China’s Rare Earth Industry’s Big Advantage is not Just in Mines

China’s Real Rare Earth Infrastructure is based on a dedicated, and educated, specifically Experienced, and Skilled rare earth industrial and R&D workforce, financed, where needed, and supported by the State.

There is a debate among Western economists on the value and effect of industrial policies, set by governments, on the marketplace. It’s argued that when governments, instead of the markets, pick winners and losers in industries it never ends well.

China’s admittedly authoritarian central government does exactly that; it defines an industrial policy for the long term, and it picks winners and losers. But, unlike the American government, it does not careen from policy to policy based on the politics of the moment. China’s government’s long-term focus is on the growth of the overall economy, price stability, and domestic social harmony.

I think that it is the issue of price stability that has caused the Chinese central government to step into its domestic rare earth’s industry lately. Stable, or at least predictable, prices allow the long term planning characteristic of the Chinese industrial economy.

Just before Christmas China announced that it had formed a large and state-supported vertically integrated rare earth products’ company called, eponymously, China Rare Earths. This event, a merger of the rare earths operations managed by three mostly state owned and state controlled  companies has been widely reported. What journalists seem to have missed is that this will be a well financed rare earth company from the start. The Peoples’ Bank of China (the PBOC) is the lender of last resort to any State Owned Enterprise (SOE) and if that enterprise is producing anything required by the current industrial policy then profit and loss take a back seat to security of supply. In rare earths, for example, mining and separation are today rarely, and then only barely, profitable especially in any country with strict worker health and safety and environmental management regulations. The profit is in downstream products, metals, alloys, and magnets, phosphors, and catalysts. This is why stand-alone rare earth ventures even with separation capability and capacity, such as Lynas Rare Earths Limited (ASX: LYC), make relatively little profit, while by contrast China’s vertically integrated, and so far, mostly private Shenghe Resources, which is vertically integrated from the mine to the magnet does much better in sales volumes and profits than Lynas.

China’s rare earths industry has had a long learning curve, and this has generated the world’s largest rare earth R&D, rare earth mining, and rare earths production (processing and manufacturing) engineering reservoir of skilled and well-educated individuals dedicated to rare earths, in the world.

China Rare Earths inherits this human infrastructure, and, unlike, an American venture, such as MP Materials Corp. (NYSE: MP), does not go far to seek out specifically educated, experienced, and skilled engineers and workers from outside of the new company.

Each year China has a ruthlessly competitive national exam to determine admissions to its top universities. Last year some 15 million sat for the national exam. The top tier was selected for China’s most prestigious universities. Those chosen were mostly directed to what we call the STEM curricula, (the hard) sciences, technology, engineering and mathematics. This choice of direction is made in accordance with and support of China’s Industrial Policy, of being independent of the West in 10 technologies by 2025, and becoming a permanent center of technological innovation, superior to any other nation.

The United States, where social forces are denigrating college admissions’ qualification through the cancellation of blind testing, and where even mathematics may be branded as “racist” by half-witted college faculty and administrators, is surviving today as the top tier innovation nation through the work of legacy researchers, many of whom are foreign born, and most of whom are already in their peak productive years.

The American military pretends to be surprised by Chinese prowess in modern weaponry, and the American mainstream media simply does not report on China’s astounding space program. Both are described as based on stolen intellectual property by a smug American media. Can they say the same about China’s dominance in rare earths and battery materials and the end-use consumer products mass produced in China based on those groups of metals?

The United States can and will supply its military needs for rare earth and battery metal enabled products from domestic sources or through domestic processing of imported ores, and, perhaps, restrictive tariffs to politically level the price competition.

But such self sufficiency will not be possible for the entire civilian economy. Compromise and rationing are the future of the domestic supplies of technology metals for green energy purposes. The best we can hope for is a hybrid energy supply, green where possible, but mostly from fossil fuels and nuclear, if the US intends to retain a domestic industrial economy.

More than ever now, the domestic production, processing, and fabrication of the critical metals and materials needed for a broadly prosperous technological society is itself critical. Depriving ourselves of STEM graduates to ensure those skills survive chosen is a step towards the national suicide of America’s standard of living.

