The Maharatna Moment
Pay attention when Prime Minister Narendra Modi is giving investment tips. On August 10, the Parliament guffawed when the PM, in his usual aplomb, asked stock market investors to 'bet on the PSU stocks.' Like most of the PM's colleagues in the Parliament, stock market punters and investors largely passed his investment tip as just another light-hearted Lok Sabha chatter meant to amuse the gallery.
But sources in New Delhi's policy-making circles are agog with the talks of India's grand lithium mining plan where auctions for the site in Jammu and Kashmir (J&K) are likely to be held before December 2023. The anticipation is high. The government is expecting thousands of crores of rupees from the auctions to flow into the coffers before the end of the current fiscal year. But that is not the big story. Stock traders can reap huge profits by simply following the PM's tip. Companies such as National Mineral Development Corporation (NMDC), Gujarat Mineral Development Corporation (GMDC), Steel Authority of India (SAIL), Hindustan Copper, National Aluminium Co (NALCO), Orissa Minerals Development Company, MOIL and Coal India are some of the pure-play listed PSU miners that are likely to be at the forefront of lithium mining in India. There will be other PSU miners, too, but they are not listed.
Leader of the Pack
NMDC is likely to assume the lead since it seems set for the game. The corporation has partnered with Australia's Hancock Prospecting, a company owned by billionaire Gina Rinehart for lithium and cobalt mining. Rinehart even had a one-on-one meeting with PM Modi when he was on his celebrated Australia tour earlier this year. NMDC and Hancock are already exploring sites for lithium mining in Australia under the comprehensive strategic partnership. Australia is the world's largest lithium producer, and its lithium industry is more mature than India’s. Importantly, Australia's lithium reserves are in the same hard rock form as the deposits in India, and any expertise they get will be an edge. GMDC and Hindustan Copper, too, have announced their plans this year for the mining of rare earth metals, obviously with an eye on lithium and cobalt. The Gujarat government in June appointed retired bureaucrat Hasmukh Adhia as the GMDC chairman -- it is an open secret in the policy circles that Adhia enjoys PM Modi's backing. All this is an indicator of the silent work that the PSUs are doing with an eye on the big game, and the government seems all geared up.
Gearing up for Growth
According to Deven Choksey, Promoter, KRChoksey Group & MD, KRChoksey Shares & Securities, the prospects of PSU companies and especially mining stocks are extremely bullish. "I will not be surprised if PSU mining companies report growth in excess of 15-20 per cent in the coming years. At the bare minimum, the growth rate of mining companies will be double that of India's GDP," he says. S.P. Tulsian, investment advisor and founder, Premium Investments says that mining and metal companies and their shares are stars in the making. "With the advent of the green revolution, commodities such as copper, lithium, rare earth metals are grabbing attention. Copper global demand has risen by 200 per cent in the past 12 months, due to three times higher demand.
The consumption growth in rare earth metals, copper and lithium is mainly driven by electric vehicles and the solar energy play." But what has changed about PSUs during the nine years of the Modi government? "Unlike the earlier years, the government is more demanding on productivity and accountability about lack of productivity. Coal India, a giant in terms of operations, is the best example of the changing face of Indian PSUs.
The company's production has witnessed significant improvement and it has managed to grow in excess of 15 per cent, which shows the government's change of mind and the commitment in improving the working standards of PSUs. With the kind of commitment that I see and the growth programme that the government has undertaken for PSUs, it will exceed all numbers in the coming years," Choksey says. Choksey's concern is that in the past the governments did not give the PSU management more independence and continuity, which should happen now.
India's Lithium Plan
You do not need PM Modi to tell you that the country will be nowhere in the global league if it misses out on the clean energy play. Lithium mining is at the heart of this. India is way behind the curve when it comes to manufacturing laptops and mobile phones, but electric vehicles are something that the government has set its sights on. In the years ahead, all the battery-dependent electronic manufacturing will settle in countries that can source lithium easily.
