 Good day, fellow investors! Lithium stocks have really crashed over the past three months and now it's time to see okay whether that is a buying opportunity or the trend is one that's better to stay away from. I'll discuss the trend, I'll discuss the sector, I will analyze a company to see to give a better picture of the sector, Lithium Americas to see what's going on and how can we position our investments and what to look for. Always better to look at the company. We all know the electric vehicle trend is here, is growing and now the question is how much demand will there be for Lithium and what will be Lithium prices? Let's start. So Lithium Americas over the past six months hasn't been that good of a ride for shareholders down 20%. When I see a stock like this fall from 10.95 to 5, then I get interested especially if it is a strong structural trend like Lithium. Lithium Americas has a joint venture with Chemical Mining Company of Chile, SQM at the Kauchari-Olaros Lithium project in Argentina where each one owns 50%. The feasibility study was recently completed and supports operating costs of $2,495 per Lithium ton over a 40-year project life. The company has also secured financing of $285 million in equity and credit from Ganfeng and Bankchak which are the main shareholders. The net present value of the Kauchari-Olaros project is around $803 million at Lithium prices at $12,000. Lithium prices are now above $20,000 but those are Chinese Lithium prices though they are $13,000 in America, so keep in mind that Lithium prices over the world vary a lot. And now the main issue with Lithium is the race between the tortoise and the hares. So on one side we have high Lithium prices, $20,000 but you have seen that Lithium Americas cost $2,400 operating cost. And now the question is how fast can this supply ramp up because there is plenty of Lithium in the world and will that price stay high, will demand be high enough or there will be oversupply and a supply glut that will lower Lithium prices and make it very very negative returns on investments for the company that are starting out. There is another project that the company owns Lithium Nevada but the pre-feasibility study is expected only in Q2 2018. The company has $73 million in cash and a fully undrawn credit line of $205 million from the largest shareholders. As I said the interest rates there are a little bit high in 8 to 9.5%. Nevertheless the project will go on as SQM is also interested and it will increase its production by 25% in 2020 or 12.5% pro rata as they own only 50%. So it's important that they have a collaborator like the biggest, like such a big Lithium producer and one that has knowledge about how to produce. Now what happened in the Lithium environment? Morgan Stanley came out with a very bearish report that hit Lithium stocks and everything related to Lithium. Let's see. So in February splashed cold water on the Lithium saying that Lithium prices will be 45% lower by 2021 based on insufficient demand and a slower increase in electrical vehicles. And you can see here that we are now in a deficit phase, the small deficit on the Lithium demand here, the blue columns. But Morgan Stanley expects huge surpluses from 2019 onwards and a much much lower Lithium price. In order to clear the market Morgan says that electrical vehicle sales would have to be 13.6% of the market by 2025 that's seven times more than the current 2%. Morgan's penetration expectation by 2025 is 9%. However Morgan say that Lithium prices will be at 7000 in 2025 if their negative bearish market scenario comes up. But we have seen that Lithium Americas has the mining costs of operating mining cost of 2.5 thousand. So would they still be profitable at that level? Yes. Would that still be a good investment? Let's see. So the sensitivity of the net present value depending on the discount rate and depending on the price. If I extrapolate from these numbers to a 7000 Lithium price I see a net present value with a 6% discount of around 600 million for the project which is then 300 million from 4 Lithium Americas as they own 50%. In the negative case scenario you break even. In the positive case scenario if Lithium prices stay around 14000 then there is net present value becomes 2 billion or 1 billion for Lithium Americas which is double the current market capitalization and that's the net present value at 6%. So there is definitely some potential with the companies in the worst case scenario. Okay investment let's say. Flat in the best case scenario. Good good return and that's how you have to look at these Lithium producers. However the industry doesn't agree with Morgan Stanley. Ken Brinsden CEO of Pilbara Minerals said that Morgan Stanley is underestimating the difficulties in bringing all those projects to life and operating the profitability. Further Paul Graves CFO of FMC the fourth biggest Lithium producer said that the industry has repeatedly failed to bring on its supply in the way it predicted by being always late and always more expensive. So that's what Morgan Stanley is underestimating but if you're an investor keep that in mind. Always late and always wrong on the costs. So also balance that out when investing in miners because those are Lithium those are always miners and you have to be very careful with what they say. But let's go to Albert Marl. They see Lithium demand at 800 000 tons does 60% higher level than Morgan Stanley. Because there is something Morgan Stanley excluded and that's storage. If we start storing energy if we really switch to an electrical world that boom will be much much bigger than transportation and might not just disrupt the industry might displace the whole electrical industry and then we would see Lithium prices probably higher than 7 000 if it is 14 000 if it is 20 000 which is still okay for those battery makers then it will be a huge benefit for investors. So we have to see how to position ourselves there. On the penetration you can see that there penetration outlooks about 2025 so seven years from now actually nobody knows what will happen with the electrical vehicles but you see penetration rates from 5 and 800 000 demand to 9 Morgan Stanley and 500 000 tons demand to penetration rates of 15% and 1000 tons of demand. The key is nobody knows. So what to do as an investor? I would start exposing myself and I will look deeper into each Lithium producer to see where is the best value risk reward in the long term but I will start exposing myself with small part of a portfolio and then rebalance if we see recession crash catastrophe big buying opportunity because the trend is there in the long term so keep that in mind rebalance accordingly expose yourself accordingly. I'm going to leave you with this table Morgan Stanley's Lithium sector stock ratings they have a buy on mineral resources in Australia and a sell on Orocobra. Albert Marle is limited underweight SQM also underweight Galaxy equal and Tianqui Lithium Industries equal way. So we are going to dig deeper have fun with it we have time so it's a long-term trend thank you for watching subscribe if you like the topic or the analysis click like comment I always love your comments and I'll see you in the next video