EMH Company Logo ASX

European Metals Holdings Limited

ASX:EMH

Last Price:

$0.665

Our Investment Summary

Date of
Initial Coverage

03-Mar-21

Initial
Entry Price

$1.100

Returns from
Initial Entry

-40%



Investment Memo: European Metals Holdings (ASX:EMH) - LIVE

Opened: 20-Jan-2022

Shares Held at Open: 261,000


What does EMH do?

European Metals Holding (ASX: EMH) is developing the largest hard rock lithium resource inside the European Union.
Located in the Czech Republic on the border with battery metal hungry Germany, EMH’s project is well advanced and is moving towards becoming the first local EU battery grade lithium producer to deliver to an emerging local industry.

What is the macro theme?

The EU is rapidly switching from fossil fuel powered transportation to Electric Vehicles (EVs), as part of the “European Green Deal” which should make Europe carbon neutral by 2050.

This transition towards green-energy has become a key driver of the need for a local source of lithium, especially as the EU currently has no local supply and requires imports from China and South America. As a result we expect domestic suppliers of the raw-materials that are critical for battery production to thrive.

Why did we invest in EMH?

Strategically important location

EMH’s Lithium project is ideally located in the heart of Europe in Czech Republic – very close proximity to Major Automakers who are all switching to Electric vehicle production.

Advanced development ready project

EMH’s project is arguably the most advanced near term lithium producer in the EU. The project is currently having a PFS (Pre-Feasibility-Study) updated & has already commenced works on a DFS (Definitive Feasibility Study).

EMH is yet to sign an offtake partner

With the lithium market currently a sellers market, projects that have lithium in the ground and close to being development ready are attractive offtake options for buyers looking to secure lithium supply. EMH is yet to sign an offtake partnership which we think is a key catalyst for this year.

What do we expect EMH to deliver in 2022?

Objective #1: DFS (Definitive Feasibility study)

We are hoping the FEED (Front-End Engineering Design) is completed and it forms the basis for a completed DFS which we hope to see before the end of 2022.

Objective #2: Progress on development financing

We also want to see EMH make meaningful progress on a funding plan for the construction of the project. This funding could be delivered in various forms – debt, grants, or even direct investment by new partners. By the end of 2022, we expect the financing strategy to be a lot clearer.

Objective #3: Offtake agreement

After the DFS is completed and a final-investment decision has been made we expect to see some progress made with respect to the signing of offtake agreements.

What could go wrong?

Regulatory risk

EMH’s lithium project is a fairly advanced stage project which means it is in the final stages of permitting before it is ready for a final investment decision. There is a risk that the project gets held up in the permitting process and the regulators reject the company’s mining license applications.

Financing risk

EMH’s asset is fairly advanced & is approaching a stage where a final investment decision needs to be made, deteriorating market conditions may deter financiers from making a large capital investment which will mean the project is unable to be put into production.

Commodity risk

EMH is a mining company, generally these businesses are price-takers for their product & lithium is no different. In the event that supply outstrips demand EMH’s project may be considered uneconomic (Stranded).

What is our investment plan?

Our plan is to hold a position in EMH over a 5 to 7 year period, through the construction of the project.

We have held for almost one year and have taken a small amount of profit having sold down 13% of our total holding (as per our standard investment strategy). We may look to sell a further 7% during 2022, hopefully into a share price rerate on the back of the company delivering on the three key objectives for 2022 listed in this memo.


Disclosure: The authors of this memo and owners, S3 Consortium Pty Ltd, and associated entities, own 261,000 EMH shares at the time of publication. S3 Consortium Pty Ltd has been engaged by EMH to share our commentary on the progress of our investment in EMH over time.



