Jon Hykawy of Stormcrow Capital shares his thoughts on the lithium market and talks about what he thinks are 3 of the strongest lithium junior stocks out there.
At this year’s Vancouver Commodities Forum, Jon Hykawy of Stormcrow Capital took some time to chat about lithium prices and what he thinks could be next for the lithium market.
Despite all of the excitement in the lithium space right now, Hykawy believes that there could actually be a price correction in the near term. While he doesn’t believe the market will see anything as run in uranium prices in 2007-2008, and the run up in rare earths prices in 2010 and 2011, he believes that high lithium prices is at least in part due to financial buyers coming into the market and speculating on physical lithium.
While Hykawy admitted that there could be a bit of a bubble in the lithium sector, he believes it will still be a good market for lithium companies. In particular, three juniors he believes have strength are:
- Nemaska Lithium (TSXV:NMX)
- Houston Lake Mining (now name changed to Frontier Lithium TSXV:FL)
- Lithium Americas (TSXV:LAC)
Watch the video below for more of what he had to say:
INN: So, there’s a lack of consensus for price predictions in the lithium space right now. What are your thoughts on where hydroxide and carbonate are headed over the next 12 months.
JH: Given that nobody knows, I could be safe in saying that I don’t know either. But I think where we’re headed is down for a number of reasons.
INN: Really? What are those reasons?
JH: The basics. We’re not in a lithium shortage right now. As much as the prices, especially spot prices, have been moving up over the last while, we’re in no fundamental shortage. If you talk to the incumbent producers and ask them that question, they’re fine with where supply is today. They’re much finer with where prices are today than three years ago too, but they’re fine with where supply is today. I think what we’re seeing in a large measure actually, is the effect of financial buyers coming into the market and speculating on physical lithium, especially in China where we’ve seen the biggest impact on spot prices.
They only have a certain size bank account. They can only buy so much material and then they’ve got to push it back out into the market. So I think we’re in for a price correction. Whether it’s going to happen in the next 12 months, the next five months, the next two months, I don’t know.
INN: Okay. And in terms of the degree of price correction, you’re talking about that sort of thing in relation to the uranium price run up and the rare earth price run up. So, what can we expect? What are we looking at here?
JH: Well, definitely not the sort of collapse we saw in uranium or in rare earths. There, you had fundamental weakness in demand as well as a sudden glut of supply on the market. Here, we’ve got good fundamentals in place with respect to lithium. The demand is building year on year rather than stagnating or collapsing. And so, what I would expect is if we move back towards a historical range, we’re probably going to see a retreat, including that sell off of some inventory. In perhaps the $6,000~7,000 range, but we’re not going to see the prices back to $4,000 or anything like that. And then longer term, I would expect those prices to move up, probably into the $10,000 or $12,000 dollar range by 2020.
INN: Okay, and given all the excitement right now, there’s a lot of lithium juniors coming into the space. Do you think that there’s a bubble in any sense?
JH: Whenever you’ve got junior companies in certain jurisdictions in the world trading at multi hundred million dollar market caps when they’ve barely got any knowledge of what they actually have and the cost it’s going to take to produce, I think you could say we’ve got a bit of a bubble going. But this is a bubble, again, that has a fundamental underlayment to it. It is a floor to lithium demand that didn’t really exist in rare earths, that was weaker in uranium.
I think what we’re going to see here, thank goodness, is a number of the juniors get to market in this cycle, a number of companies start to produce. I think it’s going to be a good market for lithium companies, especially the strongest ones.
INN: Okay, and what are some of the strongest ones that you’re following right now?
JH: Well, we follow a number of stories with public research. We also look a number of stories and provide our analysis on them to companies that we can’t publish because the research is proprietary. I would say on the public company side, certainly Nemaska is a favorite story of ours. Good deposit, good grade compared to a lot of the other hard rock miners. But the more important thing for me is the technology; the technology that they’re developing and testing conservatively and step-by-step is basically a technology that can be applied in a lot of other places.
If it works, it’s a very cheap way to make lithium hydroxide. I think they’re going about trialing it the right way. If you look at some of the other companies in this space, on the hard rock side, there’s a very small junior named Houston Lake Mining out there run by a very, very strong mining family. They have a deposit that has a core that looks very much like Talison’s grades back in the early days of Greenbushes.
So, when you start to talk about three and a half and four percent lithium grades in a hard rock mine, you’re starting to talk about something that’s economic no matter where we are in this cycle. And as far as lithium brine is concerned, I very much like Lithium Americas. Lithium Americas recently took a bit of flak for their joint venture deal with SQM (NYSE:SQM). I think that’s misplaced. Lithium production isn’t mining per se. It’s chemical production. It’s hard to do. We saw a number of companies try it in the last lithium cycle and crash and burn. What Lithium Americas have done is they’ve realized the importance of being able to produce those chemicals to do this right. To do this well, they’ve partnered with SQM.
Now, they’ve had to trade off in terms of access to feedstock, increased lithium production versus SQM’s IP in the space and their understanding of how to produce lithium, basically on a consistent quality basis. And so, they didn’t take as large a payout from SQM as people had hoped. I think they made the right decision either way.
INN: Okay. That’s great. Thank you for joining me, Jon.
JH: Thanks, Teresa.
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Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network.
Nemaska Lithium and Houston Lake Mining are clients of the Investing News Network. This article is not paid for content.