Our modern world has an insatiable appetite for metals, and smart investors can use it for profits. The list of metals is extensive and ranges from lesser-known rare elements such as scandium, yttrium and gadolinium to the vital component of every battery in every digital device, lithium. Lithium has grown in value as laptops, iPads and smartphones with lithium-ion batteries have become common, but in recent years the expansion of electric vehicles – and their much larger battery packs – has sent the price of lithium skyrocketing.
From an investor perspective, this opens up several opportunities, particularly in lithium mining and processing.
In a report from B. Riley Securities, analyst Matthew Key lays out the current state and path forward for the lithium industry: “Lithium may be the best performing commodity since early 2021, with current carbonate and hydroxide prices at $74,000/Mt and $80,500/Mt, respectively, mainly from demand for electric vehicle batteries. Overall, we believe the strong outlook for EV sales will support stable pricing in the near term…”
Key’s description shows why now is the right time for investors to consider lithium as a portfolio option. So let’s take a look at two lithium stocks that the analyst has given Buy ratings together with double-digit upside potential — on the order of 40% or more. In fact, Key’s point of view is not extraordinary. Running the tickers TipRanks databasewe found that each boasts a consensus rating of Strong Buy from the broader analyst community.
Lithium Americas (LAC)
First, Lithium Americas is developing two major lithium mining and processing projects, the Cauchari-Olaroz mine in northern Argentina and the Thacker Pass mine in Nevada. Thacker Pass is potentially the best lithium mine in North America, with the largest known lithium reserves in the US. Between the two projects, Lithium Americas expects to generate approximately 100,000 tons of usable lithium per year.
For now, the company is still in the development stage, moving the two projects toward completion and production. In its 3Q22 report released on October 27, the company reported continued progress at Cauchari-Olaroz, with an update on the production ramp-up schedule expected before the end of this year.
Turning to Thacker Pass, Lithium Americas said that by September of this year it had shipped 100 tons of ore from the mine to produce product samples that could be shown to potential customers and partners. The feasibility study required before the mine opens is scheduled to be completed in 1Q23.
While Lithium Americas is still pre-revenue, it is in solid financial shape. As of Sept. 30, the company had $392 million in cash and other liquid assets, along with $75 million in available credit.
Checking in with B. Riley’s Key, we find that he is bullish on Lithium Americas, saying of the stock: “LAC continues to be one of our favorite names in our coverage group and we believe the completion of Cauchari in early 2023 d. will serve as a major catalyst for the stock. Importantly, the increase in carbonate prices in the near term benefits Cauchari’s earnings potential significantly and we now estimate EBITDA of $332 million in 2023 and $385 million in 2024.”
It should therefore come as no surprise that key LAC rates are buying. Not to mention his $41 price target puts the upside potential at ~48%. (To watch Key’s record, Press here)
It’s clear from the consensus rating of Strong Buy, backed by 5 Buy ratings out of 6 analyst reviews, that Wall Street is bullish on this lithium company. On the upside, the stock is trading at $26.43 and its average price target of $35.96 suggests a 36% gain over the next year. (See the LAC stock forecast at TipRanks)
Piedmont lithium (PLL)
The next stock we’ll look at is Piedmont Lithium, a lithium mining and processing company that, like LAC above, is still a work in progress. The company’s goal is to make the US a major player in the global lithium supply chain. This is a realistic goal; The US has approximately 17% of the world’s proven lithium reserves, and with current US production averaging just 2% of current supply, there is plenty of room for expansion here.
Piedmont is working to bring mining assets online in North Carolina and its main operations are in the Carolina Tin Spodumene Belt, not far from Charlotte. The company owns 1,100 acres in this region and is on track to begin construction activities in 2024. Production of spodumene concentrate is scheduled to begin in 2026 with a target of 30,000 tons per year at full production capacity.
The company’s other major project is located in Tennessee, where the company has selected a site for a 30,000-ton lithium hydroxide plant, with production planned for 2025. The company’s lithium project in Tennessee was recently selected by the US government to receive A $141.7 million grant from the U.S. Department of Energy as part of the Biden administration’s recent infrastructure law.
Outside the US, Piedmont has partnerships with lithium mining projects in Quebec, the North American Lithium Project (NAL) in Val d’Or and in Ghana, the Ewoyaa Project. Piedmont invested in these projects in 2021 and expects to benefit from 168,000 tonnes of annual spodumene concentrate production in Quebec starting in 2023 and from 30.1 million tonnes of known Li2O reserves at the Ewoyaa mine. Although the Quebec and Ghana projects are based on smaller reserves than Piedmont has in the Carolinas, they are expected to come online at an earlier date.
Analyst Matthew Key recently raised his price target on shares of Piedmont Lithium and wrote of his decision: “Our PT for Piedmont increased for two main reasons. First, the increase in long-term hydroxide prices from $16,000/Mt to $18,000/Mt was strongly reinforced for Piedmont’s hydroxide projects in the Carolinas and Tennessee. In total, the adjustment added approximately $338 million in NAV value for both assets. In addition, the increase in long-term spodumene prices from $900/Mt to $1,200/Mt also benefits the NAV of the company’s two spodumene assets.”
To that end, Key rates the stock a Buy and his new price target set at $108 shows room for ~75% upside potential in the stock.
In total, there are 4 analyst reviews for this pre-production lithium company and all are positive, giving a unanimous Strong Buy consensus rating. Shares are priced at $61.56, and their average price target of $108.75 suggests a gain of ~77% over the next 12 months. (Check out the PLL stock forecast at TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.