s lithium market.—Benchmark analyst George Miller
This Will Help the Market Right Itself
Despite recent weakness, expect buybacks to help support the market … look for a break to new highs later this fall … a preview of the amazing technologies…
Despite recent weakness, expect buybacks to help support the market … look for a break to new highs later this fall … a preview of the amazing technologies headed our way this decade
Coming into September, it seemed just about everyone was expecting a market pullback.
And whether it was a self-fulfilling prophecy, market dynamics, or just seasonal weakness, this month has, in fact, seen losses.
As I write Friday at lunch, the S&P and Nasdaq are down 1.7% and 1.3%, respectively, on the month. The Dow leads the losses, off 2.1% so far in September.
If your portfolio is in worse shape, that’s because pockets of the market have been underperforming the broader indexes for weeks now.
About 15% of S&P 500 stocks are more than 20% below 52-week highs, but much larger swaths of the midcap and small-cap universe are down 20% or more. The latter groups are less tech-focused and more susceptible to an economic slowdown:
Slow motion deterioration
(percentage of stocks that are 20% or more below their 52-week highs)
- S&P 500 15%
- S&P Midcap 30%
- S&P Small Cap 48%
Below are a handful of widely-owned stocks, as well as the percentage by which they’re now trading below their 52-week high.
American Airlines 26%… FedEx 20%… Nordstrom 41%… Pulte 26%… Eli Lilly 14%… Dupont 20%.
***What are we to make of this? Are we slowly slipping into a stealth correction?
Let’s go straight to our technical experts, John Jagerson and Wade Hansen of Strategic Trader:
After breaking to new all-time highs and briefly riding above up-trending resistance a few weeks ago, the S&P 500 started pulling back last week on some post-Labor Day profit-taking.
While this pullback has gotten the permabears out there all hot and bothered, this pullback is just that… a pullback.
It’s not the beginning of the end.
There’s just too much demand for U.S. equities to allow the S&P 500 to break below the up-trending support level that has been interacting with the index since May.
Daily Chart of the S&P 500 (SPX)
***One factor that will keep the bull market going
In John and Wade’s Wednesday update, they pointed toward a reason why stocks have support, despite the current volatility – share buybacks.
For any readers less familiar, when a company has extra cash, it can use it to buy back its own shares, in effect “retiring” or canceling those shares.
Assuming the company is still generating the same amount of profit, fewer shares will boost a company’s earnings per share (EPS). This is a benefit to shareholders.
Here’s John and Wade illustrating how this works:
For example, if a company earns $100 and there are 100 shares outstanding, the EPS is $1 ($100 / 100 shares = $1 per share).
Similarly, if a company earns $100 and buys back 50 shares so there are now only 50 shares outstanding, the EPS is $2 ($100 / 50 shares = $2 per share). The company didn’t increase its earnings at all, but by buying back its shares, it doubled its EPS.
Today, we’re seeing companies resume their share buyback programs following a COVID-19-related slowdown.
John and Wade provided the chart below, illustrating the ramp-up in buybacks here in 2021.Source: Standard & Poor's
Quarterly S&P 500 Buybacks (source Yardeni Research)
Back to the Strategic Trader update:
This increase in share buybacks among S&P 500 companies is good news. Buybacks had slipped during the pandemic, but they are making a strong comeback in 2021.
We expect more companies to announce increased buyback programs as we head into Q4. This should keep demand for S&P 500 stocks strong in the near-term.
So, returning to our question at the top of today’s Digest, what are we to make of the recent pullback in the market?
Here’s John and Wade’s bottom-line:
We’ve been here before.
The S&P 500 climbs to new all-time highs and traders take profits. This pushes the index lower, which attracts more buyers.
We expect this pattern to continue for the foreseeable future.
***Let’s end today with a fun look at the amazing technologies that will be in your portfolio tomorrow
Bank of America Global Research just released a 152-page research report that highlights 14 “radical technologies that could change our lives and accelerate the impact of global megatrends.”
According to the report, these technologies have a market size of $330 billion today. But by next decade, they could explode to $6.4 trillion.
As we’ve noted here in the Digest, the 2020s will be the most transformative decade in human history. That’s because technology is leading to exponential progress, not traditional linear progress.
The BofA report echoes this point:
The pace at which themes are transforming businesses is blistering, but the adoption of many technologies – like smartphones or renewable energy – have surpassed experts’ forecasts by decades, because we often think linearly but progress occurs exponentially.
Here are the 14 “radical technologies.” We’ll dig into a handful below.
- Brain Computer Interface
- Emotional Artificial Intelligence
- Synthetic Biology
- Bionic humans
- Wireless Electricity
- Nextgen Batteries
- Ocean Tech
- Green Mining
- Carbon Capture & Storage
Here’s more detail on a handful of these moonshot technologies.
From the BofA report:
Brain Computer Interfaces: “As we reach a point where humans are unable to keep up with computers and AI, brain computer interfaces could help ‘level up’ humans with computers. Shorter term, brain computer interfaces hold solutions for paralyzed individuals and promise a new wave of innovation in gaming.”
Immortality: “Traditionally, aging has not been viewed as a disease that can be treated but this is changing. Actors in this space are increasingly looking to tackle the hallmark of aging via pathways such as ‘genomic instability, telomere attrition, mitochondrial dysfunction, and cellular senescence’ among others.”
eVTOL: “Electrical vertical take-off and landing vehicles that could provide an alternative mobility transportation solution to outdated infrastructure and overly stressed roads in urban settings.”
Holograms: “A technology capable of creating a simulated environment through light imagery projections that will allow everyone to come together in one virtual room, without having to leave their physical location.”
Metaverse: A “future iteration of the Internet, made up of persistent, shared, 3D-shared spaces linked into a virtual universe. It could comprise countless persistent virtual worlds that interoperate with one another, as well as the physical world and transforming markets such as gaming, retail, entertainment etc.”
It’s hard to look at this list and not be excited about what’s coming this decade – from both a societal and portfolio perspective.
We’ll keep you up to speed with the development of these trends here in the Digest.
Have a good evening,
Jeff Remsburgbatteries renewable
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