1 February 26, 2018: Kleinfeld & Friends & Family Last September, an investor in an early stage lithium development story that’s been around a long time asked for some advice and potential capital raising assistance. Having met the management and heard the story numerous times, I told him of my conclusion, through the words of Neil Young: “There is a town in North Ontario” Helpless https://www.youtube.com/watch?time_continue=45&v=aXl8EF0YS1U To which the investor replied: “this feels like an episode of Kleinfeld”. I promised I’d use that. But never anticipated it would be included within a Lithium-ion Bull tinged with another, deeply unfortunate and sudden heart-breaker. In which I am completely helpless. Jerry Seinfeld, my favorite comedian, is a Long Island, New York schnook like me. Seinfeld was also the favorite of one of Piedmont Lithium’s three founders, Nathan Ainsworth. In a fantastic “Seinfeld Moment” several months ago, Nathan invited me to see Jerry perform live at the Beacon Theater on the Upper West Side in NYC, 10 hours before the show began, taking his wife Hannah’s ticket, as she had the flu. We were meant to have a dinner before the show, but, as, all too often, Nathan was toiling away at his office computer until late, but we managed to have a drink before the show and swapped stories of our connections to Seinfeld. It was not obvious how an Australian nearly 15 years younger than me would have such a deep connection to Seinfeld. Whereas I had watched Seinfeld as part of Channel 4’s NBC blockbuster Thursday night line up beginning at 8PM – and, while living two years in Budapest received VHS-taped care packages my mother recorded – Nathan had binged-watched boxed-set DVDs on another overseas assignment early in his career.
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February 26, 2018: Kleinfeld & Friends & Family Last September, an investor in an early stage lithium development story that’s been around a long time asked for some advice and potential capital raising assistance. Having met the management and heard the story numerous times, I told him of my conclusion, through the words of Neil Young:
To which the investor replied: “this feels like an episode of Kleinfeld”. I promised I’d use that. But never anticipated it would be included within a Lithium-ion Bull tinged with another, deeply unfortunate and sudden heart-breaker. In which I am completely helpless.
Jerry Seinfeld, my favorite comedian, is a Long Island, New York schnook like me. Seinfeld was also the favorite of one of Piedmont Lithium’s three founders, Nathan Ainsworth. In a fantastic “Seinfeld Moment” several months ago, Nathan invited me to see Jerry perform live at the Beacon Theater on the Upper West Side in NYC, 10 hours before the show began, taking his wife Hannah’s ticket, as she had the flu.
We were meant to have a dinner before the show, but, as, all too often, Nathan was toiling away at his office computer until late, but we managed to have a drink before the show and swapped stories of our connections to Seinfeld. It was not obvious how an Australian nearly 15 years younger than me would have such a deep connection to Seinfeld. Whereas I had watched Seinfeld as part of Channel 4’s NBC blockbuster Thursday night line up beginning at 8PM – and, while living two years in Budapest received VHS-taped care packages my mother recorded – Nathan had binged-watched boxed-set DVDs on another overseas assignment early in his career.
Nathan and I connected with Tom Petty as well. I recall vividly after speaking at the Mines & Money Toronto conference in October texting Nathan immediately to mourn when we heard the reports of Petty’s heart attack and apparent death, confirmed the next day. A mere three short months after this great time:
Giant, Workhorse Nathan, myself and Ari Raskas of RK Equity
I have been feeling exceptionally uneasy and unusually speechless since receiving that Sunday morning call on February 4 from Piedmont CEO Keith Phillips that Nathan had suddenly died in the middle of the night. Disturbed, like their rendition of Forest Hills-born Simon and Garfunkel’s
Sound of Silence: https://www.youtube.com/watch?v=u9Dg-g7t2l4
I ENCOURAGE YOU TO WATCH THIS MOVING VIDEO IN ITS ENTIRETY, FULL SCREEN
On behalf of those who know, love and believe in Piedmont Lithium, Thank You Nasdaq for this tribute:
Rest in Peace, my Friend, Nathan Lee Ainsworth
Goodbye Yellow Brick Road
Elton John - Funeral for a Friend: https://www.youtube.com/watch?v=3p_xAToFzck&sns=tw ----
Nathan would appreciate some levity here.