Critical Materials Corner, Jack Lifton and Byron King discuss the coming War for Green Energy

In this episode of the Critical Materials Corner, Tracy Weslosky is joined by Critical Materials’ industry expert and InvestorIntel Editor-in-Chief, Jack Lifton, and Critical Materials Corner Co-Host & InvestorIntel Columnist, Byron King, to discuss how the world is heading towards an energy crisis as covered in Byron’s recent column published on InvestorIntel titled – Energy Rundown: 2022, A New Year of Living Dangerously.

In this InvestorIntel interview, which may also be viewed on YouTube (click here to subscribe to the InvestorIntel Channel), the panelists discussed how energy security ties in with economic development, and why the world is presently not in a position to reduce its dependence on fossil fuels to zero. They went on to discuss the global push towards green energy and electric vehicles, which has caused a significant increase in prices for critical materials such as lithium, nickel, and the rare earths. Explaining why there is “nothing green about green energy”, the panel also discussed solutions to the impending energy crisis.

To watch the full interview, click here.

Circling the theory of an EV revolution, Lifton takes on the ‘dumbest assumption of the greens’

The “law” of supply and demand is in reality an academic ideal “model” that only works in a prescribed universe in which both demand and supply have no limits. In the real world, the model fails when it is applied to the finite supply of natural resources of this planet.

Case in point: The demand for lithium expressed as the necessary amount of this natural resource to accomplish the transformation of the motor transportation industry from the utilization of fossil fuels for motive power by internal combustion engines (ICE) to storage battery fueled electric motors (BEVs) is not possible, due to the limitations of lithium separation from the Earth’s lithosphere (crust) by man-made operations that are economically palatable to our civilization. The so-called green new deal is ridiculously expensive; it would require that all of our focus be on destroying the society that cheap energy has bestowed upon the world and making the current broadly shared consumer driven economies impossible of continuation, and close off any additions to consumer economies from Africa, most of India, and South America. The dumbest assumption of the greens is that there is an infinite supply of money to be used to achieve an unlimited supply of resources that would be needed to meet their mandated demands to turn the global energy economy “green.”

The only way that an EV “transformation” could take place with the resources that are accessible to us would be if the current internal combustion engine motive power of land and sea transport were replaced by a hybrid system of combined internal combustion and battery electric power. This would conserve both types of motive fuels, fossil based for internal combustion and stored electricity produced by fossil, nuclear, and alternate (wind, solar, and hydro) fuels, by utilizing them in the most efficient way. The idealization of personal transportation would also require the end of consumer choice and its replacement by durable, commodity, easily maintained and repaired, recyclable vehicles with long use-lives. This, in fact, was the “ideal” that Soviet Russian communism was supposed to attain. It didn’t work although it was mandated by the State and put into proto-practice across the Soviet empire. It was maintained only by fiat and fear. As soon as the Soviet experiment failed Western consumer choice driven cars rapidly replaced the dull, inefficient, poorly designed and made Yugos, Trabants, Lada’s and Dacia’s of the Soviet communist experiment.

The Chinese Communist Party has for the last twenty-five years embarked on a re-modeled approach to achieving communism, which has resulted in a system based on first using market capitalism to offer choices to rapidly improve the lifestyles and standard of living of China’s people to be followed by a leveling of the inequality of income that inevitably follows when substantial private ownership of the means of production is allowed, by re-asserting the right of the state to control the markets for the products that capitalism has shown that the people want as a measure of a contented life.

The Chinese model of using capitalism with Chinese characteristics to bring about socialism with Chinese characteristics in order to bring about a society based on communism with Chinese characteristics is a work in progress.

Western thinkers believe that the intentionally chaotic system of modified free market capitalism used in the United States and Europe by their mostly republican, democratically elected, governments, is the “ideal model.”

Chinese rulers, elected by only a minority of the population, the members of the Chinese Communist Party, believe that their state managed economics with Chinese characteristics is the right model for the development of a Chinese Communist State, and express their beliefs in planning mandated long term industrial policies.

The Chinese don’t seem to want to bring Marxism with Chinese Characteristics to the world, by force, anyway, as the Soviets did. They are remodeling their own nation as a closed system using the outside world only to perfect and maintain that closed system.

It remains to be seen if the Western model of innovation through disruptive technologies will continue in the face of a green new deal that will exacerbate inequality and destroy the middle class which has allowed modern Americans to enjoy the highest standard of living in history.

