Scharfsinn86
Scharfsinn86
This article first appeared in Trend Investing on August 17, 2022; but has been updated for this article.
Lithium demand and prices remain very strong. This supports the outlook for any lithium junior miners that can make it to production in the next 2 years. The linked article below gives our views, which forecasts:
Looking out to 2025, our model forecasts deficits each year. From 2026 to 2030 the lithium market is forecast to need huge amounts of new supply to match surging demand. Growing deficits look likely.
China spot Lithium carbonate price 1 year chart – Price = CNY 497,500 (USD 71,003)
Trading Economics
Trading Economics
The following 6 lithium junior miners are all fully-funded to meet production within the next 2 years. All going well they will be the next 6 lithium producers.
The six companies are:
Comparison table
Estimated
production
start
Market
Cap (US$)
Current
Price
Price target,
Upside /downside
from current price
(Trend Investing PT)
A$1.43 (end 2026)
2.6x
C$48.69
+29%
A$1.65
+14%
late 2022,
early 2023
C$33.65
+21%
Sayona Mining
(75% NAL)
Liontown
Resources
A$2.23
37%
Notes
No Argosy Minerals price target available, so the PT is that of Trend Investing. Assumes Argosy Minerals is selling lithium carbonate at US$30,000/t in 2026 (12,000tpa production).
Comments
Argosy Minerals has the lowest market cap by far (US$505m) out of the 6 juniors. This is partly explained by the fact that Argosy’s initial start-up production is only 2,000tpa lithium carbonate, well below all the others. However by 2025/26 they plan to expand to 12,000tpa and if successful look very well valued today, especially given their imminent start to production (95% of total development works now complete at their Rincon Lithium Project). Argosy also 100% own the early stage Tonopah Lithium brine Project in Nevada USA. More details on Argosy here.
Lithium Americas has the highest market cap at US$3.84b, however they have huge potential to expand production in the years ahead with their multiple projects/investments and large lithium resources. Some details here.
Core Lithium has potential to expand their resource and grow their production further, as well as benefit soon from current spodumene prices of CNY 35,622 (~US$5,081/t), so valuation is still reasonable.
Sigma Lithium has the fastest planned ramp up of lithium production from their project in Brazil which looks set to soon be a very large spodumene producer.
Sayona Mining has very large resources well located in Canada. We do have some concern over how their off-take deal from NAL (Sayona Quebec “SYQ”) is priced given spodumene is now selling at ~US$5,081/t (Eg: PLL has right to 50% of half of SYQ off-take (minimum price of US$500/t and a maximum price of US$900/t). Piedmont Lithium stated in June 2022:
Piedmont and Sayona confirmed the terms of the spodumene concentrate offtake agreement between SYQ and Piedmont. Under the offtake agreement, Piedmont is entitled to purchase the greater of 113,000 metric tons per year of spodumene concentrate or 50% of production from the NAL project. The agreement also covers concentrate produced from ore mined at SYQ’s Authier Project. Purchases are subject to market pricing with a price floor of $500 per metric ton and a price ceiling of $900 per metric ton. Under the terms of the offtake agreement, if Sayona and Piedmont jointly construct and operate a lithium conversion plant in Quebec, then spodumene concentrate produced from the NAL project would be preferentially delivered to that chemical plant upon start of operations. Any remaining concentrate not delivered to a jointly owned conversion plant would first be delivered to Piedmont up to Piedmont’s offtake right and then to third parties. Sayona and Piedmont expect to begin a series of technical studies with respect to lithium conversion in Quebec and will update the market in the coming months.
Note: Bold emphasis by the author.
Liontown Resources has a massive project in Western Australia with great off-take partners including LG Energy Solutions (“LGES”), Ford (F) and Tesla (TSLA).
Comparing the 6 juniors discussed above to the existing smaller volume producers of Livent Corp. (LTHM) (market cap US$5.97b) and Allkem [ASX:AKE] (OTCPK:OROCF) (market cap US$6.36b), all of the above 6 have significantly lower market caps.
Why Argosy Minerals Is My Number 1 Lithium Stock Pick In 2022
Argosy Minerals looks set to be the next lithium producer with their Rincon Lithium Project 95% complete
Argosy Minerals
Argosy Minerals
Source: Argosy Minerals update September 1, 2022
Lithium Americas (49%) and Ganfeng Lithium (51%) JV at the massive Cauchari-Olaroz Project in Argentina
Lithium Americas company presentation
Lithium Americas company presentation
Source: Lithium Americas company presentation
Our view continues to be that it is wise to own the near term lithium producers as the lithium pricing environment should remain high for some years to come, due to excess demand and limited new supply coming on each year. Currently most analyst’s models are assuming much lower lithium prices than the current spot and contract prices. Our view is that high lithium prices should hold for some times resulting in a re-rating higher for the lithium producers and near term producers.
The next 6 lithium producers are most likely to be Argosy Minerals, Lithium Americas, Core Lithium, Sigma Lithium, Sayona Mining (75% NAL, Piedmont Lithium 25%), and Liontown Resources in that order. All are fully-funded to production.
As for valuation it largely depends on your view on lithium prices from here. If prices stay very high (US$70K/t Li carbonate/ LiOH, US$5K/t spodumene) then all 6 should do very well indeed and are undervalued today. If prices were to drop back very significantly then expect they may pullback in their stock prices. Our view is that they are all rated as ‘accumulate’ with a bright future ahead.
Risks revolve around executing their production start-up on budget and on time and achieving their stated expansion plans. Also lithium prices falling, which we see remaining strong this decade.
As usual all comments are welcome.
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The Trend Investing group includes qualified financial personnel with a Graduate Diploma in Applied Finance and Investment (similar to CFA) and well over 20 years of professional experience in financial markets. Trend Investing searches the globe for great investments with a focus on “trend investing” themes. Some focus trends include electric vehicles and the lithium/cobalt/graphite/nickel/copper/vanadium miners, battery and plastics recycling, the online data boom, 5G, IoTs, AI, cloud computing, renewable energy, energy storage, space tourism, 3D printing, personal robots, and autonomous vehicles. Trend Investing also hosts a Marketplace Service called Trend Investing for professional and sophisticated investors. The service is information only and does not offer advise or recommendations. See Seeking Alphas Terms of use. https://seekingalpha.com/page/terms-of-use
Disclosure: I/we have a beneficial long position in the shares of TESLA (TSLA), LIVENT (LTHM), ALLKEM [ASX:AKE], ARGOSY MINERALS [ASX:AGY], LITHIUM AMERICAS [TSX:LAC], CORE LITHIUM [ASX:CXO], SIGMA LITHIUM [TSXV:SGMA], SAYONA MINING [ASX:SYA], PIEDMONT LITHIUM [ASX:PLL], LIONTOWN RESOURCES [ASX:LTR] either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is for ‘information purposes only’ and should not be considered as any type of advice or recommendation. Readers should “Do Your Own Research” (“DYOR”) and all decisions are your own. See also Seeking Alpha Terms of Use of which all site users have agreed to follow. https://about.seekingalpha.com/terms