Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Electric vehicle boom held hostage by components
With climate change a hotter issue than ever before, post-COP26, the automobile industry has finally stepped-up its game and is creating appealing battery-powered machines in volume. What we are seeing right now is the electric vehicle (EV) boom in its infancy.
Ausbil’s James Stewart, co-portfolio manager of the Ausbil Global Resources Fund, notes that “a number of the models which are now being presented to customers have been in development for a number of years, and we are now seeing the inflection point. Customer acceptance is increasing, governmental support for decarbonization is gaining traction globally, and EV sales are accelerating globally.”
However, this transition to EVs is causing strain on lithium and graphite markets, supply is tight, and commodity prices are trending up. With limited supply coming online, existing mines are running at full capacity and lithium prices remain high. New supply is still some 18 months away. Ausbil says, “market estimates are too low. So, we expect to see earnings upgrades for lithium companies, which is likely to see producers’ share prices continue to trend upwards.”
Explorers and developers are in the midst of a takeover phase with developers are being aggressively pursued by acquirers, says Ausbil. “Globally listed developers include Bacanora (LON: BCN), Millennial Lithium (CVE: ML) and Neo Lithium (CVE: NLC), which are all under takeover by larger producers,” says Ausbil.
The graphite market is somewhat complicated. There exists only one main producer, Syrah Resources (ASX: SYR). Ausbil says “value can be found, with pricing likely to surprise street expectations. Cobalt and nickel are harder markets to analyse in the short term, with very few significant cobalt producers of scale. Nickel demand is dominated by stainless steel production, in the short term.”
Sales of EVs are being held hostage by the availability of components which include semiconductors, battery components and raw materials (magnesium, lithium and rare earths). Ausbil is confident that in the long run, these issues will be resolved, albeit with hurdles along the way. Graphite currently has no constraints. Ausbil’s view on nickel is the same, where there are two types – nickel briquettes and nickel pig-iron. “There will be nickel available, it’s just down to the price that will be needed to get that into the market. But we don’t see a physical constraint in the availability of nickel,” says Ausbil.