I think that the chaotic disruption of the OEM automotive industry based on a false premise of an infinite resource supply to meet a mandated demand will fail and could bring about an accelerating decline in lifestyle, quality of life, and America’s standard of living.

For what purpose? Oh yeah. To save the world.

As an infamous American officer said during a meaningless war, “We had to destroy the village to save it.”

In the near term buy into the hard to produce battery and electric motor metals, primarily lithium and the rare earths, and those companies that have found accessible deposits of any and all of them. Even if I’m wrong and there is an EV transformation it will take a very long time, and it will require for many years more lithium and rare earths annually than have ever been produced annually before.

Finally, be on the lookout for economically efficient new and newly applied process technology. It’s the only thing that could get us through the coming grade deflation as the best deposits are high graded out.

Energy Rundown: 2022, A New Year of Living Dangerously

“The chaos will only intensify,” said the CEO of Saudi Aramco, Amin Nasser. As in, oil markets are chaotic now and things are definitely getting worse.

So, Happy New Year, right?

Of course, if anyone might know a few things about global oil markets it’s the guy who runs the state-owned oil company of Saudi Arabia. (Okay, mostly state-owned. There are a few non-state investors too.)

Nasser gave a talk last month in Houston at the World Petroleum Congress. Attendance was over 5,000 from more than 70 oil producing countries, and this was despite Covid restrictions.

“Energy security, economic development and affordability imperatives are clearly not receiving enough attention,” warned Nasser.

He spoke in the context of innumerable breakneck efforts by governments, non-government organizations and businesses across the world to restructure the global energy complex. In other words, he offered an oilman’s perspective on the anti-oil, anti-fossil fuel, anti-carbon/CO2 movement.

The background to what Nasser discussed is the fact that we live in an era when a large segment of (mostly Western) global-level governance, power and money is resetting energy policy to move away from carbon, the energy source that powered the Industrial Revolution for well over 200 years. No more coal, oil or natural gas, basically. No more combustion. No more CO2 emissions, or so they say.

It sounds good to some people; mostly, to people who willingly overlook all manner of issues wrapped up in history, engineering, thermodynamics, geology and much else.

Here in the West, we’ve long passed the point of social and economic danger. We’re far beyond mere barstool rants about “saving the planet,” let alone giving a hearing to faculty lounge kooks.

Go back just a year to January 2021. On his first day in office, President Biden all but declared war on fossil fuels. Via executive order he canceled the Keystone XL Pipeline (concerning oil imports from Canada), shut down oil and gas drilling on most federal lands, and much more. In just one afternoon he signed off on a long laundry list of anti-carbon bonbons for his political supporters.

Then as 2021 unfolded U.S. energy prices rose. A mystery, right? Who could possibly have known?

Yet by the end of 2021, fuel pump prices were up 75% and more, and Pres. Biden was reduced to whining and pleading with OPEC nations to increase oil output over previously scheduled levels. Overseas, oil producers politely declined and smiled all the way to the bank.

But fuel prices are just one page of a long chapter that reflects Biden’s domestic policy contra oil and gas. And couple this American angle on the issue with other events that negatively impacted global energy supply. China banned Australian coal, for example. While Germany shut down almost all of its nuclear plants. More such power-downs come to mind if we cared to list them.

Suffice to say that we’re now at the point where being wrong on energy can (as in, It Will) crash the global economy. And contrary to popular political wisdom, no central bank will ever create enough “money supply” to bail out the problem.

Across the world, powerful people have promulgated policy based on carpet bombing carbon. You see it everywhere, both figuratively and literally. It’s embodied in the wind and solar movement, with those massive, eye-insulting, not-very-renewable systems you see along highways and covering landscapes.

World policy players have long waged an ongoing jihad against coal for electricity too, until recent power outages in diverse continents brought a reprieve to the proverbial rock that burns. And irony of ironies, humble coal was among the best performing commodities of 2021, with average global prices rising by 111% if the charts are to be believed.

Or consider those super-high, government-mandated mileage standards for internal combustion vehicles. On the darkest day of the year, the Winter Solstice this past December, the U.S. EPA lifted mandates by 25%, from 32 miles per gallon to 40 for cars sold in the American market by 2026.

In essence, this is akin to wartime industrial policy masquerading as environmentalism. That is, EPA just issued a de jure ban on almost all internal combustion engines in favor of still-evolving electric vehicles, to be built with all manner of exotic materials whose supply chains are problematic on the best of days.

