Three weeks ago, I was in Queensland at a conference for resource companies.
One of the managers presenting, Dale Henderson, is the chief executive of Pilbara Minerals [ASX:PLS].
I doubt this stock needs much introduction. It was around 15 cents in 2020. It went to more than $3 recently.
Now the general market is under pressure.
However, one of the points Dale Henderson made in Queensland was that Pilbara was still seeing incredibly strong bids for any lithium supply they could offer.
That comment was validated last week when PLS released the latest price per tonne it bagged for its next shipment — a record US$6,350.
You wouldn’t know that going off the recent price action across lithium stocks, however.
PLS is down 27% since January. Some of the more speccy lithium names are much lower than that.
Such a sell-off always looks inevitable when it happens because the preceding boom was so gigantic. But the timing is never so easy.
Throw in the big dump across the ASX and it’s hard not to see some of the lithium names rallying back up from here. They already started on Friday.
I just put together a report on my three favourite battery plays.
I was wary of a sell-off in the conventional lithium names and told my existing readers as such in that report.
The three I found were much less obvious but no less compelling in my book if you’re prepared to look out 1–2 years.
Mining timelines are long ones. But that’s how you hunt for the big percentage gains.
It’s not as if the themes of electrification, decarbonisation, and ESG are going away.
Plus, we know that the mega miners like BHP and Rio see their future in metals like copper and lithium and have gigantic financial resources to go shopping here.
Rio was already thwarted in Serbia with their lithium project over there and BHP has multiple headaches in Chile with its copper operations.
They can buy up whatever they want, as long as it suits their style and operations.
Anything in Australia would surely be on that list considering the increasing sovereign risk around the world.
One of my battery stocks in that report could be one of the most exciting nickel projects in the world. I’m not kidding. I urge you to check it out here.
Think about the COVID 2020 collapse in the ASX. That turned out to be the biggest gift to mining investors.
I doubt we’ll see an equivalent opportunity like that for years to come. But any sell-offs are opportunities to add, not get out.
After all, the net-zero targets around the world are for 2030, usually. There’s a long way to run yet.
And, yes, the world may go into — or be in — a short-run recession. However, the US went into recession in 2001 as well.
But that didn’t stop the rise of China, right? And resources went into a giddy bull market until the brick wall of 2008.
That’s my playback for the next five years, anyway. You don’t have to limit yourself to lithium, or even battery metals really.
There’s been so little investment into future mineral production that supply is likely to be an issue for the next decade.
Now we have that becoming acute as the WA labour shortage and rising costs start to hit some of the more marginal miners.
This is an explosive combination for any mining project at the low end of the cost curve for their metal, and the resources to hold on to their staff.
Governments will likely exacerbate this because any economic downturn is never allowed to run for long before they push back with more fiscal stimulus.
That usually involves central banks playing funny with the money supply and juicing everything even more.
The whole dynamic reminds me of a Jim Rogers line from a few years ago.
I don’t have the direct quote, but it went something like this:
If the world gets better, commodities are the place to be because of the shortages developing.
If the world doesn’t get better, they’re going to print money. It’s the wrong thing to do, but they’re going to do it anyway. Commodities can protect you against this devaluation in money.
Sounds like wisdom to me.
Regards,
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Callum Newman,
Editor, The Daily Reckoning Australia
