The Battery Metals Bust
In the Financial Post there was an interview with Canada’s Minister of Energy and Natural Resources Minister Jonathan Wilkinson who laments the difficulties Canadian battery metals mining and exploration companies are having accessing capital. In the article it quotes Benchmark Intelligence, “In 2023, the price of lithium fell 82.3 per cent, nickel dropped 29.1 per cent, cobalt swooned 38.5 per cent and manganese fell 22.3 per cent, according to Benchmark Intelligence, due to an increase in supplies, subdued Chinese demand and a weaker-than-expected electric vehicle market.”
The whole battery metals/EV market has been hyped beyond any reasonable level for years. We were all going to go green and that meant buying EVs and scrapping our industrial age IC relics. The energy to run our EV fleet would be generated by windmills and solar panels so we could scrap our coal and gas generation. The price of lithium went to the moon, nickel was the new gold.
Best of all, the Canadian government was shelling out literally billions of dollars to ensure that struggling companies like Volkswagon would build battery plants in Canada. In my little part of the world, the Malahat First Nation announced it was breaking ground for a 100,000 square foot “battery” plant. I put “battery” in quotes because the First Nation is not actually making batteries rather, ““We are bringing in (battery) cells, so there’s two types of cells. There is cylindrical and there is blade, and basically those cells are going to be coming over here, and we will be assembling those into packs.”
There is just one tiny problem as this Reuters article on EV demand describes in detail,
Investment in capacity and technology development has outrun actual EV demand, boosting pressure on companies to cut costs.
"It's true, the pace of EV growth has slowed, which has created some uncertainty. We will build to demand," General Motors (GM.N), opens new tab CEO Mary Barra said on an earnings call Tuesday.
I don’t do politics on this substack other than to point out that businesses which substitute subsidies for customer demand tend not to do terribly well. Subsidies, industrial policy and green ambition are fickle. You are one election away from your “business case” evaporating.
A long way upstream from our Malahat Nation battery assembly plant there are companies exploring for and developing battery mineral deposits both in Canada and abroad. I hold two, Gratomic (GRAT.V) and GRID Metals (GRDM.V). I am down substantially on both. There could not be more different companies.
I wrote about GRAT back in October when the Chinese announced that they were restricting the production of graphite. That is still a real concern and the battery world paid attention. If GRAT could get into production it would certainly have a market for its vein graphite even if it received a slightly lower price.
The real concern with GRAT is if it can actually go into production. Management has done itself no favours by going largely radio silent for Christmas and staying that way. I have cut Arno Brand a lot of slack over the years, but silence is a bad management strategy. Good or bad, investors need news.
GRID (GRDM.V) is a Manitoba lithium play. I wrote about it here. I bought at $0.14, it’s trading at $0.07. Unlike GRAT which is going to take some time to rebound, GRID has significant near term potential.
Yes, lithium is off its all time highs. Robin Dunbar recognized that in an April 18, 2024 press release,
the current market conditions for lithium are very challenging in light of the decline in prices for lithium products in the past year. However, we have taken the initiative to continue development of the Donner Lake Lithium project and related permitting activities to take advantage of the anticipated rebound in prices expected to occur later in 2024 and into 2025.
Again, I try to keep politics out of this stack but part of the Liberal Party of Canada’s re-election strategy has been to hand out over 50 billion dollars in loans and subsidies to large, foreign, companies on their promise that they will build battery plants in various locations in Canada. Those plants are going to be “encouraged” to source their raw materials from Canadian sources.
While the worldwide price of lithium will take a while to come back, especially in light of the significant headwinds facing EVs, the price of Canadian lithium may rise rather quickly. There are, after all, only two lithium producing mines in Canada as I write.
A huge drop in the price of lithium could have posed problems for GRID if it was relying upon the often fickle Canadian junior resource marketplace for its financing but back in 2022 GRID basically sold a 27% ownership stake in the company for $8.52 million dollars to deep pocketed, technically sophisticated Australian and American investors. In an interview at Motherlodetv.net, Dunbar said,
“It’s a lot of shares,” said Dunbar. “But they are subject to a voluntary one-year hold and we wanted to fund the company. Now we can look at adding value.”
GRID was able to tap its institutional investors again in late 2023 as it successfully raised an additional 5 million dollars. So being able to continue its work despite the downturn in lithium prices is a financial reality.
This has led Red Cloud Securities to issue a buy recommendation on April 24, 2024,
We maintain our BUY rating and target price of C$0.75/sh. We believe that achieving further resource and development milestones could potentially help re-rate Grid’s stock price. Upcoming catalysts: 1) Winter drilling at Falcon West (H1/24), 2) Donner Lake bulk sample (H1/24), 3)Maiden Donner Lake PEA (2024), and 4) Other development and permitting milestones (ongoing).
With cash in the bank and the catalysts listed above, GRID should have a rising share price over the next few months. The more so if the price of lithium turns around.
EVs and battery metals were radically overhyped in the past few years. The reality is that we will not all be driving EVs in 2030. Which is good as we don’t have nearly the grid capacity for an all electric fleet. But the “EV bust” may be over hyped as well. There is terrific political capital invested in “net zero” and EVs can help meet these targets and, in principle, create jobs in the new “green” economy. 1
50 billion dollars worth of battery plants are going to need a lot of reliable, Canadian, raw materials and GRID is in an ideal position to provide them. I may well eat my loss on GRAT and swing some more money into GRID.
[Disclaimer: This is not investment advice. I own shares in both GRAT.V and GRID.V. Do your own due diligence. Call the CEOs]
Yes, “net zero” and the “green” economy are nonsense on stilts, but that does not seem to matter to any of the mainstream Canadian political parties.