Getting back to Saudi Aramco’s Nasser in Houston last month, he referred to “glaring gaps in the transition strategy” of developed nations to move away from fossil hydrocarbons and related, so-called “green” policies in developing nations. In essence, if I may summarize the speaker, much of what’s happening is short-sighted with large measures of complete ignorance thrown in.

A few topical numbers speak for themselves. Begin with a recent analysis by Rystad Energy, which concluded that global oil and gas discoveries in 2021 hit a 75-year low, at about 4.7 billion barrels of oil equivalent (boe). This is significantly down from 2020 when over 12.5 billion new boe were booked.

For perspective, global oil consumption over the past few years – just liquid petroleum and not including natural gas – has hovered in the range of 100 million barrels per day, or 36.5 billion barrels per year.

So just compare recent discovery with current consumption. Clearly, the world is drawing down against past oil discoveries and not replacing its oil-based resource with new finds or development.

But it’s not as if the oil and gas are not “there.” Oh, the molecules are in the ground. They just await the geologists and programs to discover them, and the engineering to bring them out.

And this raises another profound factual issue, namely that capital investment in 2021 was dismal, with about $340 billion globally invested in new exploration and development. It may seem like a big number, but per people who follow the energy industry – economists and oil company analysts – the appropriate capex number “ought” to be well over $500 billion per year.

Do that math, and right away we see dramatic under-investment in the global energy complex, certainly with hydrocarbon prospects up and down the line. Oil and gas investment is shy by about $500 million per day overall. That is, if you want to keep the world’s transport, industrial and agricultural systems working.

Oddly enough, this immediate investment deficit doesn’t materially affect daily oil output in the short or even medium terms. Oil that flows today, tomorrow, next week, etc. is from wells already drilled and producing. In the case of Saudi, for example, much of its oil comes from fields discovered 50 and 60 years ago, and wells drilled in the 1980s and 90s.

But in a longer timeframe, current underinvestment will eventually reflect in absolute decline in output. You can’t pump oil from wells that were never drilled, nor from fields never discovered in the first place.

More immediately, oil buyers and traders clearly see what’s happening, and of course markets tend to be forward-looking. So current underinvestment is a strong forecast of a looming, long-term supply crunch. And thus we stand at the foundation of market uncertainty, which has led to high prices, with higher tom come.

I’ll wrap up with a couple of broad predictions for 2022. They derive simply from connecting the dots out of 2021.

Coming down the rails, energy supply is and will remain problematic. Every energy source will be more expensive. And rising energy prices will translate as a core element of looming inflation. In this regard, well-run energy plays are a good idea, especially ones that pay a dividend.

And don’t neglect another important safe harbor in times of inflation, which is well-run mining plays and related metals.

In 2022 precious metals ought to do well, along with so-called “energy metals” used in batteries and electric systems, everything from copper and nickel to rare earths (REs). Expect prices to stay solid and likely rise. While all along, supply will tend towards tight, to the point of shortages of key commodities.

And finally, along these latter lines let me refer you to a recent interview that Jack Lifton and I conducted with Geoff Atkins of RE producer Vital Metals, click here to access

There’s more to come from this end as the weeks and months unfold. But for now, best wishes for 2022.

Matt Bohlsen’s Top picks in defense, aviation, and related ETFs for 2022

As we start 2022 one area of concern is global geopolitical uncertainty. In particular, Russia continues to threaten Ukraine, and China threatens almost everyone. The biggest Chinese threat, for now, is probably to Taiwan. Then there is always the threat posed by North Korea. Given the increasing global tensions, it is not surprising that many countries are boosting their defense spending. This leads to an opportunity for investors who want to be ahead of the game just in case a war or conflict breaks out.

Furthermore, it is starting to look like 2022 will see some recovery in the civilian aviation sector, assuming we are near the end of the COVID-19 pandemic, or at least getting back to more normal living.

Research groups also see a recovery ahead for U.S aerospace and defense. Fitch stated in December 2021: “Fitch Ratings views the 2022 Aerospace & Defense (A&D) sector outlook as improving following a bottoming out in early 2021 and a moderate improvement in 2H21.” Deloitte also forecasts a recovery in 2022.

Below are three defense or aviation stocks/ETFs to consider in 2022.

