{"id":102171,"date":"2017-02-14T16:03:09","date_gmt":"2017-02-14T21:03:09","guid":{"rendered":"http:\/\/countingpips.com\/?p=102171"},"modified":"2017-02-14T16:03:09","modified_gmt":"2017-02-14T21:03:09","slug":"my-li-valentine-days-gift-an-interview-with-mr-lithium","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/02\/my-li-valentine-days-gift-an-interview-with-mr-lithium\/","title":{"rendered":"My Li Valentine Day’s Gift, an Interview With Mr. #Lithium"},"content":{"rendered":"
February 14, 2017<\/div>
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By\u00a0<\/strong>Peter Epstein, CFA, MBA \u00a0\u00a0epstein.peter4@gmail.com<\/a>\u00a0\u00a0 \u00a0http:\/\/EpsteinResearch.com<\/a>\u00a0<\/span><\/b><\/p>\n

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Valentine\u2019s Day Special > Joe Lowry + Lithium = True Love Forever?<\/span><\/strong><\/p>\n

This is my 4th interview of\u00a0Joe Lowry, aka \u201cMr. Lithium,\u201d the first was in\u00a0June 2015<\/a>,\u00a0the 2nd,\u00a0January 2016<\/a>,\u00a0the 3rd\u00a0March 2016<\/a>. \u00a0In the past several years, Mr. Lithium\u2019s prominence has grown tremendously through his contributions on\u00a0Linked-In<\/a>\u00a0and\u00a0Twitter<\/a>.\u00a0 That\u2019s on top of his world renowned role as one of the most sought after consultants in the lithium industry.\u00a0 While his clients get 110% of Joe\u2019s best insights, ideas, commentary and analysis\u2013 (in real time), readers of this interview are about to receive something thought to be impossible\u2013 a free lunch.\u00a0 One of the key takeaways from following Joe\u2019s work is his frequent warnings that retail investors need to,\u201ddo the work.<\/em>\u201d \u00a0Much of what one reads about lithium juniors can be filed under the category, \u201cFake News.\u201d \u00a0\u2013DYOR. \u00a0Caveat Emptor<\/em>, etc.<\/p>\n

When one needs to know the state of the world, one can turn to\u00a0Trump\u2019s\u00a0twitter\u00a0feed.\u00a0 For the latest and greatest assessment of the lithium sector\/market\/industry\/players\u2013 it\u2019s\u00a0here<\/a>\u00a0and\u00a0here<\/a>\u2026.<\/p>\n

\"\"<\/p>\n

Joe will be the first to tell you he\u2019s not the only expert.\u00a0 We agree that\u00a0Simon Moores\u00a0of\u00a0Benchmark Mineral Intelligence<\/a>\u00a0and\u00a0Chris Berry, Editor of the\u00a0Disruptive Discoveries journal<\/a>\u00a0are very valuable resources as well.\u00a0 In addition to lithium, they cover other\u00a0green-high tech\/energy metals\u00a0including cobalt, graphite, vanadium & rare earths.\u00a0 This interview is entirely about lithium.<\/p>\n

Joe, you continue to be one of the top Li market experts, can you comment on what you\u2019ve gotten right (and wrong) over the past few years?<\/strong><\/p>\n

You don\u2019t have to go beyond the price question to see what I\u2019ve gotten right and wrong.\u00a0 In the summer of 2014 I did the keynote talk at the Qinghai Green Energy Festival in Qinghai Province China and said, quite correctly, that hydroxide prices would spike, \u201cin the next couple years<\/em>\u201d driven by the growth of nickel based cathode.\u00a0 Unfortunately, I also said, incorrectly, that there was, \u201cno reason for carbonate prices to increase more than the rate of GDP for the next few years.<\/i>\u201d<\/p>\n

Why did I get hydroxide right and carbonate wrong?\u00a0 Hydroxide was simple supply\/demand analysis.\u00a0 But with carbonate, while I didn\u2019t think Rockwood (now part of\u00a0Albemarle Corp. (NYSE: ALB) [\u201cALB\u201d]<\/em>),\u00a0Orocobre Ltd. (\u201cORE\u201d)\u00a0and\u00a0RB Energy, Inc.\u00a0would be on time with new capacity, I didn\u2019t expect the extreme under-performance that resulted in a market shortage that continues to this day. \u00a0NOTE: \u00a0{RB Energy failed in 4th qtr 2014 due to lack of funding<\/em>}.<\/p>\n

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On February 2nd, Simon Moores of\u00a0Benchmark Mineral Intelligence\u00a0tweeted this pricing data.\u00a0 What are your thoughts on this topic?<\/strong><\/p>\n

\"\"<\/p>\n

Large lithium consumers have complained for years about the opaque nature of the lithium industry.\u00a0 Pricing has been hard to understand and plan for.\u00a0 In the past,\u00a0Roskill\u00a0and\u00a0Industrial Minerals\u00a0tried to provide price information, but they simply didn\u2019t do a very good job.\u00a0 Simon and his team are taking on the challenge of putting together a pricing benchmark that can be used for contracts.\u00a0 I like what they\u2019re doing, and I\u2019m fully supportive. \u00a0NOTE: \u00a0{Joe Lowry has no financial interest in BMI}. \u00a0<\/em>Since I\u2019m still active in the market trading product, I have a unique window into actual pricing, especially on the high end which is where I participate.<\/p>\n

