It is different peoples’ provide that issues right here
For me to say that E3 Lithium’s (OTCQX:EEMMF) prospects rely on your view of the lithium market is each clearly true – it is a miner, after all prospects rely on the market – and in addition not very useful. As a result of it is a miner so after all its prospects rely on the marketplace for the fabric it produces.
However there’s somewhat extra right here than simply that assertion of the blindingly apparent. E3 is a at the moment non-producing lithium miner. There is no actual technological motive why it should not grow to be a producing one. However whether or not it should relies upon upon what folks take into consideration that market within the close to and middle-distance future. As soon as the choice is taken to provide, and financed, then we get a barely totally different set of questions however the reply nonetheless rely – however in a different way – upon that future market.
The mining fundamentals
E3 Lithium is to make use of direct lithium extraction from underground brines. So we have an apparent technological query right here, will this work? The reply to that’s sure. Not simply – for me no less than – as a result of the corporate tells us so. Nor solely that their take a look at vegetation appears to work. I’ve additionally that particular secret sauce of a little bit of market element. Individuals creating DLE techs have come to me for my recommendation. No, not upon lithium, my data of the topic is not that deep. However as as to if the identical types of membranes and extractions may be of use in uncommon earths. The reply is possibly however they hadn’t actually understood the unique query (extracting REs from resolution is not the tough bit, it is extracting every RE individually from resolution which is). However, clearly, such discussions gave me the prospect to seek out out whether or not DLE works for lithium – sure.
Certain, after all, it is nonetheless potential for anyone implementation to go unsuitable, however the tech itself, sure, this works and it is prepared for prime time.
The opposite technical mining bits
Sure, there’s lithium within the aquifer E3 desires to extract from, the chemistry of what they do then all is sensible and so forth. I would not say “I approve” as a result of as I say, I am not professional sufficient to have the ability to accomplish that. However there is definitely nothing there which makes me suck my tooth or assume that extra clarification is important.
So, on this sense, I am left with solely pondering E3 on the premise of the marketplace for their manufacturing, that lithium market. Their claimed prices, tech, supply mineral and so forth all look good, or no less than cheap sufficient, to me.
E3 Lithium’s accounts
Properly, there’s not an excellent deal to go on.
They’ve completed the take a look at work, have so far as I can see an affordable declare to the useful resource they need to mine, appear able to roll. However they’re clearly not producing right here. So, the query is whether or not they’ll make that subsequent step. Be capable of finance the money/capital to enter full manufacturing. I are likely to assume they in all probability can be that is probably not the query that faces us. It is whether or not we need to be a part of that experience.
And, effectively, I am hesitant.
Clearly, as a part of their planning to lift the cash to enter manufacturing they’ve an estimate of market value for what they’ll produce:
That’s, because the cool youngsters say as of late about previous white guys like me, problematic. Now, whether or not that is the value they require to realize a constructive NPV, or that is their precise manufacturing value is not wholly clear. However that additionally would not matter. As a result of:
As we are able to see the futures value for this lithium is under the E3 Lithium value assumption – or want, whichever.
Now, it’s true that this futures value may be very boring, completely static for a few years out. That is virtually definitely as a result of it isn’t a really liquid contract. We also needs to take into consideration the truth that there are totally different lithiums – the 6% focus from a spodumene mine, the hydroxide as right here and so forth. However this is identical lithium salt as E3 Lithium intends to provide.
So, the output value is under their assumption. Whether or not that is the belief that offers the NPV, or their precise manufacturing value. So, that does not look good. Perhaps they are not going to realize their finance and due to this fact it is just about a bust from right here on in.
However that is not the best way to consider it. For we’re all actually very conscious that lithium consumption goes to rise within the years to come back. So, we’d assume the value will rise. Which supplies us this, once more from E3 lithium:
OK, so lithium is at the moment oversupplied, which is why the value is down 85% and extra over the previous 20 months. Nevertheless it’s actually going to be in brief provide within the years to come back. Due to this fact the value goes to soar once more.
This may very well be true, however…
For us to seek out the E3 Lithium story to be attention-grabbing that is what we have to consider. Not simply that lithium demand goes to rise – and I believe that is apparent sufficient – however that lithium goes to be in undersupply. Which is what’s going to drive the value up. In spite of everything, E3 does want a better value than now as they themselves say.