Defense stocks can offer some safety to a portfolio especially if we get any conflicts in 2022

iShares U.S. Aerospace & Defense ETF

The iShares U.S. Aerospace & Defense ETF (ITA) seeks to track the investment results of an index composed of U.S. equities in the aerospace and defense sector. The advantage of using the ITA ETF is the broad exposure to the U.S aerospace & defense sectors, which are sure to gain if there are any global breakouts of hostilities.

The current top 5 holdings are:

  • Raytheon Technologies Corporation. (NYSE: RTX) (20.83%)
  • The Boeing Company (NYSE: BA) (18.38%)
  • Lockheed Martin Corporation (NYSE: LMT) (5.27%)
  • Northrop Grumman Corporation (NYSE: NOC) (4.71%)
  • TransDigm Group Inc. (NYSE: TDG) (4.66%)

The ITA ETF trades on a PE ratio of 26.59, with a dividend yield of 0.9%pa.

An alternative to the ITA ETF is the SPDR S&P Aerospace & Defense ETF (XAR) with a key differentiator being that XAR takes an equal weighted approach. XAR describes its approach as an “equal weighted index which provides the potential for unconcentrated industry exposure across large, mid and small cap stocks”. XAR trades on a weighted average PE of 24.75.

Northrop Grumman Corporation (NYSE: NOC)

Northrop is one of the world’s largest weapons and military technology providers. It is also a large U.S military aircraft manufacturer. What I like about Northrop is that it is well diversified and provides products and services across the air, land, sea, space, and cybersecurity sectors.  Over the years Northrop has grown organically but also via takeovers, including that of Orbital ATK Inc., a global aerospace and defense systems company. This has enhanced Northrop’s capabilities especially in the area of Ground-Based Interceptor (‘missile’) products.

In March 2021 it was reported that Northrop had won a US defense contract for up to $3.9 billion to design the next-generation interceptor for the U.S. missile defense network. The report stated: The new interceptors would be a part of the Ground-based Midcourse Defense (GMD) system here, a network of radars, anti-ballistic missiles and other equipment designed to protect the United States from intercontinental ballistic missiles (ICBMs). Northrop’s stock rallied on the news, but there is still the possibility of a contract extension or expansion as Reuters stated: “The next-generation interceptor program could be worth as much as $10-$12 billion over its lifetime as the contractor works to make the technology capable of defeating current threats and future technological advances from countries like North Korea and Iran.” There is also the next possibility of a space based defense system (read “a space-based sensor layer for ballistic missile defense“).

Northrop trades on a market cap of US$62 billion and has a current PE ratio of 16.1. Not bad when you consider the U.S S&P 500 PE is currently 33.8.

The Boeing Company (NYSE: BA)

When it comes to U.S companies with massive exposure to defense, aerospace and civilian aviation there is none bigger than Boeing. I like Boeing in 2022 as it stands to benefit both as the aviation industry recovers post-COVID-19, and if we get any rise in the defense stocks due to global conflicts.

Boeing is an aerospace company that manufactures commercial jetliners and defense, space and security systems. Its products, and tailored services, include commercial and military aircraft, satellites, weapons, electronic, and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training.

Boeing trades on a market cap of US$125 billion and has a 2022 PE ratio of 32.8. Not cheap but remember Boeing is potentially at the early stage of an earnings recovery as global airlines look again to open their airline order books. One example of this is today’s news of U.S. carrier Allegiant Air rumored to be buying 50 Boeing 737 MAX jets valued at US$5 billion.

Closing remarks

We never know when the next terrorist attack or a global conflict will breakout. Given the tensions building after a tough two years enduring the COVID-19 global pandemic, it would not be surprising to see a geopolitical event spark in 2022. Will it be Ukraine, Taiwan, North Korea, the South China Sea, the Middle East, a terrorist attack on Western soil, or an unforeseen black swan event? It is hard to predict, but one thing is certain, and that is that buying up some ‘defense’ stocks as insurance, early at very reasonable market valuations, makes a lot of sense as we enter 2022.

Finally, the aviation sector looks poised to come out from its worst-ever downturn caused by COVID-19 in 2020 and 2021.

It now looks like it is time to book a seat and invest back into the defense, aerospace and aviation sectors in 2022. Fasten your seat belt and enjoy the ride, hopefully with much less turbulence in 2022.