In July, the Parliament cleared the Mines and Minerals (Development and Regulation) Amendment Bill, 2023 to allow private companies to mine six out of 12 atomic minerals, including lithium, and deep-seated minerals such as gold and silver. The Bill has also been cleared by the Rajya Sabha. The government will now insert the provision of an exploration license only for deep-seated and critical minerals in the law. This license will be granted through auction for undertaking reconnaissance and prospecting operations. The Bill also empowers the central government to auction mining lease and composite license for certain critical minerals exclusively.
For the first time in his nine-year tenure, PM Modi has given investment advice to the stock markets. This after the amendment to mining Bills were passed by both the Houses of Parliament and when he was sure that there were no other major hurdles to India's grand plan. Until now, India was playing into China's hands when it came to sourcing lithium for domestic needs. But that equation changed when in February the government announced the discovery of 5.9 million metric tonne of lithium in J&K valued at around $410 billion. In May, news reports also suggested huge lithium deposits in Rajasthan as well. What's more? Following India's lithium finds, the Tata Group in June entered into an agreement with the Gujarat government to invest Rs 13,000 crore for a lithium battery manufacturing factory in Sanand.
The government has also announced the National Programme on Advanced Chemistry Cell (ACC) Battery Storage as part of the Make in India initiative, wherein it will grant over $2 billion in incentives to EV manufacturing companies. This will equip the Indian economy for every step in the lithium lifecycle and ensure that the benefits of domestic lithium mining stay in the country. In the third week of August, auctions for two lithium mines in China's south-western Sichuan province received nearly 7,000 bids, with prices hundreds of times higher than the starting levels. Therefore, place your bets on PSU mining company stocks blindfolded... especially when the investment tip comes from PM Modi.
Lithium Mining Stocks
In Australia, the country leading the world in lithium mining, the share of Liontown Resources surged 105 per cent to lead the Australian gauge in 2023 after spurning three takeover bids in five months from the world’s top lithium producer Albemarle. Its peer Lake Resources has declined more than 70 per cent after flagging a six-year delay and cost blowouts at a project in Argentina.
Azure Minerals is among Australia’s emerging lithium stars, gaining over 1,100 per cent in 2023.
Earlier in August, it rejected a takeover bid from Chilean lithium producer SQM and has shot past its offer price of A$2.31. Patriot Battery Metals, which is developing a large lithium deposit in Canada, has risen by 81 per cent this year. Among others in Australia, Pilbara Minerals has transformed from a A$500 million ($435 million) junior miner three years ago to a A$15 billion giant, producing 8 per cent of the world’s lithium. Another mining company Allkem in Australia is up 25 per cent. Similar frenzy in companies linked to lithium is witnessed in South Korea.
Hydro Lithium skyrocketed more than 1,500 per cent in 2022 after the little-known civil engineering firm changed its name from Korea SE and announced plans for EV battery businesses. Chemicals firm Kum Yang has gained over 400 per cent in 2023 due to a link with a Mongolian lithium mine. Global lithium production that was 737,000 tons in 2022 is expected to reach 964,000 tons in 2023 and 1.17 million tons in 2024. The list of publicly traded lithium companies is short, which limits the investor options for lithium stocks.
Also, most lithium mining companies are not listed on the US exchanges, which has forced some of the world's large commodity funds to look elsewhere for the opportunity, or trade in the over-the-counter market in the US. Back home, the share price of Gujarat Mineral Development Corporation (GMDC), a little known PSU company belonging to Prime Minister Narendra Modi's home state, has caught the fancy of India's share market. GMDC's share price is up 45 per cent in just around a week after BW Businessworld first did a story on August 21 on government's focus on mining stocks. Other PSU mining stocks too are up in the range of 5 to 15 per cent.
It appears at the moment as though PSU stocks will power the next leg of the bull-run on the Indian bourses. We will be closely tracking the journey of PSU stocks hereon. Watch this space for the latest developments.
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