And, effectively, I am unsure.
Sure, clearly, the lithium value does transfer round. I’ve written right here about Altura, which went bust having been financed over the past lithium growth. As I’ve identified elsewhere this was additionally the mine that made Pilbara’s fortune. From bust to 50% internet margins on a few billion $ a 12 months. Using the value cycles is significant in these minor metals.
However that simply means we have to be as cautious as we are able to about what we consider these future costs are going to be.
So, if demand rises, then why will not value?
That is the place I get much more handwavey. Even, begin to show my prejudices about how markets work. When you do not agree with this bit then that is effective, do not accomplish that.
I’ve written right here about Core Lithium. Because it turned out, I used to be proper, however maybe not for fairly the appropriate motive. Completely respectable spodumene mine that went into manufacturing. It is now on care and upkeep – as a result of the Li value has fallen up to now that mining is a loss making enterprise for them.
The factor we have to grasp about mines is that there are two units of prices. There’s constructing the mine, capital funding. Then there’re working prices. Altura did simply effective on working prices, it was paying again the financing of the capital prices that busted them.
Extra usually we consider the capital prices as influencing the choice to finance and open the mine. However as soon as that has occurred they’re sunk prices. We have spent it, we are able to by no means get it again no matter we do about holding the mine open or not. So, capital prices affect the choice to open the mine however to not maintain it working, or not. Whether or not, having opened, we maintain working it relies upon upon the working prices solely.
That is a completely customary financial view of company choice making by the best way. Nothing odd about this in any respect. As soon as we have dug the opening then what issues for the choice about manufacturing is whether or not we lose cash, leaving apart these gap prices, by persevering with to mine. Once more, Altura. Pilbara did not shut the mine, it was simply that those that had financed the opening misplaced their cash.
OK, so Core Lithium was financed to open, is now on care and upkeep. If the lithium value rises in any substantial method then clearly that mine will reopen. It will accomplish that on the premise of Opex, not Capex too.
Now my competition – which is vastly debatable, I agree – is that there is loads of that potential lithium manufacturing on this state of affairs. Someplace between able to finance and go into manufacturing and as at Core, really capital financed and at the moment idling. Which signifies that whereas I’m keen to agree that whereas lithium demand will rise (my disbelief that it will rise as a lot as some assume is one other dialog for one more time) I do not assume the hole between that and provide goes to be as giant as some are predicting. Which, logically, signifies that I do not assume we’ll have one other value surge.
To place this one other manner. Certain, OK, EVs are going to imply far more lithium utilization. Which implies we want extra mines, and so forth. However the needed work to have extra mines has already been completed. This value surge of the previous few years – adopted by this decline – has already completed all that work. Now, as a result of I am a resolute free marketeer, that accords with my prejudices and it is even potential to say that that is why I believe this manner. So, , you are able to do so if you want.
However what whether it is really true? There is a laddie round right here who has been monitoring lithium juniors (i.e., corporations on the lookout for Li) and final time I checked out his checklist there have been 300 of ’em. That huge surge of exploration, technological experimentation, tapping rocks with hammers, that was needed to spice up lithium manufacturing to satisfy EV demand has already occurred that’s.
At very minimal, my place could be that the availability/demand mismatch being predicted by E3 may be very a lot overstated. Due to this fact, so is any implication about value.
Why I may very well be unsuitable
Certain, I might need that provide/demand imbalance completely unsuitable. It’s my opinion, nothing else, that E3 are grossly overstating it. The lithium value, due to this fact the margins from mining it, rely upon precisely that time. So, who’s proper makes, or breaks, the case.
I believe – assume solely – that estimates of Li demand are overblown. I believe battery tech goes to demand much less materials, do not assume EVs are going to take your entire market and demand that recycling goes to be essential actual quickly now.
However none of these are the bottom of my fear right here. The potential lithium mining already baked into the system makes me between assume and demand that we’re not going to see one other value growth due to the claimed right here mismatch between demand and provide.
The investor view
Properly, that relies upon upon whether or not you consider my view of E3. Or one thing in between and so forth. As to recommendation from me about E3 – or every other lithium miner to be sincere – I might merely counsel going and doing one thing else. I believe the sector has had its day and that is that.
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