Investors in Technology Metals for EVs, Be Very Careful What You Wish For in 2022

The one-dimensional talking heads (aka, the elected officials, lifetime appointed bureaucrats, and academic “advisors” who make their decisions based upon the requirements of lobbyists) of Washington, D.C., have started off 2022 by choosing winners and losers for the parts of their home markets served by the domestic American OEM automotive industry.  This is being done by fiat, not directly from the executive or legislative branch, but from the bureaucracy in the form of the Environmental Protection Agency, which last week decreed that all motor vehicles must have an average fuel use by 2026 of the equivalents of 55 miles per gallon of fossil fuel.

The consequences of this action, if it is not halted or overturned by the courts or a future election, will be catastrophic for the economy, because the only way such an edict could be fulfilled would be by the legerdemain practiced by the EPA when it measures the “range” of an electric vehicle without regard to its actual range in use real-time and under real conditions. In the world of EPA, an EV’s loss of 40% of range in cold weather and its loss of 30% in hot weather seem simply not to be taken into account. Nor is the shortened working life of a lithium-ion battery due to the degradation caused by “fast charging” taken into account.

The printing of money by the Federal Reserve and its spending by the economic-logic-free Congress has had a very foreseeable effect on the prices of critical metals required for the transformation of the fossil fuel powered vehicle industry to battery electric power. As investors watched the Chinese government’s fiats to its OEM automotive industry and anticipated the EPA’s actions, as a feature of the current administration’s commitment to the “greening” of the OEM automotive industry, they bid up the prices of the necessary critical materials for batteries and for electric traction motors for such vehicles to today’s very high levels. This has ensured that the non-Chinese automotive industry’s plans to produce and reduce the costs of batteries through economies of scale have been damaged fatally. The battery has been and remains the biggest cost of the parts needed to make EVs. The average EV sold in America in 2021 was $55,000 because of that. While an average ICE was $42,000. The national average income in the USA for a family of four is $64,000. Unless EVs for sale in America meet at least the average price for an ICE the price differential wipes out any possible fuel savings over the life of the vehicle.

The Washington one-dimensionals sort of figured this out, so they proposed, in the traditional way of politics, not economics, to give a “tax credit” of up to $12,500 to subsidize the price of EVs for American made vehicles made by “union” workers. Congressional phones rang and rang as those outside of the DC bubble told their elected officials that this “tax credit” was in fact a gift to the wealthiest Americas who needed it least. The subsidy for the moment has disappeared from the conversation in Washington, much to the dismay of the American OEM automotive industry.

Meanwhile, back in the former Motor City the remaining two American legacy car makers, neither of which is in the top five OEM auto producers in the world, announced that they would, between them, build 5 “Gigafactories” to make lithium-ion batteries. Recently one of them, General Motors, announced that it had made critical raw material and finished goods “arrangements” for the supply of its factories with American companies that have either not produced any such materials or are only in the early stages of doing so. The procurement officers of the two relatively small American OEMs do not seem to understand the time frames required to not just bring a mine into production but also to achieve the multiple downstream processing steps required to turn a mineral into a battery, a magnet, or a motor in large volumes with on-time delivery, to specification, and at an agreed price! While all of this detail is not being addressed, the commodity metals continue to increase in price putting the OEM automotive purchasing paradigm of long term (at least three years) pricing in the toilet. The price of batteries alone has increased 20% just in 2021. The OEM auto and truck markets in the USA are now in turmoil due to technology parts supply limitations. What will it look like when the supply of EV battery and motor metals is recognized as permanently in deficit? Costs to make EVs will continue to increase and make them increasingly unaffordable to all but the top earners.

If there is a stock market correction (aka, a crash) in metals in 2022, the far-sighted (aka Asian) battery makers who have done their part for pushing up raw material pricing by stockpiling lithium, cobalt, and the rare earths, thus, driving up the prices, could find their balance sheets corrected and be facing margin calls on their loans using lithium, et al., as collateral. The US OEM automotive industry will be facing a customer base that is reluctant to buy big ticket items if and when liquidity is under siege and government spending on necessary infrastructure for EVs in the US is reduced. Of course, non-producing auto factories will not need workers or parts either. Deflation could come and be worse than inflation.

I will end this essay on a positive note. There isn’t enough lithium produced today to satisfy even the most conservative estimate of EV demand in 2025 and there may never be enough produced to satisfy the most conservative demand for the 2030 model year. Even if lithium prices dip during a correction, I think they will bounce back enough to support good mining and refining projects. If there is such a dip, buy into the EV material’s supply chain markets then. If there is no dip, then hold on.

