John Meyer, mining analyst at SP Angel, predicts which metals will deliver the biggest returns over the next year and reveals two shares that can exploit any uptick in demand.
[Video filmed on 4th December 2019]
Lee Wild, head of equity strategy at interactive investor:
Industrial metals have struggled over the past 12 months, but more exotic metals, I mean, palladium, rhodium, they're on a winning streak. Which metal do you think is going to generate the best returns in 2020, and why?
John Meyer, mining analyst at SP Angel:
Palladium is likely to continue to be the best metal because gasoline vehicles are likely to outsell diesel. And that's because emission standards are causing consumers to say no to diesel, yes to gasoline for now, and to look to buy more electric vehicles going forward.
So yes, platinum and rhodium are maybe not going to do quite so well, palladium is certainly in there.
Lithium; used to make batteries for electric cars and mobile phones, it's been two years since the price peaked, so it's been on a downward trend since then, that's mainly, I think, because new supply has caught up with demand. There are question marks over demand in China, do you expect any price recovery in 2020?
We do expect price recovery but it's difficult to know exactly when, because although the Australians rushed into production, some of that production got knocked back because the quality probably wasn't there.
With any of these industrial minerals, it's important that they get the quality right, otherwise the consumers can quite rightly say, look we're not having that, and some of these guys really did rush at it, which is a problem.
But the battery manufacturers in China also are seeing a little bit of stop start because the Chinese government reduced the subsidies on electric vehicles, and so the sales pulled back, and, therefore, they didn't need quite so many batteries. They didn't need so much lithium anyway.
And it's one of these things, there is huge growth going on within the whole battery supply chain, there are factories which are half filled with equipment, that are still ramping their way up to capacity.
They're still waiting for the demand for the vehicles to catch up. As the batteries get cheaper, they'll simply put more of them into the vehicles and the range will extend, and then I think there'll be a snowball process, where more and more people say, okay, that works for me, I want to buy that, and maybe don't worry so much about the price.
And particularly if auto manufacturers start to reduce the interest rates they charge on buying cars with hire purchase, particularly for electric vehicles, then I think they'll sell more and attract more consumers into the market.
So, for me, there will be much more demand for lithium. I think it will run ahead of mine supply and prices will take up again. But do I know exactly when, not quite. I think it will be towards the end of this year, but I'm not sure when.
Which stocks might exploit any uptake in the lithium demand?
Well there are a few key lithium stocks in the London market, Savannah Resources is a very important stock, it's well advanced on its project in Portugal. So that's within the European Union and it's in quite a poor area, so they're very keen, and very supportive of the project.
I spoke to the chief executive earlier, he says things are moving along very nicely, so they're working up the project, and I would hope that will go into production in the next few years.
And also Kodal Minerals (LSE:KOD), a bit further away, they're still evaluating what they've got and they're doing metallurgical test work. The advantage Kodal have is they have a Chinese partner that is helping them in the background.
And that's very handy for Kodal. They're a long way away from the coast, but it's in Africa in Mali, which is a stable country and it's relatively easy to truck from Mali down to the coast. It should be about 95/96 dollars a ton to the port, and then it's on a boat to China.
So, it's not a big deal from a logistics perspective, and it's quite a nice project, it has a good crystal grain size of lithium, which is important for the Chinese processors.
Are there any other metals that you think are currently undervalued, that may benefit in time from greater demand from technological innovation?
Well, when it comes to a technological metal vanadium is the winner here, I think. Because the new demand for vanadium redox batteries is expected to help to drive this market forward. Whilst vanadium is well underpinned by the market for vanadium alloy, for steel production, the purchasing of Vanadium Redox Flow batteries, I think is going to be a huge driver.
And the technological innovation has already been done. And Bushveld Minerals (LSE:BMN) is already buying its way into some slightly distressed technology distributors, shall we say. These are companies that are going to actually assemble and put in place the vanadium redox batteries and link them up to the grid.
So I think we'll see a lot of these around the UK, around Europe and actually probably really starting in South Africa where they're running a test already. And we believe that's gone quite well, so it's a logical choice for the national grid, for ESCOM in South Africa and for other utilities, to plug these in, in order to give better grid stability and power support for consumers.
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