Seinfeld – Cleavage: https://www.youtube.com/watch?v=evOm0ZBMeGk Until Tom Petty died, my nickname for Piedmont was his American Girl, taking after the favorite Sex in the City character Charlotte. Before Kristin Davis was Charlotte, she was one of Seinfeld’s girlfriends:
https://www.youtube.com/watch?v=xYcO_LjU_u8 A giant from Charlotte, NC, Reverend Billy Graham, passed away last week at 99 years old. Amazing longevity. 63 years longer than Nathan’s much too short 36 years.
Billy Graham’s last message to America: https://www.youtube.com/watch?v=b4TMuee7Ir8
“Our country is in need of a spiritual awakening”
The best way to honor Nathan’s legacy is to ensure for his wife Hannah and two sons, that the company he co-founded, Piedmont Lithium, in Charlotte, North Carolina becomes an integral part of what he believed would become a fully integrated USA-based lithium supply chain from mine to chemical to cathode to battery to electric car.
COMING NEXT WEEK: Men at Work – Lithium Down Under
featuring Isuru Seneviratne of Radiant Value Management
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I’ll also provide month-end Mr. Market commentary following the plethora of Q4/Year-end earnings from FMC, SQM and ALB, BHP, GLEN, RIO as well as Ganfeng’s 423-page prospectus for $1B equity raise and Hong Kong listing.
Meantime…
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Friends Following Seinfeld on blockbuster Prime Time NBC Thursday nights:
https://www.youtube.com/watch?v=Niu9Zmrx0p8
--- The same week I experienced all the trauma associated with Nathan, I was elated to join a friend of mine since Kindergarten in Rockville, Maryland, just outside our Nation’s Capital:
Neal Simon announces his run for US Senate from Maryland
Up and Coming Political Rock Star
Independent Candidate for Senate in Maryland Neal Simon
February 26-28: BMO Capital Markets 27th Global Metals & Mining Conference SUNDAY AFTERNOON BATTERY MATERIALS KICKOFF: STANDING ROOM ONLY
Over President’s Day week last week I had the rare occasion to visit a movie theater at the behest of my wife and eldest son Jamie to see an acquaintance of his from Forest Hills, Ellis Rubin, play the young PT Barnum who grew up as Hugh Jackman in The Greatest Showman.
Great movie, by the way. Musical story about an entrepreneur and promoter of the Greatest Circuses the world has ever known. Making a killing exploiting certain “Oddities & Curiosities”.
Amazing poise this Ellis Rubin has for an eighth-grader. Jamie never took to acting, which I didn’t meaningfully encourage nor discourage, in contrast to my Tiger Dad dogma for his music. He’s now a burgeoning composer and musician, in particular of EDM style. Sweet Child O’Mine, Jamie Klein, aka, Sitting Duck’s latest:
Cobra: https://soundcloud.com/user-197774569/cobra Please have a listen and “like” it!
Sidebar: Axl Rose is recycling and recharging AC/DC’s battery:
https://www.youtube.com/watch?v=Lb54wxS5ACk The Greatest Showman movie of course elicited a narrative in my mind about the Lithium-ion Battery Materials Circus. Lithium land is filled with interesting and exciting interlinked stories and personalities. Long-term investment opportunities. Speculations. Visionary billionaires: Elon Musk, Liang Bin Li (Ganfeng), Xiaoshen Wang (Ganfeng). Robert Friedland. Li Shufu (Geely) Plain-old connected Emerging Market billionaires: Julio Ponce. Geopolitics. Macro Economics – Inflation. Mineral Economics Critical Minerals. Conflict Minerals. Sustainability. Pollution. Electric Cars, Buses, Trucks and Harley Davidsons. BATTERY MEGAFACTORIES – 75% MADE IN CHINA. Home-energy Storage. Grid-scale Batteries. Tony Seba, ReThinX: Autonomous Vehicles. Uber, Waymo. “Car of the Future ETFs”: Krane Shares: KARS. Innovation Shares; EKAR Reagan-style supply-side economics to Make America Great Again. Jimmy “Chile” Carter-style excess profit tax @EduardoBitran.
