After more than two weeks of living under the conflict in Russia and Ukraine – aside from supply disruptions that the global dependence shift may cause – we take a dive into companies securing deals that may create more value for investors while repositioning themselves in the market as the global economy transforms.
Lake Resources NL(LKE)
With oil prices reaching highs of more than $130 a barrel, the US, together with other countries, announced that they would be moving away from Russian oil imports.
For electric and flying cars, the shift is expected to have a long term effect on oil prices, further creating a favourable environment for electric vehicles (EVs) and electrical vertical take-off and landing (EVTOL) innovations. Aside from vehicle manufacturers making progress and commitment to fill the demand gap of EVs as an alternative for fuel cars, Lithium is one of the core commodities in the production of batteries for both EV and EVTOL. Since the beginning of 2022, the metal has been in the spotlight, as demand for EV batteries is expected to increase due to geopolitical factors affecting oil prices that subsequently affect the global oil/fuel supply.
According to a contract for difference (CFD) that tracks the lithium prices, lithium has surged by over 70% since the beginning of 2022, rallying through the unprecedented period. Notwithstanding the volatility, Lake Resources NL has seen its shares go up by at least 20% since December 2021 and by over 200% in 12 months.
Lake is an exploring mining company that has positioned itself in the lithium market through its projects in Argentina, a country among the top five in global producers of lithium. By 31 December 2021, Lake had a cash balance of A$71.3 million (approximately A$63 million by 31 October 2021). To fill the demand gap for lithium, in January 2022 the company announced that it would be increasing lithium production at its Kachi project.
Steve Promnitz, Lake's managing director, said: "Given the increasing demand and the significant lithium supply gap, Lake is focused on delivering high purity lithium carbonate at scale with meaningful ESG benefits."
Stu Crow, Lake Resources’ chairman, added, "We are well placed given our quality resource, leading technology and key finance partnerships to ensure an optimal set of offtake agreements that align with these expansion plans and create maximum value for our key stakeholders."
To strengthen its balance sheet and support its lithium exploration, Lake is expected to proceed with a capital raise of $39 million by 11 March 2022. This will be through an issue of 40 million shares.
Explaining what the funds will be used for, Crow said: "These funds will support a period of rapid expansion and increased activity across Lake's four brine projects in Argentina.
"The funds raised will also be put towards working capital."
According to the company's pre-feasibility study (PFS) projections, Lithium Carbonate Equivalent (LCE) at the Kachi project shows a net present value, using a discount rate of 8% (NPV8), of US$1.6 billion, "a 35% IRR and high operating margins with an annual EBITDA of US$260 million," the company added.
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WhiteHawk Ltd (WHK)
Along with commodity prices, cyber security is one of the industries that has shifted to the core of the global transitional phase, as cyber-attacks rise during the Russia and Ukraine tensions.
Whitehawk (WHK) is one cyber security company positioning itself in the market, especially with the US government. In the middle of February, as the West's cyber-attacks increased, the group's share price has appreciated, reaching $0.17, slightly below its September 2021 high. Prior to the long position, from its midterm low of $0.10, trading for Whitehawk was halted due to the volatility experienced in a short period, as the stock surged by over 20% in one day.
The reason for the volatility, on 16 February 2022, the company mentioned that:
(a) WHK is one of only a few cyber risk prevention companies listed on ASX, and is revenue generating;
(b) there has been increased publicity around cyber risks in recent days highlighted by potential Russian actions against Ukraine Government facilities, power, infrastructure and supply chains;
(c) WHK has previously released material information regarding US Government contracts; and
(d) the wider ASX market was trading higher today.
In response to the undisclosed cyber risk radar contracts that were valued at US$1.5 million, Whitehawk said that while the company evolved, at the same time growing its revenue, "… the US$1.5 million contract is but one of a number of revenue generating contracts that the company now has in place and it continues negotiations and proof of concept opportunities to grow those revenue streams further.
"The company considers that the market reasonably expects the company to be seeking to grow its revenue streams and diversify its contract base."
For the 2021 fiscal year (FY21), the company's revenue was up by 180% year-on-year (YoY) to US$3.4 million, from US$1.9 million the previous competitive period (PCP). This excluded the US$1 million revenue not earned from invoices generated during the period.
The company closed the year with a cash balance of US$1.35 billion and no debt, excluding the unpaid US$928k from clients during the period. With its product line, Whitehawk said it managed to "leverage inhouse research and development to maintain margins on average at 40%+ in 2021 while advancing all product line features."
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Just like the global dependence shift, geopolitical factors may continue to play a significant role in the outlook of companies associated with tech and mining.
Adding to the above – with countries such as the US (a global leader with economic influence) focusing on not only stabilising oil prices, but shifting into the digital economy, which may require heavy cyber security; and zero emissions goals that may include the use EVs and EVTOL – this may continue to create a volatile environment, further presenting an entry point for new investors and those who may be looking into buying the dip.
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Sources – EasyResearch, Lake Resources, WhiteHawk Ltd, ASX, Trading Economics
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