Matt Bohlsen’s Top 3 stock picks for 2022’s EV Boom

2021 was a landmark year for electric vehicles (EVs) with global sales likely to end about 100% higher at around 6.4M plug-in electric car sales in 2021, up from ~3.2M in 2020. Looking ahead to 2022 that number looks likely to reach 10M+ which would be at least a 56% YoY rise. The 2022 number might be even higher if the 100% growth is maintained.

Given the above booming trend my top 3 stocks for 2022 are all related to EVs and EV metals. Two are lithium miners and one is an emerging EV company. Given the market will need around 183,000 tonnes of new lithium supply in 2022 (my forecast based on 10M e-cars produced), current high lithium prices should remain strong or even move higher. China lithium carbonate prices are currently at a record level of CNY 272,500/t (US$42,873/t).

The next wave of lithium producers are most likely to be:

  • 2022 – Argosy Minerals, Ganfeng Lithium/Lithium Americas (Cauchari-Olaroz), Core Lithium.
  • 2023 – Sigma Lithium, Sayona Mining/Piedmont Lithium (NAL operations).

Argosy Minerals (ASX: AGY | OTCPK: ARYMF) (“Argosy”)

Argosy is set to start commercial lithium production from mid-2022 which means they will be one of only 3 new lithium producers/projects to come online in 2022. The others have much higher valuations, such as Lithium Americas trading on a market cap of C$4.43B (US$3.5B) and Core Lithium market cap of A$987M (US$715M). By comparison Argosy trades on a market cap of A$405M (US$293M), which is less than half that or Core Lithium and about 12x less than Lithium Americas.

Argosy currently owns 77.5% on their Rincon Lithium Project, with a right to move to 90% upon development of a 10,000tpa operation. The Project is spread over ~2,794 hectares on the Salar del Rincon in Salta Province, Argentina. Argosy’s pilot plant operated for 2 years and produced battery grade quality (>99.5%) lithium carbonate which was sold to Asian customers. Argosy owns the Project via the Puna Mining JV.

The other shareholder in the Puna Mining JV includes legendary lithium expert Pablo Alurralde. He is a Chemical Engineer and is a former director of FMC’s (now called Livent) Argentina operations where he invented lithium production from brines in Argentina. He was listed as an inventor for the patent presented at US Patents Offices as first inventor for “Production of Lithium Carbonate from concentrated brines on sodium chloride” granted to FMC.

Argosy is fully funded to Stage 1 where they plan to produce 2,000tpa of lithium carbonate starting from mid-2022. That means by mid 2023, all going well and at current China lithium prices, Argosy would be making about US$64M in sales, or after cash costs Argosy would be making around US$56M in gross revenue and close to U$40M of profits (allows for the fact Argosy currently owns 77.5% of their Rincon Lithium Project in Argentina).

The exciting part is that Argosy can potentially fund their planned expansion from 2,000tpa to 12,000tpa (by 2025) requiring US$141M Capex with a combination of profits (2 years of US$40M), off-take pre-payments for year 3 (~US$61M). Or a small equity raise could be used in combination with the pre-payment to raise the final US$61M. The Company is working on this now and final permitting for the 12,000tpa operation. This would be an extraordinary achievement to get to 12,000tpa production with no debt and perhaps no further equity raises. Even better is that at 12,000tpa Argosy would then own 90% of the project and at current lithium prices would be achieving sales (less royalties) of ~US$450M pa (net profits of ~US$270M pa) by around 2025. Quite amazing for a company that today trades on a market cap of US$293M and no debt.

The usual risks of mining apply, and lithium prices may fall back if demand was to suddenly weaken significantly.

I forgot to mention that Argosy 100% owns another lithium asset, the Tonopah Lithium Project located near Albemarle’s Silver Peak operation in Nevada, USA. This gives Argosy a second option, albeit not until a few years from now and subject to exploration and permitting success etc.

Argosy Minerals is my number 1 stock pick for 2022.

Fisker Inc. (FSR) (“Fisker”)

Fisker Inc. was founded by Henrik Fisker, a man with over a decade’s experience in electric cars and several decades as a leading car designer. Fisker is headquartered in Los Angeles, California, USA.