CORFO: COmmunist Republic. FOrgive Me The Tax Man has done all the talking about SQM production plans for more than a month now. For the first time in 5 weeks, we will finally hear from those who actually make SQM’s investment decisions on February 28. I expect we will hear constructive thoughts about Lithium Americas and Kidman development plans.
Mr. Bitran is but one bearded character in a Lithium-ion Battery Materials Equity Circus filled with a number of Oddities & Curiosities. Among the most popular freak of PT Barnum’s was the Bearded Lady:
$AVZ Minerals
Simandou of Lithium Buxom, Beautiful Body. Outgoing Personality. Hair will leave her without a mate. Stranded. The World’s Worst Located Lithium Project
As I was completing this edition of the Lithium-ion Bull, AVZ announced a $15M private placement with a single North American investor sourced by Cantor Fitzgerald (Canada). I presume it’s Canadian, otherwise the press release might have specified “US” investor. This is American Investment bank Cantor’s second deal in one week in lithium land – they co-led with Canaccord a C$21M bought deal for Millennial Lithium last week. At 25 cents, the AVZ deal was done at a decent discount and included a 2-year half warrant at 30.5 cents which is not much of a premium, in particular considering ASX doesn’t require 4-month hold paper. But nevertheless, AVZ at 25 cents in my view is still at a crazy high valuation relative to its early exploration stage and high sovereign risk. For all Ninja speculation about multiple Chinese players lining up for a bidding war, AVZ’s CEO felt obliged to say:
“Our existing and potential Chinese partners have told us they are looking for advancement of the project prior to making further commitments, and we are now funded to achieve this goal.”
Cantor’s investor and I obviously have a difference of opinion, which is the beauty of healthy animal Mr. Market spirits:
In the short run, the market is a voting machine, but in the long run, it is a weighing machine – Warren Buffett
Again, I believe Manono/Kitolo will likely define perhaps the largest and highest grade lithium deposit in the world. But size and grade of a deposit are only two of some two dozen attributes that must pass muster before making what would likely be a multi-billion Final Investment Decision for spodumene concentrate production, let alone a carbonate or hydroxide refinery.
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With super long-lived, high-grade spodumene Tier One deposits like Kidman’s Mt. Holland and others throughout Western Australia, Quebec, North Carolina, Brazil and elsewhere, I seriously question why in the world would any non-Chinese strategic venture to land-locked, infrastructure-starved, lithium processing skills-challenged, high and erratically taxed, war torn, non-Democratic Republic of Congo?
February 15, 2018
I could be wrong, but I also just don’t see 10% shareholder Huayou Cobalt or another nimble Chinese circus acrobat bending over backwards to take out public equity shareholders in AVZ at an inflated valuation like NextView has agreed (but not yet finalized) to do with LIX. More on that below. China Girls tend to get into bed with more attractive Rock and Brine Stars than Hairy Circus Freaks.
