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June, 2018 6:13 PM



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5 Stocks to Benefit from the Energy Storage Boom

5 Stocks to Benefit from the Energy Storage Boom

By Bob Kohut 26.10.2015


Less than a decade ago EV’s (Electric Vehicles) had virtually disappeared from the global automotive landscape.  The prospects of solar and wind powered electricity generation inspired numerous cost benefit analyses that cast a dim view on the future of those technologies.

In 2012 US based Tesla motors introduced a high end all electric roadster, which many experts claimed would be too expensive for mass market adoption casting doubt on the company’s future. They were wrong. Flash forward to 2015 and Tesla is preparing to launch a more affordable offering and has been joined in the rush to develop all-electric vehicles by most of the major automobile manufacturers around the world – BMW, Mercedes Benz, Audi, Volkswagen, Volvo, Nissan, Ford, General Motors, and Toyota.  Even tech giant Apple Inc. is planning to produce an electric car by 2019 and Tesla is offering battery storage for solar-powered homes.  Its 7kWH energy storage unit will be available here in Australia by the end of this year, almost a year earlier than previously predicted.

Improvements in battery technology are driving the surge in interest and can deservedly be called a “disruptive” technology.

The key to the future is the battery’s capacity for storing energy.  Mobile Device users long for batteries that do not need recharging every few days.  Residential and Commercial users of solar and wind powered electricity suffer from the inability to store large amounts of energy generated on peak production periods to be retrieved during low production, high demand periods.  

Although the news flow on emerging battery storage technologies is focused almost exclusively on lithium-ion batteries, there are competing technologies under development for large scale electricity generation needs.

 ASX investors have at least two avenues to pursue to take advantage of the potentially disruptive nature of battery storage technologies.  We have four lithium miners and one company at the forefront of the major competitive technology to lithium ion for large scale storage – flow batteries.  The following table lists the five candidates.

Company

(CODE)

Market Cap

Share Price

52 Wk % Change

Total Cash

(MRQ)

Total Debt

(MRQ)

Gearing

Orocobre Ltd

(ORE)

$321m

$1.91

-30%

$9.44m

$3.51m

1.66%

Neometals

(NMT)

$90m

$0.19

+494%

$1.44m

$1.97m

14.9%

RedFlow Ltd

(RFX)

$81m

$0.24

-37%

$13.1m

$15.8k

0.11%

Galaxy Resources Ltd

(GSR)

$63m

$0.057

+68%

$42.9m

$64.5m

63%

Lithium Australia

(LIT)

$15m

$0.11

+547%

$853k

0

0

 

As of the end of 2014 Australia had edged past Chile as the world’s largest producer of lithium.  Of the four miners in the table, investors clearly have a preference for two that have yet to mine a single ounce of lithium – Neometals Ltd (NMT) and tiny Lithium Australia (LIT).

Neometals is a diversified miner with titanium, vanadium, nickel, and iron ore assets along with its 70% owned joint venture lithium operation at Mount Marion in Western Australia.  Its partners include Australia based Mineral Resources Ltd (MIN) and Jiangxi Ganfeng Lithium Co., the second largest lithium producer in China. In July of this year Neometals secured a lease on the mining rights to deposits adjacent to Mount Marion.  The company expects the Mount Marion project to begin producing in 2016 and the recent deal with Ganfeng calls for that company to buy 100% of the mine’s output.

The share price began to rise not long after news was released the company was looking into an offtake agreement for lithium mined from Mount Marion, with the sought after agreement now in place.  Here is a one year price movement chart comparing the stunning performance of NMT and the biggest winner of all, Lithium Australia.

 

Unlike Neometals, Lithium Australia is a near pure play lithium explorer, having changed its name from Cobre Montana (CXB) in July of this year.  What the two companies have in common is patented mining technology both claim will reduce costs.  Neometals has developed something called the ELI Process while Lithium is getting attention from its as yet unnamed extraction process that promises to deliver lithium cheaper and in more abundant quantities.  The process extracts lithium from mica, a silicon like substance found in rocks, as opposed to the traditional method of extraction from hard rock deposits.  The technology was developed in conjunction with Perth-based Strategic Metallurgy Pty Ltd and is currently under practical field evaluation conducted by US-based SciAps, a Boston-based company specialising in analytical tools for mineral evaluations.

In addition, the company has developed supplier relationships with several mining companies to provide a supply of Lithium Mica deposits for processing. The evaluation process underway is to be completed throughout 2015, with no formal end date as yet announced.  LIT appears to be a stock of the highest risk/reward potential possible.  In essence, if the technology works this company could emerge a huge winner.  Nothing more needs to be said if the extraction technology fails to live up to its promise.