Our Past Commentary on European Metals Holdings

Date Title
18-Jun-2022 $ 0.690 Raising cash in a rough market and what to watch out for
14-May-2022 $ 1.030 Small caps in a shocking market
22-Jan-2022 $ 1.500 Our Investment Approach, Energy Cold War, Ukraine, Supply Chain Crisis
27-Nov-2021 $ 1.490 New COVID strain, Santa Rally, Market Thoughts



Investor Presentation

Superfund now a major shareholder of our lithium Investment

ASX:EMH Jun 17, 2022 Announcement


Investment Memo: EMH 2022

General: New major shareholder


Yesterday afternoon we noticed that our battery metals investment European Metals Holdings Ltd (ASX: EMH) welcomed a new substantial shareholder to its register.

United Super put out a “substantial shareholder notice” confirming that they now own 5.44% of the company.

On the second page of the notice we saw that a large part of the buying on market happened between the 4th of March and the 10th of June, purchasing a total of ~$7.9M in shares at an average price of $1.06 per share.

EMH is now trading well below that level at ~70.5c per share which tells us that institutional investors clearly see value in EMH shares even above the current trading price.


Interview with Exec-Chair at the RIU conference in Sydney

ASX:EMH May 10, 2022 Announcement


Here’s a short interview done EMH Executive Chairman Keith Coughlan from the RIU conference in Sydney.

A key takeaway for us was Keith’s emphasis on the changing macro environment in the EU as a result of the Russia/Ukraine conflict.

Keith mentioned that the EU is focusing on mineral security and energy security. Effectively making mention of the fact that there is now urgency to secure supply chains of all critical minerals.

We think that the significance of this and the whole “critical minerals” investment thematic is seriously underappreciated by markets.

This is where the macro tailwinds for EMH have become stronger.

Our battery metals investment European Metals Holdings Ltd (ASX: EMH) is developing the largest hard rock lithium resource in the EU.

EMH’s advanced stage lithium project is ideally located in the Czech Republic, on the border with battery-metal-hungry Germany and in close proximity to the continent’s largest automobile manufacturers.

We first invested in EMH in March 2021 well before “critical minerals” became mainstream and the Russia/Ukraine war put an emphasis on the need to secure domestic supplies of these critical raw materials.

Lithium sits on the critical minerals list of almost every developed economy and, most importantly, is on the EU list.

We expect all of these macro tailwinds to eventually translate into heightened interest inside the EU for projects like EMH’s.

Earlier in the year we launched our 2022 EMH Investment Memo where we detail the reasons why we continue to hold EMH in our portfolio, what we want to see the company achieve, and the key risks to our investment thesis.

Click here to check out our 2022 EMH Investment Memo.


Elon Musk talks up lithium during Tesla earnings call

ASX:EMH Apr 22, 2022


Tesla’s Q1 earnings conference call saw Elon Musk again talk up the lithium supply shortage.

His view on the lithium business was clear: “I’d encourage entrepreneurs out there looking for opportunities to get into the lithium business. The (profit) margins right now are practically software margins”.

“Do you like minting money? Well the lithium business is for you”.

The supply shortage Elon Musk is referencing is largely a result of battery manufacturing facilities coming online much quicker than the world's ability to discover and extract new lithium supplies.

Tesla isn't the only OEM (original equipment manufacturer) that is making investments in battery manufacturing facilities either. Other major OEMs, including VW and Daimler, are making large capital investments with an aim of electrifying their car fleets.

Just yesterday, Honda was the latest OEM to join this list. You can see our coverage of that in this previous Quick Take.

Almost on a daily basis the markets are being reminded of the global lithium supply shortage. Fortunately for our investments in the lithium sector, it isn't easy to make new lithium discoveries, let alone get them developed.

Building out new downstream facilities can be done in one to two years, whereas getting a new resource into production can take as long as seven years. As a result, we can’t see the shortage being addressed in the near term.

We hold the following lithium companies across our portfolios, which gives us exposure to this market. Click on the company names below to read our 2022 Investment Memos where we detail what we want to see the company achieve this year.

Vulcan Energy Resources (ASX:VUL) - Next Investors portfolio

  • Zero Carbon Lithium, development stage, European Union (Germany)

European Metals Holdings (ASX: EMH) - Wise Owl portfolio

  • Development stage, European Union (Czech Republic)

Latin Resources (ASX:LRS) - Catalyst Hunter Portfolio

  • Exploration Stage WA (Brazil)


Honda to spend $40 billion on electric vehicle fleet

ASX:EMH Apr 21, 2022


Long time readers will know we have been investing in companies that will provide the raw materials that are critical for the electrification of the global economy.

