‘Lithium Batteries Are the New Oil,’ According to Elon Musk — Here Are 2 Stocks to Take Advantage
Not long ago, data was being touted as the ‘new oil,’ while in some quarters that epithet has been bestowed at times on copper, or even, fresh water. However, according to a statement made by Elon Musk, ‘lithium batteries are the new oil.’
That may not be such a surprising take, considering that lithium plays a crucial role in the rechargeable battery technology needed to power electric vehicles (EVs). While Tesla currently sources its lithium from several producers, it is also in the process of establishing its own lithium production facilities. Currently, a lithium refinery is under construction in Texas, with an anticipated completion date in 2024. Musk has publicly stated that the goal is for this facility to produce enough lithium to support the production of approximately one million EVs by 2025.
But it’s not only Musk eyeing an opportunity in lithium production. Other, less heralded firms are also in the game, and of course, this opens up possibilities for investors.
Against this backdrop, we’ve used the TipRanks database to locate two Buy-rated stocks that are involved in lithium production and could take advantage of the growing demand for the light metallic element. Let’s check the details.
Atlas Lithium (ATLX)
The first lithium stock we’re looking at is Atlas Lithium, a company based in Belo Horizonte, Brazil. In fact, the firm was known as Brazil Minerals until it rebranded last October with the new name reflecting its main priority.
Atlas focuses on mining lithium and other battery metals and has under its belt the largest hard-rock lithium mineral property portfolio in in the country. With ten drilling rigs operating, the company plans on producing 150,000 tons of lithium concentrate per year.
“Plans,” however, might be the fitting word here, as there might be little to no revenue generation for a while. It’s the future of lithium production that is enticing here, and to that end the company has been bolstering the balance sheet to make that a reality.
Earlier this year, the company secured a big investment from Lithium Royalty that will allow it to forge ahead with its drilling activities. In return for a 3.0% GOR royalty on the Das Neves Lithium Project, Atlas Lithium pocketed $20 million. And more recently, in exchange for its restricted shares, in July, the company got an investment of $10 million from four investors with industry experience.
Sizing the opportunity at play here, H.C. Wainwright’s Heiko Ihle points out to investors the jewel in the crown amongst Atlas’s portfolio while seeing meaningful catalysts for the shares ahead.
“Atlas Lithium’s Minas Gerais project includes 57 mineral rights across 58,774-hectares. In our view, this vast land package provides large-scale lithium exploration potential over the immediate and longer-term. In short, when analyzing Atlas’ land tenure, the firm’s Das Neves project continues to stand out as an emerging high-grade lithium deposit with strong development potential,” Ihle opined.
“Although Das Neves does not have a published mineral resource estimate at present, it is our view that drilling to-date has displayed meaningful economic grades of lithium over strong intervals. In turn, we see significant re-rating potential through the publication of a Maiden Resource Estimate in 3Q23, with further de-risking expected by way of a Preliminary Economic Assessment (PEA) after the resource estimate,” Ihle went on to add.
These comments form the basis for Ihle’s Buy rating while his $56 price target suggests shares will climb 118% higher over the coming year. (To watch Ihle’s track record, click here)
Overall, one other analyst has recently chimed in with a review of this stock, and they are also positive, giving ATLX its Moderate Buy consensus rating. At $51.50, the average target implies shares will double in value over the 12-month timeframe. (See ATLX stock forecast)
Sigma Lithium (SGML)
Sigma Lithium touts itself as being ‘dedicated to powering the next generation of electric vehicles’ and that must have pricked up Elon Musk’s ears. Earlier in the year, there were rumors Tesla was mulling over a takeover of the São Paulo-based firm. Tesla is not the only company that has been sniffing around. Sigma has been linked with several others, including Rio Tinto, Ganfeng Lithium and Saudi Arabia’s PIF sovereign wealth fund.
So far, nothing has come of the rumors, and in the meantime, Sigma has been ramping up production at its Grota do Cirilo project in Brazil, which it brought to completion without any major hiccups, and is 100%-owned by the company.
Sigma recently maintained its outlook for production of 130,000 tonnes of chemical grade triple zero green lithium by the end of the year. The company also successfully delivered its first shipment, comprised of 15,000 tonnes of triple zero green lithium and 16,500 tonnes of green by-products, at the end of July, for which it received a $31.8 million pre-payment in Q2. The company’s second shipment of 15,000 tonnes is at Vitoria Port in anticipation of departure.
Several near-term catalysts ahead underpin BMO’s Joel Jackson’s positive Sigma thesis, while the analyst makes the case that all the M&A talk might be more than just that.
“First,” says Jackson. “SGML expects 33kt of spod concentrate to ship out by the end of September — 15kt (overall second shipment from the mine) is leaving imminently and the next 18kt by end of month (plus more tailings will get shipped out). Second, a resource update including the phase 4 and phase 5 areas is expected in the coming days (as of September 5). Third, the phase 2/3 feasibility study is expected over the next two months. Fourth, potentially more commercial agreements and/or product trials/partnerships (we wouldn’t be surprised to see some arrangements with OEMs, maybe in Europe). Fifth, we surmise there could be an update on M&A sooner than later.”
“To us, it continues to appear that management is a willing seller,” Jackson went on to add on the matter. “We assume there is a process underway though perhaps potential acquirers still need to see a little more to pay the price management wants, i.e., around the operating cost profile, grade quality, the ability to dry-stack tailings, etc.”
All told, Jackson rates the shares as Outperform (i.e., Buy) while his $48 price target suggests upside potential of ~45% from current levels. (To watch Jackson’s track record, click here)
Elsewhere on the Street, the stock garners an additional 2 Buys, enough for a Strong Buy consensus rating. The $47.93 average target is only slightly lower than Jackson’s objective and set to generate returns of ~45% in the months ahead. (See SGML stock forecast)
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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.
