Lithium Energy: A Q-A With Chris Berry

Chris Berry knows an opportunity when it is rolling toward him. The House Mountain Partners founder sees the potential demand electric vehicles -- and their batteries -- will bring to the lithium market. While he waits for the predicted impact that automotive, energy storage and generation innovation demand will have on the space, he has been busy researching companies using his 10-Point model to determine which juniors have the best chance of making it to the finish line. In this exclusive interview with The Energy Report, Berry names the six companies that stand out from the fleet of explorers trying to stake their ground before they run out of momentum.
 
The Energy Report: You have been following the very crowded lithium space for some time. While predicted expanding energy storage demand has not yet had a big impact on prices, the number of companies in the space seems to be swelling by the month. Of the army of explorers getting into the lithium business, what are the top names in your book?
 
Chris Berry: I categorize earlier-stage companies into three "buckets": incubator, mature and legacy. Incubator companies are extremely early stage and offer the highest short-term upside, but we know the least about the deposit in question and management teams might not be as seasoned as we would like. Mature companies are those with some history under their belts and an understanding of the geology and metallurgy of a given deposit with more experienced management teams. These companies also typically have NI 43-101 resource estimates or feasibility studies in place, which give investors a sense of potential economics of a deposit. Mature companies are those in production and generating earnings and cash flow. A legacy company is one which is in production and is generating cash flow and earnings. Management is typically very senior and has extensive experience in the natural reource business. Examples in the lithium space would be Talison Lithium Ltd. (ORL:TSX; ORE:ASX ). I have long regarded Orocobre as the "big brother" of the junior lithium industry as it has been involved in lithium for some time and has demonstrated to other juniors how to build a successful company through developing strategic relationships and not losing focus on developing a world-class asset. This company also has a mature lithium/potash play in Argentina and was just awarded the final permit necessary from the Expert Committee of Jujuy to move forward with the development of its flagship Olaroz low-cost lithium brine/potash project. This is a huge win for the company and puts it at the head of the pack to become one of the next major lithium producers in 2013. With the potash credit, the company anticipates a cost per ton of $1,230. As I said above, with a ton of LCE priced at approximately US$6,000, and Orocobre tentatively producing 16,400 tons LCE per year, the economics of this project are sound indeed.
 
As part of the permit approval, Orocobre will join forces with Jujuy Energia y Mineria Sociedad del Estado (JEMSE), which will take an 8.5% stake in the company. Jujuy Energia y Mineria Sociedad del Estado acts as the investment arm of the Jujuy provincial government. While there are those who may not like the company having to partner with a provincial government through granting an equity stake, I think it gives the Jujuy provincial government "skin in the game" and a vested interest in seeing this project through to positive cash flow. Additionally, Orocobre has strategic relationships with Toyota Tsusho, Mizuho Bank and JOGMEC, all of whom can help with the financing necessary to put this project into production. I would not anticipate more share dilution based on these relationships and the ability to attract project debt financing.
 
TER: Thank you for sharing those names.
 
With a lifelong interest in geopolitics and the financial issues that emerge from these relationships, Chris Berry founded House Mountain Partners in 2010. House Mountain firmly believes that the emerging quality-of-life cycle emanating from Asia is a "game-changer" that will affect everyone throughout the world for decades. With that in mind, the firm focuses on the intersection of three topics: 1) The evolving geopolitical relationship between emerging and developed economies; 2) The commodity space; and 3) Junior mining and resource stocks are positioned to benefit from this phenomenon. Chris spent 14 years working across various roles in sales and brokerage on Wall Street before founding House Mountain Partners. He holds an MBA in finance with an international focus from Fordham University and a BA in international studies from the Virginia Military Institute. He invites readers to receive a complimentary subscription to Morning Notes, which provides analyses of emerging geopolitical, technological and economic trends.

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DISCLOSURE:
1) The following companies mentioned in the interview are sponsors of The Energy Report: Talison Lithium, Lithium One, Lithium Americas, Nemaska Lithium and Western Lithium USA. Interviews are edited for clarity.

2) Chris Berry: I personally and/or my family own shares of the following companies mentioned in this interview: Talison Lithium. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.

Written By: The Energy Report