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Speakers of the calibre of David Knoff, the expedition leader stranded with his team in Antarctic during COVID, can regularly be heard at this global institution that places a premium on knowledge, not qualifications.
Boom or gloom?
We are in a lithium boom with miners across the world trying to secure new lithium supply, as the world starts its mooted move away from fossil fuels and to renewable-energy batteries – of which lithium is a necessary component.
Australia’s two biggest miners, Orocobre (ASX: ORE) and Galaxy Resources (ASX: GXY) are in the throes of a $4 billion battery minerals merger. The combined entity will create the fifth biggest lithium producer by market capitalisation producing lithium in Argentina and Western Australia respectively.
But which shares should you consider?
Mineral Resources Limited (ASX: MIN)
Mineral Resources is a mining and services company, with its main projects tied to iron ore and lithium. Its main mine is the Wodgina operation, which has the largest known hard-rock lithium deposits in the world, with a current estimated production life of over 30 years.
It also has its foot in the Mt Marion Lithium project under a life-of-mine mining services contract. MIN also covers iron ore. It sees iron ore production growing from 20mt per year to 90mt. The mining services company is more than a simple operation. It is a pit-to-port mining services provider, top-five lithium miner and the fifth-biggest iron ore producer in Australia. Operations at the Mt Marion are on track to meet or beat guidance for FY21.
Macquarie has an Outperform recommendation with a target price of $75.00. The broker is positive on the mining services company and has updated its forecasts on the back of an upgraded iron ore and lithium price forecast. Mineral Resources is the broker’s key pick in bulk commodities as it offers iron-ore price leverage and production growth together . The company is also considered a key preference for lithium exposure.
Rio Tinto Group (ASX:RIO)
RIO has announced plans to spend $2.4 billion to build a massive lithium mine at Jadar in Serbia as it pushes into the green-energy transition. Shareholders that own the stocks are already punching the air in delight after the iron ore miner released its quarterly result which beat expectations. There’s the $US12.2 billon ($16.6 billion) in underlying earnings, the biggest six-month profit in Rio’s history together with a massive $US5.61 per share dividend.
It’s from these extra profits that the big miner can focus on not only returning money to shareholders but on Europe’s biggest lithium mine. Rio would be producing lithium and borates at Jadar within five years under the plan, making a huge step towards the renewable battery market.
Macquarie has an Outperform recommendation with a target price of $162.00. The broker is positive on the miner, saying copper and iron ore will continue to deliver with management continuing to focus on copper volume growth. The broker also points out “iron-ore prices continue to drive earnings upgrade momentum, with the company trading on 2021-23 free cash flow yields of more than 20% at spot prices.”
All in all, MIN and RIO both have exposure to lithium as well as iron ore and are in prime position to take advantage of the surge in demand for electric vehicles. While iron ore prices may have plateaued, lithium prices are surging as the demand for the critical battery metal rises. In-fact BMI’s George Miller forecasts a lithium deficit of 25,000 tonnes this year and expects to see acute deficits from 2022. For that reason, both companies should benefit from a lithium price rise.