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27 Years. BMO Capital Markets in Hollywood, FL is by far North America’s most prestigious (though disproportionately gold-weighted) mining conference, attended by the most significant CEOs of the most significant mining enterprises and the largest institutional investors, almost all of whom have been underweight the sector for 4 years. Glencore, BHP, Rio Tinto are reporting spectacular cash flow generation, big dividends, and are promoting their EV honeymoon suite of metals – copper, cobalt, now nickel. These big miners seem to be scared shitless about the lithium business or have drunk the Bernstein un-Kool Aid that because lithium is not in-situ “scarce” or “never creates the bottleneck” that lithium, in just two short years, is at a “top”. I think BIG MINING understands that lithium is inherently a chemicals business, not a mining business and chemistry is not their cup of tea. But surely they can acquire such expertise? And should covet the higher EBITDA rating they would gain through such diversification?
I wonder if we’ll see BIG OIL enter the lithium business. They understand petrochemicals, refineries. Can’t they figure out lithium and have a constructive hedge to their core business in long-term decline? Henry Sanderson at the Financial Times wrote a good article on Nutrien’s 32% SQM stake sale for which I contributed some quotes:
https://www.ft.com/content/609adb06-0a61-11e8-8eb7-42f857ea9f09 The mining industry’s Greatest Showman, Robert Friedland, is the Opening Speaker at 7:45 AM on BMO’s New Age Metals stream.
What, no Kidman? No Lithium Americas?
Nobody Does it Better will no doubt champion Sustainable Cobalt Sulphate and Nickel Sulphate from (say YES to) Heart of the Project Sunrise Clean TeQ, and perhaps comment on CLQ’s DFS update from February 23…
Ivanhoe Mines has the world’s richest undeveloped copper, platinum and copper-zinc-silver-geranium deposits. BMO has backed Robert for years. Their former head of mining banking, Egizio Bianchini, just joined Ivanhoe in a senior operating role as Executive Vice Chairman, for which James Bond suggested a history rhyme with my old friend Lithium Nevada-founder Ed “Wish You Were Here” Flood.
“Over the years, I have come to appreciate that qualified people realize the greatest potential of quality projects. Egizio’s appointment is reminiscent of our situation in 2001 when the late Ed Flood joined us from Haywood Securities, becoming Deputy Chairman to support the development of our Oyu Tolgoi gold and copper discovery in Mongolia. Ed was instrumental in helping to secure Rio Tinto as a strategic financing partner for Oyu Tolgoi – an arrangement that proved key to Oyu Tolgoi’s emergence as one of the world’s top copper and gold mines. We are confident that Egizio will help Ivanhoe’s board and senior management to achieve other outstanding outcomes for our current shareholders and stakeholders.”
Bay Street BMO Capital Markets, part of Quebec-based Bank of Montreal, arrived late to the lithium equity financing party of 2016/17. They would seem a natural sponsor for Nemaska, but they instead just deleted still-to-be-financed NMX for the time being from their supply models. It doesn’t seem that they are gunning for lead FMC Lithium spinoff role, as RBC apparently is. BMO is considerably un-bullish lithium, but unlike Air Supply peers at Macquarie, Bernstein and today again, Morgan Stanley, which has over-inflated expectations about how fast SQM and ALB can/will ramp Atacama…
“Lithium prices to fall 45% by 2021” – Morgan Stanley via FT …BMO is not stupidly bearish and have actually done a unique bit of bottom up analysis about battery chemistries and other factors to draw their conclusions. I surmise BMO likely sees M&A, along the 2018 Lithium Consolidation theme. Keeping lithium valuations relatively lower is no bad thing. BMO advised Cobalt 27 on their first big royalty acquisition - announced just in time for the conference. Their analyst immediately touted the deal as “accretive” though I found myself at pains to analyze it as it is not clear how much cash KBLT is paying for the royalty on the Dumont project, which I understand from David Talbot of Eight Capital requires $1.3B in capex. I hope to catch up with the Omnipresent Anthony Milewski at the Diplomat Hotel bar.
FMC’s 1Mt LCE in 2025 forecast is 66% higher than BMO’s substantially below consensus forecast of 600K. IPO spinoff book-talking: “high growth,” “high multiple”. BMO is on the very low end of sell-side brokers…
Source: Radiant Value Management
…principally based on EV penetration forecasts of only 10% by 2025, with only 6% Battery EV and 4% Plug-in EV. This might be why they didn’t take me up on my suggestion of having Tony Seba be a conference keynote.
