Does MM like Lithium and its respective stocks?

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Question asked 07/10/2023

Does MM like Lithium and its respective stocks?

Hi MM, I refer to your comments on 3 October 2023 in relation to lithium, including “[w]e believe it’s time to slowly start to consider a reweighting back towards lithium names in Q4 of 2023” – and your comments today, 5 October 2023, in relation to the JP Morgan downgrade. From what I have read today from various commentators, it appears that some other investment banks also today/overnight downgraded their outlook for lithium (sending lithium stocks lower today) including in regard to a faster-than-expected supply response outpacing demand growth and concerns about supply surpluses, etc. (Of course, they go into a lot more detail, with more nuances than this very general, one-sentence summary). These views contrast to some degree with other commentary I have read recently about the long-term structural trend for lithium remaining intact, and indeed, some commentators seem to think the supply response will not be as strong as those with a bear case anticipate. What are MM’s views on lithium (price forecasts/supply response, etc.) from the short to the long term following these investment bank “bearish” notes, including the various comments by each investment bank? Are you still of the view that it is time to slowly start to consider a reweighting back towards lithium names in Q4 of 2023, with a “preference…for the profitable and dividend-paying majors”? In light of all this: (1) are you still comfortable with, and long and bullish towards, Mineral Resources (MIN)? (2) in accordance with your 4 October 2023 comments, does “PLS ~$4” still look interesting to you? (3) have your view set out earlier today on IGO changed at all? I note that the various investment banks’ views/ratings on these three stocks differed in some (not all) respects. Thanks, Darren

Answer

Hi Darren,

We appreciate the in-depth question which effectively bores down to whether we think lithium stocks will continue on their journey south. I can summarise our thoughts with a few pertinent points:

investment banks downgrading their outlook for lithium after its already fallen by 70% in 2023 is almost a bullish indictor in our opinion.
we are looking to increase our lithium exposure as we’ve alluded to in recent reports but the downside momentum in the likes of IGO and PLS has so far kept us on the side-lines.
we do still like Mineral Resources (MIN) whose revenue in 2023 included approx. 40% lithium and 45% iron ore but again, we have refrained from averaging because of the sectors overall look & feel.
We are therefore short term neutral on Lithium, with a bullish bias into current weakness given we believe the long term dynamics for the sector make sense, it just became a very crowded, over owned play of EV’s with many underappreciating the supply side response that has clearly evolved.

At MM we are looking to increase our MIN position into current weakness and we also (still) have PLS on our radar, however, we think many of the juniors may have missed their window for now.

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Pilbara Minerals Ltd (PLS)

LAST UPDATED 06/10/2023 14:24

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