Battery progress again overshadows operating results

During the H1 21 operating results release, the developments in the battery business again stole the limelight. With tangible progress in battery on various counts – such as financing, commercialisation and expansion of manufacturing, and the establishment of a more-specialised leadership team, the firm seems all set to deliver on its aggressive ambitions. While commercialisation/kickstart at the non-battery businesses is still awaited, the progress in the battery business is expected to be a bigger sentiment driver – given that it accounts for the majority of the firm’s gross assets.

Blackstone Resources reported H1 21 total comprehensive income of CHF3.6m – largely driven by currency translation benefits. However, sales from the core operations were ‘nil’ yet again – as the respective businesses still haven’t begun commercial operations. Although the firm did recognise CHF445k of grant income associated with its battery R&D operations. ‘Reported’ operating loss came in at CHF2.3m vs. CHF1.9m in H1 20. Moreover, net attributable loss was CHF2.4m vs. CHF20m profit in H1 20 – with the latter being single-handedly driven by CHF22m of gain on asset disposals.

Blackstone ended H1 21 with a book value of equity (ex. minorities) of CHF38.4m – down 1.4% vs. end H1 20. Moreover, net debt increased 20% (vs. end H1 20) to CHF15.8m.

Despite no progress in terms of financial results, the group managed to achieve newer milestones (discussed below) with respect to its lynchpin battery R&D business (also the majority of gross assets).

Since our last note on Blackstone’s 2020 results, the firm has made the following corporate announcements, with most of them focused on / pertaining to the battery business:

  • 27 May 2021: increased ownership of lithium concession assets by 900 hectares to 8,900 hectares;
  • 21 June 2021: unveiled plans to list Blackstone Technology GmbH (fully-owned subsidiary) in the US to raise additional capital and diversify investor base; more details are still awaited;
  • 23 June 2021: strengthened its team with the appointment of Dr David Flaschenträger as the new CTO and Project and Product Manager of Blackstone Technology; he is an experienced engineer, having previously worked at Quantron AG, E-Force One AG and BMZ GmbH; also, during his time at the Fraunhofer Institute LBF, he received his PhD in Engineering from the Technical University of Darmstadt; remember, Blackstone has a research cooperation agreement with the Fraunhofer Institute;
  • 1 July 2021: announced plans for a ten-fold increase in lithium-ion battery capacity to 500MWh by 2022; moreover, the firm has signed/discussing a letter of intent (combined value of €184m) with potential clients across marine, motorcycle and commercial vehicle manufacturing;
  • 5 July 2021: Christoph von Aesch was appointed as CFO; before joining Blackstone, he held the role as Group Assurance Officer at gategroup, the world’s leading airline caterer; prior to that, he was CFO of Capri Sun and held several senior leadership roles at Wild Flavors, Orascom Development and KPMG in Switzerland and Australia;
  • 21 July 2021: received the permit from Döbeln city authorities to begin production of 3D-printed lithium-ion battery cells; production start was targeted for September 2021; simultaneously, Blackstone applied for funding from Sächsische Aufbaubank;
  • 3 August 2021: signed a supply cooperation agreement with IBU-tec advanced materials AG for the cathode material LFP (lithium iron phosphate), given its pivotal importance in battery-making;
  • 5 August 2021: secured €40m of debt funding for the expansion of battery manufacturing;
  • 1 September 2021: Serhat Yilmaz was appointed as CMO, also taking care of investor relations; and
  • 23 September 2021: decided to commission a new development laboratory for battery cell research at its Döbeln production facility.

As a summary of the above-mentioned events, it is fair to say the Blackstone remains committed to its battery R&D ambitions and, gradually, it has managed to take into confidence various stakeholders, including government(-backed) agencies – which also opens up the prospect of easy access to grants/financing. Moreover, with various appointments at the leadership level, there seems to be an apt focus on battery’s commercialisation plans.

Green transition (metals) – more than just euphoria

In recent weeks/months, commodity markets have become increasingly uncertain due to various factors – ranging from ‘excessive’ monetary easing reversal fears, China’s macro uncertainties – especially post the Evergrande debacle, Delta variant concerns, cost escalation uncertainties and/or geo-political issues. As a result, over the last month, AV’s metals & mining universe has lost 6.1% in value vs. a 2.7% correction for the broader coverage. Moreover, this slide has been led by the sector heavyweights such as Anglo American (-15%), BHP Group (-11%) and Rio Tinto (-9%), despite their recent shareholder reward extravagance. On the other hand, Glencore has been very resilient (+10%). While the trader-miner’s ability to benefit in volatile markets is an important differentiator, another major supporting factor could be the firm’s enviable dominance in key green transition metals, i.e. copper, cobalt and nickel. Remember, with a clean environment remaining a top-priority for most economies – despite brewing risks/challenges, green metal and/or battery-related stocks are likely to remain the market’s choice to play macro recovery-related stories. Hence, even if Blackstone is behind its plans for the non-battery businesses, its progress in the battery business is likely to remain the biggest KPI for investors.

Our model is under review – taking on board the firm’s revised business plan. The material upside on the stock should be maintained, and this optimism is backed by the good progress being achieved in battery – also validated by the support in various forms via various government(-backed) agencies.

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