Capital 10X Growth Navigator: Energy Crisis and Transition

The global energy crisis continues to rage unabated, electricity prices across Europe have gone parabolic and high demand for LNG shipments have led to blackouts in Pakistan and Bangladesh.

Eurozone gas prices are hovering at €280/MWh and 1-year ahead power prices at €600/MWh.  The European natural gas prices are the equivalent of $500/bbl of oil (source: Doomberg).

What is the Energy Fix?

It has become abundantly clear the resolution of this crisis will requires a multi-prong supply response.

  • Natural Gas: The world will have to significantly increase natural gas liquification capacity to displace Russian supply.
  • Nuclear: The low carbon intensity and high energy density of nuclear power make it one of the most ideal baseload power sources.
  • Battery Storage: To effectively integrate renewable power (wind and solar) within the electricity grid utilities must have the ability to store that power – we believe utility gride scale battery storage is a critical component of the low carbon energy transition.
  • Electrification: Electric vehicles will continue to become a growing component within the transportation sector; to support that growth there also must be a growing supply of electric metals such as lithium, copper and vanadium.

Copper: The Electrification Metal In Short Supply

Capital 10X reviewed a recent report by S&P Global on the state of the global copper market and the looming supply crisis.

  • There will be a significant demand increase for copper driven by energy transition applications such as electric vehicles, power grids, solar, wind and batteries.
  • The S&P Global study found copper shortfalls begin in 2025 – as result of increased demand from energy transition and limited new copper supply. Their rocky road scenario assumes current mine supply and recycling trends continue, resulting in a 10 million metric ton shortfall by 2035.

Battery Tech Report: Lithium-Ion vs. Vanadium Redox Flow Batteries

Capital 10X recently published a report analyzing the future of battery technology, specifically comparing vanadium redox flow batteries (VRFBs) vs lithium ion.

  • Lithium Ion batteries have high energy density and a short life, making it ideal for mobile devices and electric vehicles.
  • Vanadium Redox Flow Batteries have high energy storage, long life and are recyclable, making them optimal for grid scale energy storage. Improvements in the technology and the ongoing ramp up in production volumes will result in the growing market penetration within the energy-storage industry.

Psychedelics Sector Breaks Out

The psychedelics sector has quietly broken away from it’s high growth peers over the last 3 months. The AdvisorShares Psychedelics ETF is up 47% since the end of June 2022, significantly outperforming the S&P Biotech ETF (+21%), AdvisorShares Pure US Cannabis ETF (+18%), Nasdaq 100 (+12%) and the Ark Innovation ETF (+11%).

We believe this underscores our view that we are at a disruptive inflection point in mental health treatment.

Mindset Pharma: Shareholder Value Interview

We caught up with James Lanthier, CEO of Mindset Pharma. There’s been renewed interest in psychedelics this summer, with the July 12th release of Michael Pollan’s How to Change your Mind series on Netflix, based on his book of the same name.

We had a great conversation covering sentiment, patent controversies and Mindset’s unique position as a drug discovery leader and partner of choice for big pharma.

Electric Metals

Largo Q2 2022 Results Delivers Strong Earnings Uplift

Largo Inc. (TSE:LGO) (NASDAQ:LGO) reported Q2 2022 results delivering an improvement in both production and sales results highlighted by a net income increase of $18.0 million (+113% growth year over year).

Largo continues to set new milestones with its strategy to advance the commercial rollout of its VCHARGE Vanadium Redox Flow Battery (VRFB) technology. After the quarter, the company announced they have signed a non-binding MOU with Ansaldo Green Tech for the manufacturing and commercial deployment of VRFBs throughout Europe, The Middle East and Africa power generation markets. Further complimenting this strategy includes the award in funding by the Department of Energy to Largo Clean Energy of US$4.2 million.

Due to operational impacts and continued global inflationary pressures Largo revised its production and cost guidance for the full year. V2O5 equivalent production guidance to 11,000 – 12,000 tonnes from 11,600–12,400 tonnes; operating cost excluding royalties’ guidance increased to $4.10–4.50 per lb. sold from $3.90–4.30; and delay in capital spending on its ilmenite concentration plant.

Overall Largo remains one of the most exciting companies playing in green alloy and renewable energy sectors today. Largo produces a product with some of the strongest C02 emission reduction properties within steel as an alloy on the market and is truly thinking outside the box to push the adoption of vanadium-based technologies forward.

Sierra Metals Q2 2022: Delays Result in Guidance Revision, Examining the Value of Company

Sierra Metals (TSX: SMT NYSE: SMTS) reported Q2 2022 earnings; operational restrictions led to delays at Bolivar and a revision in full year guidance.

The company is dealing with rising costs as COVID continues to snarl supply chains and was hit with flooding in the Bolivar mine this quarter, both issues are fading away as the year progresses.

The turnaround in Bolivar is making progress but is taking longer than expected, due to operating restrictions and limited ventilation related to delays on a new raise bore in Bolivar NorthWest. Unexpected underground flooding at Cusi also impacted production results for the first half of 2022. While these are considered temporary setbacks, management believes that they warrant downward revisions for the production sites for H2 to be conservative. Copper equivalent production is now expected to fall between 70.0 to 78.0 million pounds (13% lower than previous guidance).

Though lower than expected production and the suspension of the dividend are both tough pills to swallow for investors, the future looks bright given the severely beaten down value of this company. Given that Sierra trades for only 3x this year’s EBITDA and 2x next years (a 67% discount to small/mid copper miners), very little has to go right from here to see upside in the stock.

More importantly, potential buyout catalysts are starting to surface in the copper sector. BHPs recent $5.8B bid for Oz Minerals at a 50% premium, shows that the big players understand the huge amounts of copper that will be needed to supply the world’s move to renewable energy.

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Sierra Metals is a market awareness client of Capital 10X.

Mindset Pharma is a market awareness client of Capital 10X.

Largo Inc. is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Capital 10X gets down to the real money business, actionable financial insights for traders and investors. We analyze company earnings, interview management teams and help teach the fundamentals of financial analysis and options trading. Our mission is to hunt for genuine 10 baggers.
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