Sigma Lithium

SGML ripped into the low $20's and I sold more stock. I've sold 90% of my position now, for a very nice win in a short time period. This was always more of a "I think this has just gone too low" trade for me and its rapid move higher, coupled with my somewhat superficial knowledge of the asset, made me weak-handed. I never forget a stock, so I'll keep an eye on it.

This ran all the way to over $16 on no news so I did lock in some profits, but I still own 40% of my position as industry watchers get more constructive on lithium prices going forward – suggesting that the bottom might be in. Industry bellwether Albemarle (ALB.US) keeps making new 52-week highs and lithium demand just keeps rising.

This is the best producing asset in the hands of an independent in my universe and it has impressive capital efficiencies.

This is my only lithium exposure. In reflecting on the pullback in the stock from its highs, it may be because a recent news article out of Brazil highlighted some critical comments from the company's former CEO in terms of how the current team is running the mine, but the company's responses in the article dismissed the concerns. I'm not as close to this one as I am to other stories, so I can't comment on the back-and-forth in that article, but the scale and quality of the asset – as well as its leverage to lithium prices – are undisputed, so I remain long a partial position and will keep an eye on the $11–12 range as a support level for the stock.

SGML dipped into the $6-range for a nanosecond and is now $11 as I type this on optimism that the lithium price is headed higher. The whole sector is up, but SGML is up a lot as I write this, some 30% on the day. While its up nicely from the lows, it's still a very attractive asset to larger players and sits at the lower end of the global cost curve, with very attractive capital efficiencies on production expansion. As one of the largest independents out there, this could be swallowed up by a larger player at any time. The demand for lithium and batteries isn't going away, so SGML may be attractive to a large player looking to boost their production immediately at a low cost.

I'm of the view that the long-term lithium demand story is a good one. There are batteries in everything these days and low-cost producers will ride out the kinds of lithium price lows that hamper production and eventually lead to higher prices. I have no specific insight to offer when it comes to SGML, but this is a large-scale, low-cost, low-capital-intensity, scaleable, high quality asset in Brazil that is one of the larger projects in the hands of an independent producer. Since bottoming in June, the stock has been making higher highs and higher lows with indications of accumulation underway from technical chart indicators like on-balance-volume. After a long fall from its 2022 highs, industry bellwether Albemarle (ALB.US) has nearly doubled since April and when you're looking for sector sentiment-may-be-turning indicators, keeping an eye on the bellwethers is a good idea. It's a bit of a loose buy for me, but I've added stock around current levels and, all else being equal, I would add more at the lows around $6 if the stock pulled back that far on a broader market dip.