Given considerable lead times, isn\u2019t the list of new projects and operating \u00a0expansions coming online in 2017 \u2013 2021 fairly well known?\u00a0 Could projects be added to the pipeline?<\/strong><\/p>\n

No, I don\u2019t think so.\u00a0 Look at what people expected in 2014 to come online in 2015 \u2013 ALB\u2019s\u00a0La Negra 2, ORE and RB Energy.\u00a0 What happened?\u00a0 Of approximately 60k metric tonnes (\u201cmt\u201d) of expected production, less than 15k mt has materialized so far.\u00a0 Execution is everything.\u00a0 Knowing the \u201cplan\u201d and knowing the \u201cresult\u201d are two different things.\u00a0 Nothing will be added to the current pipeline that will produce before 2021.<\/p>\n

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The number of\u00a0undeveloped\u00a0world class brine projects\u00a0is less than the fingers on one hand.\u00a0 Regarding developed projects,\u00a0La Negra 2 will ultimately operate, ORE\u00a0probably won\u2019t hit capacity, but will increase marginally\u00a0in 2017\u00a0over 2016.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

The next world-class project is the\u00a0Sociedad Qu\u00edmica y Minera de Chile S.A [NYSE: SQM)(\u201cSQM\u201d)\/Lithium Americas\u2019 (\u201cLAC\u201d) Cauchari\u00a0project.\u00a0[Minera Exar SA \u2013 Cauchari-Olaroz<\/em><\/a>]<\/p>\n

SQM is the world\u2019s best brine operator, certainly better than ALB, and there\u2019s no comparison with ORE.\u00a0 I\u2019m\u00a0confident SQM\/LAC will bring phase 1 of Cauchari online by 2020 (they will say 2019 and I hope they are correct<\/em>).<\/p>\n

Ramp up to the full 25k mt and start of phase 2 will likely follow within 18 months<\/span><\/span>.\u00a0 Galaxy at\u00a0Sal de Vida\u00a0is a bit more of a challenge to call.\u00a0 Cash flow from Mt Cattlin and a recent capital raise should enable them to start advancing the project in 2017.\u00a0 So, in the next five years brine projects and expansions will get developed, but probably not at a sufficient rate to meet market growth.\u00a0 As far as I\u2019m concerned, the rest of the lot in Argentina is still too speculative to consider in a 5-6 year time horizon. \u00a0Enirgi,\u00a0Eramet,\u00a0Lithium Xet al.<\/p>\n

At times you question the research, analysis \/ commentary from peers.\u00a0 What might they be missing in their assessments of key metrics like supply, demand & pricing?<\/strong><\/p>\n

I\u2019m not a research analyst.\u00a0 I have a narrowly defined area of expertise that my clients, as well as Twitter and Linked-In followers, seem to appreciate.\u00a0 The banks who publish, \u201cresearch\u201d on lithium aren\u2019t my peers in the traditional sense of the word.<\/p>\n

\"\"<\/p>\n

I sometimes criticize poor quality research by banks and others without holding back too much.\u00a0 I don\u2019t have the resources of a Macquarie, but in the lithium area I may have forgotten more than they seem to collectively know.\u00a0 What many of the big banks don\u2019t do is, \u201cthe work.\u201d \u00a0Taking a company\u2019s press release or presentation at face value, perhaps calling one or two contacts at a lithium producer or battery company, writing down what they say and calling it research is nonsense.\u00a0 Over time, as lithium becomes more prominent, I believe research will improve.\u00a0 That said, I think\u00a0Deutsche Bank\u00a0has done some good work, so there are points of light out there.\u00a0 I do have clients ask me about who they should pay attention to.<\/p>\n

There\u2019s been a lot of buzz around a\u00a0keynote presentation<\/a>\u00a0by Lithium Americas\u2019 David Deak on January 25th.\u00a0 Do you have view on what Deak is saying about Li demand?\u00a0<\/strong><\/p>\n

Yes, I know David\u2019s thesis, in fact I was at that same conference in Toronto and conducted an (unrelated) Q&A session at the lunch break.\u00a0 He believes we will need 20x the current annual supply of lithium to electrify the world\u2019s transportation fleet.\u00a0 A key quote from his talk\u2026. \u201cAlmost 100 Giga-factories, [defined as a 100 GWh\/yr facility] operating\u00a0for 20 years each, are needed to electrify\u00a0the world\u2019s fleet of vehicles, and enable segments of the energy storage market<\/em>.\u201d \u00a0This is inline with what Elon Musk has said.\u00a0 David\u2019s analysis is straightforward and thought provoking. \u00a0NOTE: \u00a0{On January 26th,\u00a0Joe tweeted, \u201cDr. D makes me look like an abject pessimist.\u00a0 That said, I am coming around.<\/em>\u201c}<\/p>\n

