Amazon Bets Big, Morgan Stanley Bets Wrong

Written by Gerardo Del Real
Posted March 3, 2019 at 7:00PM

So much for Morgan Stanley's oversupply thesis. The prediction is falling flat on its face and the latest debacle in the lithium space is partly to blame for why it’s been tough for the mining industry to attract serious investors.

Nemaska Lithium (TSX: NMX) (OTC: NMKEF) was poised to become a lithium hydroxide supplier and lithium carbonate supplier to the emerging lithium battery market.

It was developing a spodumene lithium hard rock deposit in Quebec, had the blessing of the government, and was “fully-funded”, according to the company.

It had also attracted some of the “smartest” money in the business in Orion and Softbank. Not only did it have the backing of deep-pocketed partners, it had also signed supply agreements to sell to once in production.

As late as mid-November, CEO Guy Bourassa said, “As expected, we remain on track per our plan.” Construction is progressing as planned at both the Whabouchi and Shawinigan locations. As of October 27, 2018, commitments totaled $315.9 million, or 36% of the total project budget of $874.7 million, including contingency.

What could go wrong? How about a C$375 million shortfall?

Three months later, Nemaska’s CEO was saying:

“We now have a better understanding on the remaining scope of the project, estimated budget and current market conditions. The revised overall project cost reflects a more precise outlook on installation costs and other key variables to the completion of our project.”

More precise indeed.

The company is said to be reviewing all options, but needless to say the stock has taken a hit — nearly 50% — and provides the mining industry with yet another hit to its credibility.

Meanwhile, the trend that is the electrification of everything continues to accelerate.

None other than Amazon has thrown its hat into the race as electric truck and SUV startup Rivian just announced that its $700 million funding round is being led by Amazon.

Rivian, the Michigan-based startup — is raising funds to finish development and launch production of the all-electric R1T pickup truck and R1S SUV. Deliveries of these electric vehicles to customers in the U.S. are expected to begin in late 2020.

Amazon is reportedly looking at Rivian as a partner to develop its delivery vehicles and build out its logistics network. According to Reuters, General Motors is also exploring an investment in the electric truck startup, with talks still ongoing.

If there is one positive out of the whole Nemaska debacle it’s the realization that projected supply — as I’ve been telling you — will be much harder to bring online than the Morgan Stanleys of the world will have you believe.

While the electrification of everything continues to accelerate, global growth is showing signs of a slowdown.

At the start of February, the European Commission sharply downgraded its forecast for eurozone economic growth in 2019 and 2020.

The Commission said eurozone growth will slow to 1.3% this year from 1.9% in 2018 and is expected to rebound in 2020 to 1.6%.

In Germany, manufacturing has shrunk the most in six years.

The European Central Bank is likely preparing another round of intervention that might include long-term loans for banks.

Global sovereign debt just hit $50 trillion.

All this means you should expect a trade resolution with China soon, followed by talks of coordinated global infrastructure stimulus.

It also means the better explorers and developers in the lithium and copper space will outperform.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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