Lithium miners with assets that have a high after-tax net present value as compared to the current market valuation
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The big crash in lithium price has translated into lithium stocks trading at a deep valuation gap. It’s difficult to talk about the exact timing for recovery in lithium prices. However, there is no doubt that it’s the best time to buy lithium stocks. Once the reversal rally is underway, lithium stock can potentially skyrocket. Therefore, the best strategy is to buy now and hold with patience.
An important point to note is that the tight demand-supply story continues to hold true for lithium long term. Some analysts forecast that “lithium supply is expected to enter a deficit relative to demand by 2025.”
Further, the supply gap is likely to be acute by 2035 with supply being “at least 1.1 million metric tons, or 24% less than demand.” Clearly, lithium is poised for a strong comeback. Once that happens, some of the high-quality lithium miners will surge. This column focuses on three lithium stocks to buy that have millionaire-maker potential.
Piedmont Lithium (PLL)
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Piedmont Lithium (NASDAQ:PLL) has witnessed a massive correction of 75% in the last 12 months. However, its quality lithium assets will likely deliver value in the coming years. The deep correction is a good accumulation opportunity.
From an asset perspective, it’s important to note that Piedmont has a market valuation of $241 million. In comparison, the Ghana asset has an after-tax net present value of $1.3 billion.
Further, the Carolina and Tennessee assets have a combined after-tax net present value of $4.5 billion. Additionally, Piedmont has an in-production Quebec asset. The market valuation is small compared to the asset potential.
In terms of production target, Piedmont expects 113,000tpy of spodumene concentrate from Quebec. However, once all assets are operational, the target is to boost production to 525,000tpy of spodumene concentrate and 60,000tpy of lithium hydroxide. If this is associated with higher realized lithium prices, Piedmont will report robust free cash flows in the coming years.
Lithium Americas (LAC)
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Lithium Americas (NYSE:LAC) stock has been on fire with a rally of 42% in the last month. This comes after an extended period of correction on the back of plunging lithium prices. LAC stock, however, remains undervalued considering the asset potential. Current levels of $6.5 is attractive for fresh exposure.
In a major development, the company received conditional approval for a U.S. Department of Energy loan of $2.26 billion. The funds will target the construction of the first phase of the Thacker Pass project.
It’s worth mentioning that the Thacker Pass asset has the largest known lithium mineral reserve and resource in the U.S. The asset has an after-tax net present value of $5.7 billion. In the first phase of production, the average annual EBITDA is estimated at $1.1 billion. When both phases are commercialized, the annual EBITDA is likely to swell to $2 billion. With a prized asset and secured financing, LAC stock is a potential millionaire-maker.
Standard Lithium (SLI)
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With the asset quality in focus, Standard Lithium (NYSE:SLI) is another potential millionaire-maker lithium stock to buy. SLI stock has plunged 63% and trades at $1.2. With a few positive catalysts, SLI stock would be trading in double digits.
To put things into perspective, Standard Lithium has a market valuation of $216 million. In comparison, the company’s key asset has an after-tax net present value of $4.5 billion. It’s worth mentioning that the asset is home to North America’s only high-grade lithium brines. The challenge however is financing the project that requires a development capex of $1.28 billion. Once financing is secured, I expect SLI stock to skyrocket.
Another obvious catalyst is a reversal in the trend for lithium. Considering a long-term investment horizon, realized prices will be robust when the project is eventually commercialized. The deep correction, therefore, presents a golden accumulation opportunity.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