Fisker had a very successful 2021 which included agreements with Magna International (to manufacture the Fisker Ocean electric SUV in Austria), Foxconn (to make the next Fisker electric cars), CATL (battery supply deal) and the raising of US$625M via a 2.5%pa Green Convertible Bond offering. All of this has set up Fisker for a winning 2022, boosted by the fact that they are fully funded to production. Fisker will spend 2022 establishing experience centers with production of the Fisker Ocean set to begin on November 17, 2022.

Fisker Ocean reservations stand at 18,600 as of November 2, 2021; however, I expect these numbers to more than triple in 2022 as we get closer to production of the Fisker Ocean. Fisker is targeting initial Ocean sales of 8,000 in 2022, 51,000 in 2023 and 175,000 in 2024. Added to that Fisker expects sales from their second vehicle from the Foxconn production to begin around Q4 2023 and ramp to 250,000 pa.

Fisker trades on a market cap of US$4.67B. If Fisker is able to achieve production and sales of around 50,000 electric cars in 2023 and towards 250,000 in 2024 the stock price has potential to move much higher. For some perspective new electric car production startups have the following market caps and 2021 sales:

  • XPeng’s (XPEV) market cap is US$43B and sold 98,155 electric cars in 2021.
  • NIO Inc’s (NIO) market cap is US$50B and sold 91,429 electric cars in 2021.
  • Lucid Group’s (LCID) market cap is US$62B and is forecast to sell ~22,000 electric cars in 2021.
  • Rivian Automotive’s (RIVN) market cap is US$91B and is forecast to sell ~42,000 electric cars in 2021.

Lithium South Development Corp. (TSXV: LIS | OTCQB: LISMF) (“Lithium South”)

Lithium South look to be a very well valued lithium junior. Lithium South trades on a market cap of only C$74m (~US$59M) which is 7x less than their more advanced neighbor peer Galan Lithium (ASX: GLN) on a market cap of A$574M (US$416M).

Lithium South 100% owns (option to purchase, final payment remaining) the Hombre Muerto North (“HMN”) lithium Project, in Argentina. The HMN Project has a M&I Resource of 571,000t contained LCE, with an excellent grade of 756mg/L, and a very low Mg/Li ratio of 2.6:1.

Lithium South is currently about to further drill their claims with a view to grow their resource further. Given that they have only explored one of their 6 claim areas (Tramo) then there is still plenty of potential exploration upside. Lithium South has also completed a PEA on the Tramo claim resulting in an after-tax NPV8% of US$217m and 28% IRR, based on 5,000tpa lithium carbonate production over a 30-year mine life. Initial CapEx was US$93.3m and OpEx was US$3,112/t lithium carbonate. The PEA was based on a project price assumption of US$12,420/t which is way below the current China lithium carbonate price of US$42,873/t.

Lithium South looks to be very well placed to be a winner in 2022, especially if it can grow its resource further as appears to be highly likely. Top class location and resource in the world-renowned Hombre Muerto Salar, Lithium South is a hidden gem and my top-rated small cap lithium junior in 2022.

Closing remarks

2021 exposed the EV metals supply chain weaknesses and resulted in a huge surge in prices for lithium (6x higher), cobalt, nickel and NdPr. 2022 should be no different assuming EV sales continue to surge higher.

I am confident this will happen in 2022 as we only have to look at the current backlog of electric car orders of over 2-3M (some say Tesla orders are over 3M). Tesla (TSLA) will bring online two new gigafactories in Texas and Berlin and likely grow their electric car production from 936,000 in 2021 to well over 1.5M in 2022. The Chinese EV OEMs are doing the same and finally the legacy OEMs appear to realize they will be bankrupt before 2030 if they don’t rapidly move to EVs.

Happy New Year to all InvestorIntel readers. It certainly looks like 2022 will be another incredible year.

Disclosure: The author is long Argosy Minerals (ASX: AGY), Fisker Inc. (FSR), Lithium South Development Corp. (TSXV: LIS), Tesla (TSLA), XPeng (HK: 9868), Albemarle (ALB), Ganfeng Lithium (SHE: 002460), Lithium Americas (TSX: LAC), Core Lithium (ASX: CXO), Sayona Mining (ASX: SYA), Sigma Lithium (TSXV: SGML) and Galan Lithium (ASX: GLN).