Battery Metals

Lithium Investing

On Monday, French oil and gas producer Total announced that it had signed an agreement to acquire Saft, a leading lithium-ion battery maker, for 950 million euros. This marks Total’s second foray into the clean energy space, as the company acquired a controlling share of SunPower, a leading US solar panel producer.

On Monday, French oil and gas producer Total (NYSE:TOT) announced that it had signed an agreement to acquire Saft (EPA:SAFT), a leading lithium-ion battery maker, for 950 million euros (US$1.1 billion).
Saft’s supervisory board has unanimously approved the friendly takeover and is recommending that shareholders tender their shares. The deal represents a 38.3 percent premium above Saft’s May 6 closing price, valuing the company at nine times its 2015 reported EBITDA.
“The combination of Saft and Total will enable Saft to become the Group’s spearhead in electricity storage,” said Total Chairman and CEO, Patrick Pouyanné, in a statement. “It will notably allow us to complement our portfolio with electricity storage solutions, a key component of the future growth of renewable energy.”
Among other things, Saft makes nickel and primary lithium-ion batteries, used in transportation, civil and military electronics markets, and industrial infrastructure and processes.

Renewable energy trends

This marks Total’s second foray into the clean energy space. The company acquired a controlling share of SunPower, a leading US solar panel producer, in 2011. According to Bloomberg, Total has pledged to invest $500 million per year in renewable energy.
“While not a transformational transaction for Total, this will likely surprise most investors who may question the premium in the context of medium-term benefits to Total,” Jeffries International analyst Marc Kofler told the publication.
However, for Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal, Total’s move is an important one. “As the economics around renewables continue to improve and the oil market remains burdened with low oil prices, it makes good strategic sense for a major oil producer such as Total to be diversifying its business,” he said in an email.
Oil prices have started to take back some losses, having risen about 13 percent year-to-date. However, at around $43 per barrel, oil prices are still nowhere near where they were in mid-2014 at over $100 a barrel.
Fossil fuels may be cheap, but Berry added that technology costs continue to fall as well, while public policy around low carbon sources of energy is becoming more widely adopted. “I think you’ll see more deals like this going forward,” he said.

What does it mean for lithium investors?

Certainly, the proposed acquisition of Saft by Total demonstrates that demand for lithium-ion batteries goes beyond the electric vehicle sector, despite all of the excitement around Tesla Motors (NASDAQ:TSLA) and its new lithium-ion battery gigafactory in Nevada. Of course, Tesla is moving into the energy storage sector as well.
“It’s huge news for the energy storage market and will have a positive impact on long term lithium demand,” commented Simon Moores of Benchmark Mineral Intelligence.
“This is the first major foray by an energy company into the battery sector in a big way, and backs up the founders of the oil industry, the Rockefeller Family, in pulling out of fossils fuels,” he added, referring to a recent announcement that the Rockefeller charity foundation would divest from fossil fuels. “It’s not the end for oil, far from it. But it is the beginning of energy storage, the key factor in making renewable energy, especially solar, worthwhile.”
To be sure, the importance of energy storage is something that green energy investors have been aware of for some time. But when the CEO of one of the largest oil and gas companies in the world says it—and puts his money where his mouth is—it would appear that a much more tangible shift to renewables is starting to take place.

Lithium companies

Lithium prices are on the rise, and as the world’s top lithium producers have yet to substantially ramp up supply, more and more junior mining investors are looking at newer players in the lithium space. Here are a few examples:

  • Orocobre (TSX:ORL,ASX:ORE) continues to ramp up lithium carbonate production at its Olaroz lithium facility in Argentina
  • Galaxy Resources (ASX:GXY) reported last month that it’s partner, General Mining (ASX:GMM), had recommenced mining operations at Galaxy’s hard-rock lithium mine in Western Australia
  • Bacanora Minerals (TSXV:BCN,LSE:BCN)/Rare Earth Minerals (LSE:REM), and Pure Energy Minerals (TSXV:PE) signed lithium supply agreements, albeit conditional ones, with Tesla last year.
  • Nemaska Lithium’s (TSXV:NMX,OTCQX:NMKEF) Whabouchi hard-rock lithium project in Quebec is fully permitted, and the company has a proprietary process for producing lithium hydroxide direct from spodumene concentrate.
  • A number of other lithium juniors have converged on Nevada’s Clayton Valley.

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Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 
Editorial Disclosure: Galaxy Resources and Nemaska Lithium are clients of the Investing News Network.
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