Sell Orocobre, updates on Sherritt International and Superconductor Technologies
14th August 2018 |
Orocobre
I recommended that you buy Orocobre in July 2016 because it was to be one of the first of a range of new suppliers of lithium and was closer to a pure play on the metal than any of the major producers.
While the pace of adoption of lithium-powered products and vehicles is progressing as expected, the supply of lithium from both established and new sources is progressing even faster. That is putting downward pressure on lithium prices, which is affecting the whole sector. Therefore, I am now recommending that you sell Orocobre to harvest our 41.44% profit.
Action to take: sell Orocobre Ltd (ORE)
Sherritt International
Cobalt prices have also been falling. Cobalt has been weak for the simple reason the price rose so much that it encouraged substitution. The clearest evidence for that is in the introduction of 8/1/1 (nickel, manganese, cobalt) battery chemistries by Tesla. That is the clearest sign yet of manufacturers’ intent to use as little cobalt as possible.
I recommended we buy Sherritt International because it mines nickel and also produces cobalt as a byproduct. That means it is a two-way bet on battery technology. It is my view that cobalt’s advance is over for now but nickel’s is only beginning.
Nickel is the best performing industrial metal this year but has been pulling back of late because of fears about the impact of trade tensions on China’s economy. However, there is evidence of support having been found over the last couple of sessions.
The reason Sherritt is pulling back is in part due to nickel weakness but also because its mine is in Cuba. It had been selling cobalt to Panasonic, which makes Tesla’s batteries, but Cuba is under US sanctions. That means Panasonic had to stop buying from Sherritt. That represents what I consider to be a short-term obstacle and that the bull case for the share is still intact.
Nevertheless, the share has been down on consecutive weeks so it is natural to question whether I am wrong in my assumption. The price has now unwound just about all of the advance seen in the latter half of 2017 and is coming back towards the 75¢ area, which I believe should act as a source of support.
Superconductor Technologies
I want to clarify my original statement on the reverse split and liquidity raise from Superconductor Technologies. The company is the only way to invest in the evolution of fusion energy that I know of, but the price has experienced a sharp decline as a result of dilution from capital raising. I continue to rate the share a buy and am changing the buy-up-to level to $3.
All the best,
Eoin Treacy
Investment Director, Frontier Tech Investor
