Interview with Eric Zaunscherb, Chairman of Critical Elements Lithium (TSX-V:CRE), Terry Lynch, CEO of Power Nickel (TSX-V:PNPN) and Brendan Yurik, CEO of Electric Royalties (TSX-V:ELEC)

Recording date: 16th April 2024

The battery metals sector is at a critical juncture, with recovering demand and constrained supply fundamentals diverging from depressed equity valuations. This was the key takeaway from a recent roundtable discussion featuring the CEOs of Critical Elements Lithium (CRE.V), Power Nickel (PNPN.V), and Electric Royalties (ELEC.V).

Lithium prices have pulled back significantly from their 2022 highs, but Eric Zaunscherb, CEO of Critical Elements, believes the market is bottoming. "We're already seeing a bottoming of the market in terms of the spot [prices] that everyone follows," he noted, pointing to the wide differential between reported spot prices and recent auction results. He sees structurally higher prices as necessary to incentivize new supply to meet growing EV and energy storage market demand.

Critical Elements is advancing the Rose Lithium-Tantalum Project in Quebec, one of the most advanced large hard rock lithium projects globally. With a 17-year mine life and high-purity spodumene concentrate that could command a premium price, Rose is well-positioned to help fill the lithium supply gap. The company is finalizing project financing and aims to start construction this year.

In the nickel market, Power Nickel CEO Terry Lynch sees a tale of two markets. The high-purity Class 1 nickel used in batteries trades at a premium in Europe and North America compared to the lower-grade material prevalent in the seaborne market. He believes nickel miners in Canada are insulated from price volatility, especially given the strict sourcing requirements for EV tax credits under the US Inflation Reduction Act.

Power Nickel recently announced a potentially game-changing discovery at its NISK nickel-copper-PGM-gold project in Quebec. The Copernick Zone returned high grades over wide widths in initial drilling, and a feasibility study for a stand-alone refinery is also underway. Power Nickel could accelerate development by producing finished nickel and cobalt products.

Electric Royalties offers a compelling option for investors seeking diversified exposure to the battery metals theme. The company has quickly assembled a portfolio of 71 royalties across 9 clean energy metals, with several expected to start generating cash flow in 2024. CEO Brandon Munro believes the company is significantly undervalued, with a market cap of less than C$30 million compared to expected annual royalty payments of C$7 million from just one asset.

While risks remain, including a potential recession or renewed COVID lockdowns, the fundamentals for battery metals are clearly improving. Investors should focus on quality projects in stable jurisdictions with experienced management teams and look for opportunities to gain exposure at attractive valuations. Critical Elements and Power Nickel stand out for their high-grade, scalable projects in Quebec, while Electric Royalties offers diversification across a broad portfolio of advanced-stage royalties.

With the electrification trend accelerating and supply struggling to keep pace, the disconnect between battery metal fundamentals and equity valuations appears unsustainable. As the market rerates, investors positioned in quality names could be rewarded with significant upside. The CEOs at the roundtable were unanimous in their bullish outlook - the question is not if, but when the market will reflect the underlying reality.

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Learn more: https://cruxinvestor.com/companies/critical-elements-lithium

https://cruxinvestor.com/companies/power-nickel

https://cruxinvestor.com/companies/electric-royalties

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