Battery-related technological advancements and, hence, funding commitments, and favourable market sentiment for EVs and clean energy result in an upgrade for the battery division valuation. While delayed initiation for other divisions result in 2021 income estimates resetting materially lower, the markets are likely to focus on the group’s battery virtues. Hence, the recommendation is maintained.
Despite the COVID-19 outbreak, since early 2020, Blackstone Resources’ share price is up 283% vs. a 24% gain for AV’s Metals and Mining universe. This staggering out-performance has materialised despite the commercial initiation of the group’s mining-related assets witnessing (varying) delays.
While COVID-19 has had a huge disruptive impact on the global economy, it has proven to be a blessing in disguise for clean energy-driven investment stories. This was a boon for Blackstone Resources – which is banking big on the success of its battery division. Fortunately, in 2020, Blackstone managed to attain a series of achievements in the battery division (summarised below).
2020 battery (R&D) milestones
According to management, the following breakthroughs were achieved in July 2020: 1/ the world’s first battery cells with thick printed electrodes were successfully manufactured and tested; these printed batteries were claimed to have higher energy density (>20%) vs. traditional lithium-ion batteries; 2/ manufacturing was undertaken using environmently-friendly electrodes vs. chemical electrodes – which have a risk of high inflammation – used in lithium-ion batteries; and 3/ hence, large-scale assembly line plans were implemented to produce the above-discussed batteries / cells at high speed. Apart from these achievements, the group also began testing the printing of solid-state battery cells. Then, in mid-September 2020, the group announced a breakthrough in its proprietary 3D-printing technology to print lithium ion solid-state batteries. Management claimed that this printing entails significantly lower costs and introduces high production flexibility, besides increasing energy density.
Unsurprisingly, these events were followed by various funding commitments coming to the fore. In October 2020, GEM Global made an equity commitment of CHF30m for implementing the commercial steps for the battery technology and related metals. Then, in December 2020, the Swiss Innovation Agency, i.e. Innosuisse, approved Blackstone’s application for a grant to provide 50% funding for a CHF1.3m project. The beginning of 2021 was equally promising, with the group’s battery project securing EU grants, followed by a CHF20m convertible loan facility valid for three years.
Management claims that the group’s solid-state electrolyte innovation will play a key role in next-gen battery technology and, hence, could be a major disruptor in this space.
Re-emerging interest in clean energy metals
Besides the benefit of material monetary easing and the growing expectation of a global economic recovery, most clean energy-driven metals have also benefited via an increasing focus on battery factory investments and most countries trying to reduce their dependence on the Asian battery giants. This change has also been backed by Europe emerging has a key electric vehicle (EV) market – even before the world was struck by COVID-19. Remember, in 2019, Europe’s EV sales grew 44% vs. just 3% for China and a 12% decline in the US. And this momentum continued in early 2020 as well, making European countries amongst the best-penetrated EV markets globally.
Given such market sentiment, any progress on the battery (R&D) front is likely to outweigh any delay-related disappointment with respect to Blackstone’s other divisions.
With the growing focus on the battery division, the following key changes have been implemented in our model: 1/ newer (battery) peers have been added in our relative valuation metrics; 2/ Blackstone has been re-positioned as a battery storage equivalent firm vs. its earlier categorisation as a miner-smelter-trader; and 3/ the battery division’s valuation has been re-assessed (using GAV methodology) in our NAV, with the division’s EV now resetting at CHF1.1bn. While the near-term performance estimates (particularly for 2021) reset materially lower – due to the delayed kick-start at the non-battery divisions, the upgrade in the battery division’s outlook, primarily driven by NAV, results in our target price resetting c.67% higher. The positive recommendation is re-iterated.