Experts Share Lithium Investing Ideas and Market Insights

The lithium market has had a few challenging years, but interest in the battery metal keeps increasing, with investors wondering how to profit from a space that is still expected to grow exponentially in the years to come. 

At this year’s Lithium Supply & Markets event, run by Fastmarkets, Jon Hykawy of Stormcrow Capital hosted a panel where Howard Klein of RK Equity, Ana Cabral of A10 Investimentos and William Turlington of Societe Generale (OTC Pink:SCGLF,EPA:GLE) shared their views on investing in lithium today.

Kicking off the discussion by answering a question about investor sentiment, Cabral said the coronavirus pandemic has switched people’s mindsets about everything.

“The electric vehicle industry has been indirectly positively affected by it in great part because I think what has increased is cautiousness about climate, our impact on the climate and the catastrophic impact that can have in our lives,” she said.

The conversation has changed, and it is now more expected for companies to be sustainable and low cost, she added. “These elements are now part of the conversation in this new, positive way in battery materials that weren’t there before.”

Speaking on environmental, social and governance (ESG) aspects, Turlington said these are core principles at Societe Generale, and they play a key role in how the firm evaluates projects.

“(ESG) has developed massively, but it remains a core principle for commercial banks,” he said. “(At Societe Generale) we really want to be part of that whole thematic, across ESG and lending into these companies and opportunities that are doing the right thing across the globe.”

Klein highlighted the geopolitical angle of the discussion.

“I’m very focused more than anything on finding projects that are focused on western OEMs,” he said, adding that one question that remains is if ESG will translate into paying a premium for more sustainable and more secure supply.

In terms of what she has seen so far, Cabral said that’s the challenge — ESG is a condition, but there’s no premium. “It’s not enough to be in this value chain to be considered ESG and to be sustainable … you need to walk the talk,” she said.

“The diligence is very strict from banks, from OEMs, from suppliers — everyone is now nitpicking on these KPIs, bringing their experts to validate it, because it’s about making sure that we’re a legitimate member of the value chain.”

For Cabral, the bar keeps on going higher. “I think it’s fantastic. It’s long overdue,” she said.

Societe Generale’s Turlington agreed, saying it’s important that companies want to do the right thing.

“If they are doing the right thing on a regular basis, they should get rewarded for doing that,” he said. “That’s where kind of the evolution of some of the financing products that we offer come into play.”

When asked about how institutional investors think about opportunities in the space, Turlington said the offtake conundrum is a problem.

“You need to understand that downstream supply chain, where it’s going, because it is complex, it is fragmented; a lot of it does pass through China, and you can try and tie together the missing pieces. You’ve got to make sure the capacity is there throughout the value chain, and that’s a diligence item.”

Turlington added that in terms of offtakes, it’s a banking risk at the end of the day.

For her part, Cabral noted that there’s a route for every kind of investor along the lifecycle of a project.

From the private equity side, she said it’s a huge risk. “We take risk, we’re comfortable with risk, we evaluate risk. Now, what don’t we do? We don’t take uncertainty,” she said. “Eliminating uncertainty, from governance from regulatory, but embracing risk, this is what we do.”

Commenting on risk, Klein said he is not fearful of overheating markets, and investors should remember this is a risky business in general.

“Projects are going to fail … there’s going to be losers, and there’s going to be winners,” he said.

Answering a question about whether an overheated market is concerning, Turlington said it is all a matter of diligence.

“It’s a matter of selecting the right projects from the start … making sure it’s very robust from a first principles perspective,” he said. “We can be agnostic to the backdrop in terms of its equity blowing up, it just means that there’s probably alternative routes in terms of financing that project — that’s already a very good project in our eyes.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.