There seems to be no more coveted mineral for the century ahead than Lithium. Lithium Carbonate, the key ingredient in the production of lithium-ion batteries (amongst other critical products), saw its price touch record levels last November before dropping down to its current price point around $40,000 per ton.
In fact, the resource is so important that Chile, the world's second largest lithium producer, said it plans to convert all production of the mineral to a new state-owned company.
In the U.S., production of lithium has been slow to get rolling due to the devastating environmental impact, but there are a few U.S. companies with lithium projects underway. A newer player is Piedmont Lithium (PLL, Financial), which is set to profit from this future need in a huge way once it begins production. This is thanks in part to some new incentives provided by the Inflation Reduction Act, which was signed into law in August 2022.
About Piedmont Lithium
Piedmont Lithium is developing a world-class integrated lithium business to enable the transition to a net zero world and contribute to the creation of a clean energy economy. The company is located in the renowned Carolina Tin Spodumene Belt of North Carolina, which is known as the cradle of the lithium industry in the U.S. This strategic location positions it to be one of the world’s lowest cost producers of lithium hydroxide, and the most strategically located to serve the fast-growing U.S. electric vehicle supply chain.
Piedmont Lithium aims to serve a wide variety of markets, from producing Lithium-ion battery metals to recovering essential minerals used in everyday consumer and industrial products. The company emphasizes the importance of a U.S.-based supply chain to support EV growth. The argument is that building a U.S.-based lithium supply chain to support EV manufacturing holds enormous potential for the U.S. economy, positively impacting the lives of American workers and families by reducing the cost of EVs and creating quality jobs and revenue at the state level as well.
The thing about Piedmont Lithium is that it has yet to get the ball rolling, which is why investors have been undervaluing it in my opinion. While the company’s first production was achieved in the first quarter of 2023, its current properties will not be fully functional until 2027. That’s a few year away, but that’s what is providing value investors with this opportunity.
The lithium market
The world is moving toward an all-electric future. Electric vehicles play a crucial role in achieving zero carbon objectives to mitigate the impacts of climate change, thereby driving an increase in lithium demand. On average, a lithium-ion battery pack for an EV contains approximately 8 kg of lithium. The International Energy Agency estimates that around 2 billion EVs need to be operational by 2050 to reach global net zero targets. Analysts from Bank of America (BAC, Financial) predict that lithium demand will skyrocket to 3 million tonnes annually by 2030, a number that equates to roughly $120 billion.
There are a plethora of U.S. battery plants coming online by 2027 with General Motors (GM, Financial), Ford (F, Financial) and many more companies building multiple locations to meet the rising demand.
To create lithium hydroxide, companies must first mine for the ore, which is the natural solid material from which a metal or mineral can be extracted. Next, the extracted metal is turned into a concentrate. The U.S. mostly imports lithium from Argentina and Chile at the moment. For Piedmont, this means it could potentially be the major supplier to the market domestically.
Production details
Piedmont's top project is just west of Charlotte, North Carolina in the Inner Piedmont belt next to the Kings Mountain shear zone. The property is estimated to hold approximately 27.9 million tonnes (MT) of indicated and inferred resources grading 1.11% lithium oxide (Li2O).
This means that, on average, each tonne of the mineral deposit contains 1.11% lithium oxide (Li2O) by weight. In other words, for every 1,000 kilograms of the material from the deposit, there are approximately 11.1 kilograms of lithium oxide. This translates into around 310,000 tonne of lithium oxide, which once refined into battery grade lithium hydroxide could fetch upwards of $70,000 per tonne.
It also plans to break ground in Tennessee later this year on the largest facility for lithium refining in the U.S. The plant is located near planned and existing battery and automotive plants and is expected to produce enough lithium hydroxide for at least half a million cars each year.
Piedmont also owns interests in two foreign mines, a 25% stake in one up in Canada and a 50% stake in Ghana. Collectively, Piedmont estimates that these projects add up to a $6.8 billion after-tax opportunity. Only time will tell if lithium prices fall or rise and if demand is actually as high as perceived.
Current catalysts
In February, Piedmont agreed to supply LG Chem (XKRX:051910, Financial) with 50,000 tonnes per year of SC6 spodumene for four years, with shipments scheduled to begin in the third quarter of 2023. The CEO spoke to Yahoo Finance about it, stating that the United States is in need of around 40 times more lithium oxide to meet the demands of this decade alone.
These sentiments echoed what Phillips said back in 2022:
“Every electric car needs a battery. Every one of those batteries is a lithium-ion battery. Just about everything else in the battery could be substituted with something else, but there’s no substitute for lithium… The bottom line is that the market is going to need way more than we can produce... The battery companies, until we build more plants like this, are going to require imported material.”
Valuation thoughts
As the market starts to notice the progress of the company’s lithium production and resource projects, it will start to take into account the economics more than today. As those properties get closer to coming fully online, the price will likely readjust. If Piedmont is actually going to be capable of producing 60,000 tonnes of lithium hydroxide for sale at current prices, that means it could produce around $4 billion a year at a minimum on the top line. The current market capitalization is just over $1 billion. If everything goes as planned, that's a bargain.
