16 Aussie EV stocks for your watchlist

Glenn Freeman

Livewire Markets

Resources has always been an area where Australia’s geography is a benefit – unlike sectors such as technology, where our distance from global markets is a millstone. In EV metals, Jevons Global’s Kingsley Jones says below, “You don’t need to go offshore…there are plenty of interesting ASX-listed companies.”

Before delving into some names that are either already on the books of our fund managers or high on their watchlists, let’s reflect on the key points covered previously in this series.

In part one, our three contributors explored the EV thematic and outlined the investment case for some of the most prominent metals in the space – lithium, nickel, graphite and rare earths. The overwhelming view was that lithium has a huge runway but is overpriced, with the other areas presenting more underplayed investment prospects.

And in part two, they unpacked some of the risks on both the demand and production side. Though these ultimately feed into the overall investment proposition for the sector in creating barriers to entry that separate the successful companies from the failures.

And finally, below we hear some of the names these fund managers either hold already or are highly likely to buy in the coming months.

“You don’t need to go offshore”

Kingsley Jones, Jevons Global

You don’t need to go offshore, but it can help. There are plenty of interesting ASX-listed companies, some of which are mining offshore. For example, Ionic Rare Earths (ASX: IXR) is quite an interesting prospect operating in Uganda. That’s a high-value end of the rare earths market.

Onshore, Chalice Mining (ASX: CHN) has had a huge uplift on the strength of its first drilling program for copper and nickel. With some very prospective areas pegged, this company could turn out to be a monster. There’s a lot of work ahead in producing from a “poly-metallic” deposit like that but there’s good reason to believe these are solvable problems. Because offshore, our favourite in terms of "prospectivity" but not jurisdiction is Norilsk Russia, which we’ve owned in the past. It’s a fantastic deposit, it just happens to be in Russia. Chalice could be as good as that, and then some. We haven’t bought it yet because, as often happens with these discovery stories, interest wanes a bit after the first flush. When you get some softness in the market can often be a better time to buy.

In terms of companies already producing, there’s Oz Minerals (ASX: OZL). In Australia, you need to look at the mid-tier companies rather than the giants like Fortescue and BHP are essentially iron ore plays. You need to look at companies like OZL or IGO (ASX: IGO) within that mid-tier. Because they’re big enough to have non-producing assets that generate strong cash flow while also having the potential to keep finding new deposits and to still have capital on their balance sheets.

There’s also a whole slew of junior explorers that are interesting for different reasons. In gold, you’ve got De Grey Mining (ASX: DEG) which has had a big discovery in WA. And you’ve got some brownfield prospects such as QMines (ASX: QML) in Queensland. This is still in very early stages, but they’re in historically producing areas with good grades that could really come on.

An interesting Australian company called Lake Resources (ASX: LKE) is using ion exchange resins to extract the lithium from brine without having to evaporate it in a pond. If that works at scale, it may also be able to us lower grade brines or maybe even seawater. The learning curve effects for lithium will be much more powerful than for some of these other metals.

Opportunities across the supply chain

Rick Squire, Acorn Capital

We see plenty in the Australian market, with several large companies in this EV metal space, and these span exploration, development, and production across all the different commodities that comprise the EV metal mix.

But we also have a couple of investments in TSX-listed (the Toronto Securities Exchange in Canada) companies, where we find some niche opportunities.

In terms of stocks we like, I’d point to rare earths.

Looking at the lithium price, the valuations are really lofty at the moment, so it's difficult to see value there.

In nickel and copper, there are some decent companies. Western Areas (ASX: WSA) is under a potential takeover bid from IGO.

Panoramic Resources (ASX: PAN) is getting into production.

Mincore Resources (ASX: MCR) and Poseidon Nickel (ASX: POS) are not too far behind. There are some really good opportunities in nickel.

Copper is trickier. The Sandfire Resources (ASX: SFR) acquisition is exciting. There's also a large project in Spain that's really changed its production profile and elevated the miner into a serious producer with a big pipeline of development projects. And there are some small companies also coming through.

It's a little bit under the radar now. People recognise it as important but haven't been too sure how to play it on the investment side.

Recognising the importance of ionic clays and the ability for those projects to come online with a modest CapEx, and to generate large volumes of rare earths, sets them apart from other projects with huge CapEx, long construction periods, and very long commissioning periods. Companies like Australian Rare Earths (ASX: AR3), of which we’re a major shareholder.

Australia’s lithium giant

James Stewart, Ausbil Investment Management 

We have the benefit of being able to invest globally. Over the past 12-months, we have maintained significant exposure to battery materials, but adjusted our investments to where we see value at the time.

A few of the biggest exposures in our fund include Core Lithium (ASX: CXO) and Orocobre (ASX: ORE) within the lithium space. We also own Syrah Resources (ASX: SYR) as the only significant natural graphite producer globally.

Core should be one of the next assets to come into production in the spodumene market, The Finniss mine is close to infrastructure, and has very little construction risk or commission risk given the size and complexity of the process.

And at the larger end, given Orocobre’s merger with Galaxy, it should be producing around 80,000 tonnes of carbonate equivalent in four to five years. This is roughly the current theoretical capacity for global major lithium miner SQM. Yet the valuation ascribed to ORE now is about one-fifth of SQM's. There’s phenomenal growth coming through and it’s not being appropriately priced relative to global peers.

Syrah, an ASX-listed company with a graphite mine in Mozambique, is the only natural graphite producer of scale anywhere in the western world. The input products for synthetic graphite (the main substitute for natural) are power and oil by-products. Because of the current high oil prices and government restrictions on big energy-consuming industries by the Chinese Government, any synthetic graphite production is getting squeezed. Suddenly you have Syrah as a natural producer with massive excess production capacity, which is likely to benefit from a tailwind on pricing in the next six to 12 months.

The wrap-up

As tempting as it is to grab your shovel and go digging for your own ingot of EV gold on the ASX, there's more to consider than perhaps many investors appreciate. Just as Australia's early gold rush left many people with little more than a useless hole in the ground or a panful of sand, sifting the failures from the successes is key in the EV metals space. Price is important, particularly as we've heard how overpriced much of the lithium sector is by now. But hopefully this series has provided some useful insights into the different parts of the sector, the dynamics at play and some potential stocks to start exploring.

Investment Theme
EV metals: Will you strike it rich or burn your fingers?
Commodities
Risks for EVs equal opportunities for the miners

Read the rest of this series

In part one, our respondents discussed the investment case for the different EV metals. And in part two they weighed some of the risks of the thematic.


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4 contributors mentioned

Content Editor
Livewire Markets

Glenn Freeman is a content editor at Livewire Markets. He has around 10 years’ experience in financial services writing and editing, most recently with Morningstar Australia. Glenn’s journalistic experience also spans broader areas of business...

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