\"\"<\/p>\n

Do Orocobre\u2019s operating and quality problems portend challenges for Argentina\u2019s next wave of brine producers?<\/strong><\/p>\n

Not at all.\u00a0 Orocobre made rookie mistakes across the board \u2013 ponds, process, etc.\u00a0 Their failure to execute says nothing about the quality of Argentina\u2019s resources or the operating environment.\u00a0 ORE had the misfortune to start the project under the former government which, to be fair, was also an issue.\u00a0 On balance though, ORE had the best entry opportunity in the history of lithium \u2013 market shortage, rising pricing, etc.\u00a0 If they had executed in a similar fashion ten years ago, they would already be bankrupt.<\/p>\n

Please explain China\u2019s growing role in the global Li market.<\/strong><\/p>\n

China is the world\u2019s largest lithium consumer overall and largest producer of cathode materials for lithium ion batteries.\u00a0 I don\u2019t expect that to change in the coming five years.\u00a0 More importantly, China\u2019s hard rock converters have kept the market in balance via processing spodumene concentrate from Australia.\u00a0 China now has two major lithium companies \u2013\u00a0Ganfeng\u00a0and\u00a0Tianqi.\u00a0 Both have resource assets outside of China and are rapidly transitioning from regional to global players.<\/p>\n

You\u2019ve been vocal about the importance of Argentinean brines and the likelihood of investment and market consolidation.\u00a0 What are your latest views?\u00a0<\/strong><\/p>\n

By 2021 you will have four significant lithium operations in Argentina vs two in Chile. \u00a0Minera Exar SA (SQM\/LAC\u2019s JV), and\u00a0Galaxy\u00a0will join\u00a0FMC\u00a0Corp (NYSE: FMC)\u00a0and\u00a0Orocobre.\u00a0 Ganfeng now owns ~20% of LAC so we have an emerging alliance with SQM\/Ganfeng\/LAC being formed.\u00a0 The big question mark is what Luke Kissam does with his cash hoard and stated ambition to grow ALB\u2019s lithium business.\u00a0 ORE and Galaxy seem like takeout candidates, but both are probably too expensive to make sense for ALB.\u00a0 ORE requires a major investment to produce a high percentage of world class product.<\/p>\n

Many Li juniors are planning to deploy largely untested (at commercial scale) direct brine extraction technologies.\u00a0 What are you hearing lately about these technologies?<\/strong><\/p>\n

Some of these technologies have been around for years.\u00a0 At some point I expect one or more will be implemented at scale, but the benefits are still unknown.\u00a0 I\u2019m agnostic at this point and certainly think investors have better options than a project that depends on new technology.<\/p>\n

\"\"<\/p>\n

You made some great calls and provided insightful analysis last year, what was the biggest surprise of 2016?<\/strong><\/p>\n

Albemarle\u2019s approach to the business continues to mystify me.\u00a0 From my perspective the deal with Chile was too one-sided in a negative way for ALB shareholders. ALB\u2019s pricing is well below their major competitors for no real long-term benefit in a market that will be tight for an extended period.<\/p>\n

What are the top 1 or 2 misconceptions investors have in gauging the prospects of Li junior companies?<\/strong><\/p>\n

#1 \u2013 most hard rock investors seem not to understand that mining is the easy part of a hard rock project.\u00a0 Even in the production of spodumene concentrate, chemistry is critical.<\/p>\n

#2 \u2013 despite a great long-term demand trend in lithium, the world doesn\u2019t need 20 \u201clithium\u201d companies, let alone the dozens we now have.\u00a0 I don\u2019t give investment advice but I can only think of five juniors that are viable even for speculative capital.<\/p>\n<\/div>\n

Joe, thank you, as\u00a0always, for sharing your latest views on the lithium industry. \u00a02017 is likely to be a very interesting year. \u00a0<\/strong><\/p>\n<\/div>\n

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Article\u00a0by\u00a0<\/strong>Peter Epstein, CFA, MBA \u00a0\u00a0epstein.peter4@gmail.com<\/a>\u00a0\u00a0 \u00a0http:\/\/EpsteinResearch.com<\/a>\u00a0<\/span><\/b><\/p>\n

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By\u00a0Peter Epstein, CFA, MBA \u00a0\u00a0epstein.peter4@gmail.com\u00a0\u00a0 \u00a0http:\/\/EpsteinResearch.com\u00a0 Valentine\u2019s Day Special > Joe Lowry + Lithium = True Love Forever? This is my 4th interview of\u00a0Joe Lowry, aka \u201cMr. Lithium,\u201d the first was in\u00a0June 2015,\u00a0the 2nd,\u00a0January 2016,\u00a0the 3rd\u00a0March 2016. \u00a0In the past several years, Mr. Lithium\u2019s prominence has grown tremendously through his contributions on\u00a0Linked-In\u00a0and\u00a0Twitter.\u00a0 That\u2019s on top […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-102171","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102171","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=102171"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102171\/revisions"}],"predecessor-version":[{"id":102172,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102171\/revisions\/102172"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=102171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=102171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=102171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}