Sentiment for Lithium Stocks Still Negative

Dear Shareholders,

The past months have been more than disappointing for investors in lithium shares. This also applies to you as shareholders of Rock Tech Lithium. In addition to the generally fragile mood on the international stock markets, especially in the commodities sector, there were also industry-specific reasons for this. The most important one is probably the myth of a possible oversupply. In fact, the production of lithium is increasing worldwide – and further projects are under construction or at least already in the planning stage. However, it is repeatedly apparent that the expansion of production capacities is progressing much more slowly than announced by the corresponding companies or expected by market participants.

Global X Lithium & Battery Tech ETF Since January 1, 2018 (Daily)

Let’s look at it a bit closer: Chilean lithium producer SQM originally wanted to increase its annual production from 48,000 to 70,000 tonnes of lithium carbonate equivalent (LCE). However, the results for the first nine months of 2018 show that this will not happen, at least in the short term. Sales of lithium and derivatives declined from 36,500 to 30,400 metric tonnes – a decrease of 16 percent. According to the company, the reasons were delays in the planned expansion of production capacities and low inventories. At least the results for the fourth quarter had been announced to be significantly better. These will be announced at the end of February.

The situation is hardly any better for another large lithium company. The American raw material producer, Albemarle, increased its sales revenue from lithium by just 0.6 percent in the third quarter. The mini-plus was exclusively due to price increases. Production, on the other hand, declined as at SQM. This does not mean that the worldwide output of lithium equivalents will not increase in the future. However, the expansion of existing production facilities and the commissioning of new ones is progressing much more slowly than industry forecasts.

Production only rising slowly

In total, lithium production in South America is likely to have increased by less than 10,000 tonnes in the past year. SQM alone wanted to grow by more than twice as much. In addition, there are production expansions, especially by Chinese companies. As preliminary figures from the China Lithium Association indicate, production here could have increased by around 35,000 tonnes. According to expert estimates, the bottom line is that global supply increased by around 20 percent in 2018. For comparison: In China alone, around 1.3 million cars with electric motors were sold in 2018. This means growth of 64 percent in the world’s largest vehicle market. In the USA, the world’s second-largest sales market, new registrations rose last year by 84 percent to just under 0.4 million vehicles. Around two thirds of all cars with electric motors sold in the USA are purely electric cars.

The analysts at Benchmark Minerals expect that by 2023 almost one million tonnes of lithium (LCE) will be needed worldwide – roughly four times the amount produced in 2018. To avoid massive supply bottlenecks, it is essential that existing production facilities are expanded, and new ones put into operation. This applies above all to the extraction of lithium in battery quality.

Lithium-ion Battery Megafactory Raw Material Demand (tonnes)at 100% Utilisation Rate

Against this background, the results of Rock Tech Lithium’s recent exploration work are extremely interesting: at the end of 2018, we excavated two more trench channels in our McVittie area. The results indicate that the pegmatite there is larger than previously thought. In addition, another pegmatite is located to the east of the mining area which may very well represent a further extension in width of the existing pegmatite. The channel sampling results will serve as a basis for further drilling plans.

Significant resource expansion

The preliminary economic assessment of the Nama Creek zone by the commodities specialist DMT had already resulted in a net present value before taxes of USD 240 million. The possible expansion of resources could lead to a noticeable increase in the value. In comparison: at present, Rock Tech’s market capitalization is only about 22 million US dollars. DMT’s results are to be confirmed by a definitive feasibility study. The relevant work is already in preparation and will begin shortly. Rock Tech is thus on a clear path from an advanced lithium explorer to a future producer.