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Speaker 1: Welcome to Fear and Greed, summer investing series brought to

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Speaker 1: you by Vanta specialists in compliance led to Growth. I'm

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Speaker 1: Sean Aylmer. Lithium has had a tough run lately, with

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Speaker 1: supply flooding the global market, keeping prices of the battery

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Speaker 1: metal down. I wanted to look today at one of

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Speaker 1: the main Australian lithium companies, Mineral Resources. As always, this

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Speaker 1: is general information only and you should seek independent advice

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Speaker 1: before making investment decisions. Gore Sodi is the deputy head

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Speaker 1: of research at Intelligent Investor. Gorera Welcome back to Fear

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Speaker 1: and Greed.

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Speaker 2: Hi, Sean, thanks for having me.

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Speaker 1: Before we get to min rez lithium itself, why does

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Speaker 1: people still believe in lithium, Where something like nickel has

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Speaker 1: no friends anymore, lithium still has some friends.

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Speaker 2: It's feeling pretty lonely as an investor in lithium. I

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Speaker 2: think that's been very generous to say it as friends. Look,

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Speaker 2: lithium certainly was a very popular investment theme, and we

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Speaker 2: see this all the time in commodities. Narrative drives enthusiasm,

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Speaker 2: Enthusiasm drives price, and so a sensible investor in commodities

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Speaker 2: needs to look through the narrative and theme and trying

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Speaker 2: to establish what's happening in the underlying demand and supply scenario. Now,

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Speaker 2: when you do that to these two commodities, let's take

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Speaker 2: a look at lithium. First up, demand for lithium is

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Speaker 2: growing about twenty percent a year. That's still faster than

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Speaker 2: almost any other mainstream commodity. And more important than that,

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Speaker 2: not only is demand rising swiftly, but lithium historically has

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Speaker 2: been sort of a niche metal. So the entire lithium

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Speaker 2: complex needs to grow from being a niche supplier to

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Speaker 2: a very small industry with really small production volumes to

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Speaker 2: being a large bulk supply metal with much larger volumes.

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Speaker 2: And this is going to take many, many decades. It's

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Speaker 2: probably going to take about twenty years to get there,

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Speaker 2: and we're going to see ups and downs. We're going

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Speaker 2: to see in the market. Because this is still such

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Speaker 2: an infant industry, booms and busts are going to happen

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Speaker 2: in spectacular fashion. So look, I'm still I still think

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Speaker 2: there is a pretty decent future for lithium. I was

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Speaker 2: super unenthusiastic in the boom we've been buying lithium in

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Speaker 2: the bust, and I think that's the way to treat

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Speaker 2: what it is in general than lithium in particular. Now

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Speaker 2: applying this lens over to nickel, Nickel for a long

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Speaker 2: time has been known for booms and busts. And one

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Speaker 2: thing has changed recently nickel, which has contributed to I

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Speaker 2: think to a much longer bus period, and that is

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Speaker 2: that China has invested over the last five or six

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Speaker 2: years hundreds of millions of dollars in new processing technology,

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Speaker 2: and they've unlocked a new way to unravel nickel. Rather now,

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Speaker 2: it used to be that nickel you used to sort

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Speaker 2: of had to dig out out of the ground, and

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Speaker 2: you needed a very specific kind of geology to access

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Speaker 2: and process and nickel. There was well known that you

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Speaker 2: could get what's known as the latch write nickel ores,

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Speaker 2: which are nickel ore's where their geology is very complex

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Speaker 2: and you have to do a whole bunch of signs

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Speaker 2: to it to unlock the metal. So China has now

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Speaker 2: come up with a simple, effective, but environmentally disastrous way

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Speaker 2: of unlocking that latchrite ore, and they found Indonesia. In

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Speaker 2: Indonesia a willing partner to put up with the capital

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Speaker 2: intensity and the environmental damage. So a combination of Chinese

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Speaker 2: money and know how and Indonesian willingness to put that

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Speaker 2: to work has meant there's been an absolute explosion in

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Speaker 2: nickel supply. Nickel demand has not changed very much. Nickel

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Speaker 2: supply has completely been upended. I think nickel has been

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Speaker 2: disrupted and we're not going to see nickel rise to

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Speaker 2: the same extent it had been in the past. I

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Speaker 2: think this is industry that has been upended.

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Speaker 1: Okay, so based on that, let's think about investing in

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Speaker 1: lithium mineral resources. Is it must be close to the

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Speaker 1: biggest lithium company. Maybe Rio will come the biggest lithium

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Speaker 1: company on the IX two hundred. But at the moment

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Speaker 1: is that MinRes.

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Speaker 2: MinRes is fighting with Pilberg at the moment right whereas

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Speaker 2: has probably it probably beat them to it. But certainly

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Speaker 2: MinRes is very very large.

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Speaker 1: Yes, it's had a really rough twelve months though, and

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Speaker 1: in fact, I think of the top two hundred one

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Speaker 1: of the worst performers over the last twelve months is MinRes.

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Speaker 1: CEO issues, governance issues, the whole lot. Where do you

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Speaker 1: think MinRes sits or should it sit in a portfolio.

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Speaker 2: Yeah, this is a really important question. MinRes is the

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Speaker 2: business that we've owned, and I've owned personally for many,

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Speaker 2: many years, and for many years it's been a fantastic investment.

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Speaker 2: This has been a disastrous year for MinRes. There are

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Speaker 2: three parts of this business. There's a mining services business,

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Speaker 2: a lithium business, and iron ore business. Mining service is

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Speaker 2: going splendidly. I know they've invested a lot of money

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Speaker 2: to improve the quality of that business, and I think

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Speaker 2: that's going to be fine. Lithium has been absolutely crunched.

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Speaker 2: MinRes is lithium massets. I would say asoso the average

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Speaker 2: Pilborough has far better quality assets, and so this is

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Speaker 2: going to be a large producer, but a higher cost

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Speaker 2: producer that requires high prices to get lithium kicking along.

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Speaker 2: I think the long term future for MinRes is probably

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Speaker 2: not as a natural owner of multiple lithium mines, but

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Speaker 2: probably as a service provider to the lithium industry. So

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Speaker 2: I think the opportunity for MinRes is not so much

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Speaker 2: to increase production and grow its lithium mining portfolio. It's

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Speaker 2: probably to separate that portfolio from the main business, and

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Speaker 2: we just need higher prices for that to happen. So

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Speaker 2: there's a lot of asset value here shown, but currently

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Speaker 2: with prices where they are, that value is not being

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Speaker 2: realized and it's sensible that the market should price those cheaply.

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Speaker 2: But in a different pricing environment, I think we'll see

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Speaker 2: the value of those assets change quite dramatically. The rule

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Speaker 2: for resources is you buy in gloom and you sell

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Speaker 2: in boom. That's the lesson here as well.

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Speaker 1: Grev, thanks for your time this morning. Thanks Sean as

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Speaker 1: Gorev Sony, Deputy head of Research at Intelligent Investor. Remember

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Speaker 1: to get your own independent advice before making decisions. This

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Speaker 1: is Fear and Greed Summer Investing series, brought to you

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Speaker 1: Enjoy your day.