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SQM’s Conservative Oligopoly book-talking 600K base case for 2025 in September seeks to discourage other supply, in my view. I understand recent customer developments have made SQM’s 800K high case from September more their new base case. We’ll see if they say something on this score this week. Supply-side work I’ve been doing with partners support CRU’s 18% CAGR figure (below), so I’m using 800-900K ballpark for 2025. Rosskill has revised sharply upwards their forecast to reach 1Mt in 2026. Ganfeng’s prospectus is an informative read. They commissioned independent researcher CRU for $100,000 to do a supply/demand study. Despite the study being conducted in connection with a $1B+ equity raise, I have more confidence in the independence behind these figures, though their forecast period runs only through 2022, not 2025. 2022 is nevertheless a good year to think about for an investor with a 3-4 year time horizon. CRU sees LCE market DEMAND at 526kt by 2022, so 300kt of new lithium carbonate and hydroxide (not just spodumene) SUPPLY need to be added in 4 years.
18% CAGR next 5 years vs. 11% CAGR past 5 years.
I’ll write more with my thoughts from the Ganfeng prospectus in the near future. Meantime, like David Bowie, Ganfeng has been ahead of its time and deserves the Nickname:
China Girl: https://www.youtube.com/watch?v=E_8IXx4tsus
Some more Friends & Family, Millennial lithium commentators The Lithium Spot published a useful analysis of FMC’s earnings call February 13
https://thelithiumspot.com/2018/02/15/fmcs-2017-earnings-analysis-and-sound-bites/ As well as a preview of SQM and ALB calls this coming week.
https://thelithiumspot.com/2018/02/23/albemarle-and-sqm-q4-earnings-preview/ Not sure why they use a “hypothetical” multiple for FMC of only 10X EBITDA, when historic M&A multiples, current public valuations and BMO sell-side analysis suggest 17-20X as more appropriate, which would equate to $3-4B FMC valuation at spinoff later this year.
Orocobre had an upbeat year-end call with another quarter of strong cash flow generation, stronger partnership and credible expansion plans. They could rival FMC in a few years, especially, f they get their 10K hydroxide facility in Japan running smoothly. It’s not hard to imagine $ORE grow from $1.5B to $3-4B in a few years.
The Year of the (Bull) Dog Unfortunately not, for Mr. Lithium’s treasured Georgia Dawgs in the Rose Bowl. But hopefully YES for the President of my High School Alma Mater, The George W. Hewlett High School Bulldogs: Neal Simon. #Simon4Senate #peopleoverpolitics nealsimon.com
http://hwbulldogs.com
I departed Perth as the Chinese Lunar New Year began…
The Year of the (Bull) Dog in this narration means a former Dog from Lithium 1.0, in this case Aberdeen/Stan Bharti-founded Rodinia Lithium, re-packaged by Matysek/Giustra/Pragas in Lithium 2.0, has a relatively quick, happy ending. LIX was the first Argentina-brine Vancouver promote. Conceived initially as a Clayton Valley play, LIX then cut a deal for Rodinia (via Aberdeen International) which, on the heels of early LAC/SQM enthusiasm, instantly rocketed LIX in a FOMO melt-up. We are now in a FIFO moment. LIX First In. LIX First Out. But…
All conditions to the completion of the Arrangement have been fulfilled except for: (a) the receipt from NextView of the cash required for NextView to acquire all of the issued and outstanding common shares and common share purchase warrants of Lithium X for cash consideration of $2.61 per share and $0.01 per warrant pursuant to the Arrangement and (b) certain conditions (such as accuracy of representations and warranties and no material adverse effect having occurred) that cannot be satisfied until the Effective Date. With regard to the cash consideration, NextView has advised the Company that its fund investors have advanced the equity portion of the cash consideration in the amount of US$51.28 million (approximately C$64.6 million) to NextView. NextView has received financing commitments from each of Tibet Summit Resources Co., Limited and Tajik-China Mining Co., Ltd. under which they agree, jointly and severally, to provide NextView with up to C$265 million to fund the aggregate cash consideration, as described in more detail in the Company’s information circular dated January 3, 2018 (the “Circular”) under the heading “NextView Financing Arrangements”. As contemplated in the Circular, NextView has advised the Company that it is seeking alternative funding from a commercial lender in order to obtain the required funds on the most competitive terms available and that the proposed facility with the commercial lender is currently anticipated to be established and funded shortly but has been delayed by, and until after, the Chinese New Year holiday.