Orocobre Limited (ORE) is a diversified miner and chemical company with mining and processing operations in Argentina targeting lithium, potash, and boron.  The company’s flagship operation is the Salar de Olaroz Lithium Facility, now ramping up production with a cost break-even point of 650 tonnes per month expected by the end of December 2015; two months later than the originally expected date of the end of October.  The production ramp-up has been slower than anticipated and the company has been through two capital raises so far this year. 

Orocobre has issued numerous operations updates highlighting equipment limitations and production “bottlenecks” that are slowing the ramp-up process.  The latest states bottlenecks have been identified and most fixed, but investors appear to be waiting for better news.  The stock is down year over year but has been on an upswing since the 23 September release of the company’s Annual Report, highlighting positive progress at Olaroz.  Here is a one year price movement chart for ORE.

 

Galaxy Resources Ltd (GXY) is a lithium producer with operations in Australia, Canada, and its most promising asset, the Sal de Vida project in Argentina, which is still in development.  The company merged with Lithium One in 2012 amidst great promise.  The combined entity had a lithium mine and processing plant at Mt Caitlin in Western Australia; the Jiangsu Lithium Carbonate Plant in China – the largest battery-grade lithium plant in the Asia Pacific region; lithium projects in Canada and Argentina  (the Sal de Vida); and development plans to build a lithium battery producing facility next to the Jiansu Plant.

What happened to this company could be used as an example to support the famous quote – the best laid plans of mice and men oft go awry. In 2013 Mt Caitlin was put into care and maintenance status.  In 2014 the company sold its interest in the Jiangsu Plant at a discount to deal with its mounting debt load and the battery plant is a distant memory.

So how can the share price be up 68% year over year?  That has come about in the last month, with GXY getting two official “speeding tickets” from the ASX for the swift upturn.  Here is a one year chart for GXY.

 

In February of 2015 Galaxy went into a trading halt pending the announcement the company had entered into an agreement with General Mining Corporation granting the rites to operate the Mt Caitlin facility for a period of three years with an option to buy, pending due diligence. On 7 September the deal was finalised operationally, with a financial review from an outside source to follow.  The company went into another trading halt in anticipation of the release of that review.  The terms appear very favorable for GXY as a “moth-balled” asset will now return a $25 million dollar earn-in payment; $6 million per year for the life of the agreement; and 50% of all operating cash flows.

RedFlow Ltd (RFX) makes a zinc bromide flowing electrolyte battery module (ZBM). Many investors and perhaps even more of the general public have never heard of this kind of battery.  Yet experts claim it represents a viable solution to the problem of large scale battery storage. 

RedFlow batteries are one of four types of “flow” batteries, with flow describing the process of two chemical solutions flowing in adjacent compartments to discharge stored electricity.  Fully understanding flow battery technology requires a degree of technical sophistication beyond most retail investors.  We’re talking electrolytes, bromides, electrodes, and micro porous polyolefil membranes.  Despite the challenge there are highly understandable considerations anyone can comprehend that make RFX attractive.

First, the zinc bromine battery can store more energy than any other form of flow battery.  Second, the liquid zinc-bromide solution literally can last forever with unlimited recharging capability.  Third, they can be recharged immediately by replacing the electrolyte liquid. The capacity of a Lithium-ion battery degrades over time.  Fourth, with the smell of profit in the air from an exploding demand for battery storage, some heavy players are getting into the act with an eye towards flow battery technology for use in large scale applications like storing wind and solar for use on the electrical grid.  The US Department of Energy is one of those players.

And finally, the potential of RedFlow’s battery technology was enough to attract a global manufacturer – Singapore based Flextronics – to enter into an agreement to produce the batteries, freeing up RedFlow to concentrate on research and development.  Flextronics designs, builds, and services electronic products for its original equipment manufacturers.

RedFlow is already selling in Australia and has orders in Europe.  On 21 September the company announced the manufacturing transition to Flextronics coupled with technology improvements has lowered the cost of its zinc-bromide battery by 50%.

The RedFlow share price has more than doubled in the last two years.  Although the potential reward here is great, so is the risk.  As more and more players begin tinkering with new and improved forms of flow battery technology, RedFlow could lose its competitive edge.  In addition, although large scale use Lithium Ion batteries are currently not as efficient or cost effective as flow batteries, that could change.  Here is a two year price movement chart for RFX.

 

>> BACK TO THE NEWSLETTER: Click here to read other articles from this week's newsletter

 

Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.

 



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