We have particularly emphasised the shift away from internal combustion engines towards electric vehicles (EV’s) as one of the main demand drivers in the medium term for these raw materials.

This morning, we saw one of the world's biggest carmakers Honda also commit to fully electrifying its car fleet by 2040 with $40 billion in investment into its electric vehicles manufacturing capabilities.

All of these vehicles will require even more lithium supply to be able to produce the lithium-ion batteries which feeds directly through to the prospects of our lithium investments across our Next Investors, Catalyst Hunter, and Wise Owl portfolios.

With other major OEM’s including Tesla, VW, Daimler all making large capital investments in developing large scale battery manufacturing facilities with commitments to electrifying their car fleets, we expect demand for lithium to remain strong over the next 5-10 years.

In a previous Quick Take we went through a presentation by Pilbara Minerals CEO Ken Brinsden, where he highlighted that it takes 1-2 years to build out these facilities whereas it takes ~7 years to bring a new resource discovery into the production stage.

More investment by another OEM as large as Honda will mean there is even more pressure on the demand side of the lithium market.

With lithium carbonate prices trading at ~US$78,000/t, up from ~US$13,000/t this time last year, Ken’s comments clearly highlight the structural supply/demand issues behind this move.

We hold the following lithium companies across our portfolios, which gives us exposure to this market. Click on the company names below to read our 2022 Investment Memos where we detail what we want to see the company achieve this year.

Vulcan Energy Resources (ASX:VUL) - Next Investors portfolio

  • Zero Carbon Lithium, development stage, European Union (Germany)

European Metals Holdings (ASX: EMH) - Wise Owl portfolio

  • Development stage, European Union (Czech Republic)

Latin Resources (ASX:LRS) - Catalyst Hunter Portfolio

  • Exploration Stage WA (Brazil)


Elon Musk weighs in on lithium prices

ASX:EMH Apr 11, 2022


Elon Musk had something to say about sky-high lithium prices over the weekend.

Musk dropped a comment in on Twitter:

All of this feeds directly through to the prospects of our lithium investments across our Next Investors, Catalyst Hunter, and Wise Owl portfolios, more specifically:

Vulcan Energy Resources (ASX:EMH)

Latin Resources (ASX:LRS)

European Metals Holdings (ASX:EMH)

Each of these three companies is at a different stage in their life cycle. Vulcan has multiple offtakes secured, Latin Resources is an exploration stage company hunting a JORC resource in Brazil and EMH is working on a DFS and offtake negotiations.

Which means different styles of advancing the company’s business.

For example, we note that Vulcan CEO Francis Wedin also took the Musk comment as an opportunity to make a pitch.

Below is the lithium price chart, which is starting to level off after a meteoric rise:

This run up in price has raised the spectre of demand destruction, and the potential for a 25% increase in the cost of an EV according to Morgan Stanley.

In this context, we think Musk’s comments indicate that Tesla and other EV manufacturers may look to take equity stakes in lithium companies to secure their access to the battery metal supply chain.

We also note that EMH in particular could stand to benefit from consistently elevated lithium prices as it makes their deposit more economic.

The EMH share price is in a consolidation phase and we think this is indicative of market sentiment towards lower grade lithium deposits - no matter how ideal their location (EMH is based in the Czech Republic).

Musk made a follow up comment regarding lithium processing as well, saying “We have some cool ideas for sustainable lithium extraction & refinement.

If Tesla or other companies can make a breakthrough in processing technology or alternatively, lithium prices go even higher, we expect companies with well-defined resources (like EMH) to garner additional attention.

What’s next: We expect more EV battery makers to consider taking stakes in lithium companies, and with regards to EMH we’re looking forward to the completed DFS, progress on financing and potentially a positive surprise in the form of offtake agreement.