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Next View is expecting to borrow C$265M to acquire a development asset far from production cash flow at time when headlines about China investment are sending mixed messages:
(Bull) Dog #2? Argosy Minerals Lithium 1.0: Rincon/Sentient Lithium 2.0: Rincon/Argosy/Pablo Allurade I caught up in Perth with Jerko Zuela, CEO of Argosy Minerals, that unique ASX listed Argentine brine play that is comped against the following TSX universe:
I had multiple opportunities to buy this stock at 3 cents. I missed a 10-bagger because Ninjas scare me. Argosy has rightly focused first on figuring out how to process this brine. They have the fullest confidence that their man Pablo Allurade has the secret sauce. Pablo, like everyone in brine-land, seems to keep this sauce very, very secret. Information/experience sharing in Oz Hard Rock is far more prevalent. I am not qualified to evaluate what appears to me to be a binary technical outcome. I can quantify the downside if it doesn’t work. If it does work, there’s a potentially large prize, but I’m not sure how large. I like Jerko and his Chairman Alexander Molyneux, who I’ve known nearly 10 years when he was CEO of Friedland-backed Hong Kong Listed, once $3.5B market cap South Gobi Coal. I’m rooting for (Bull) Dog Rincon 2.0 and hope Pablo Allurade is:
Friends & Family I’m making good on another New Year’s Resolution. I will be launching in earnest at PDAC a marketing campaign for an Investment Product focused on the energy storage investment theme. Thanks to those who have responded so far to my earlier invitations to:
I’ve been thinking about the late 1980’s/early 1990’s when a cool upstart telecoms company, MCI Corp slayed the mighty AT&T with one of the best marketing campaigns of their day. A Stanford Case Study. The MCI Friends & Family program:
1995 Friends & Family Commercial: https://www.youtube.com/watch?v=mRjuoUudWJ0
In 1998, post Business school as I started an equity research sales job at Societe Generale, my London boss and head trader for Russian and Eastern European equities, would call me Budd Foxx - from Oliver Stone’s Wall Street. I’ll turn 50 this year, which my friend Neal Simon inspired me is only “Half Time” on our work journey. My yoga teacher talks frequently how we should have no issue with aging, so long as we don’t get old. Call Me will now turn into I Call You. Friends & Family Round. $20M. Hunting first Cornerstone Elephants for meetings like:
Budd Foxx Meets Gordon Gekko: https://www.youtube.com/watch?v=leAHmpKRVMo Launching an Investment Product is admittedly not nearly as hard as entering politics and winning a US Senate seat on the first try as an Independent, but in this day and age of HEDGE FUND BIGNESS, I know it’s not easy. Building scale quickly is a priority. I am conjuring up a marketing campaign that could one day be a Case Study for my Business School Alma Mater, Columbia Graduate School of Business. The Lithium-ion Bull would be one component. Columbia President Glenn Hubbard was Mitt Romney’s Chief Economic Advisor in the 2016 campaign. I think accomplished businessman Romney in Utah and accomplished businessman and Independent Neal Simon in Maryland could do some constructive things together in the US Senate.
