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Piedmont Lithium: Speculative Buy or Strong Buy?

·4 min read

Piedmont Lithium (NASDAQ : PLL) is an Australian company that recently re-domiciled to the United States, in a move designed to place the company’s headquarters in the same country as most of its assets. The company is located in the Carolina Tin Spodumene Belt of North Carolina. According to PLL, this positions the company to be among the world’s lowest cost producers of lithium hydroxide.

It is expected that by 2030, there will be around 245 million electric vehicles (EV) on the road. That would account for about 30% of new car sales, and this percentage is likely to double to 60% by 2040.

Yet this growth in EVs is not possible without an increase in lithium-ion batteries which requires lithium, or more particularly, lithium hydroxide.

Agreement with Tesla

At the end of last year, the company signed an initial five-year agreement with Tesla (TSLA) for the supply of spodumene concentrate (SC6) from Piedmont's North Carolina deposit.

Piedmont will supply around 33% of its planned production of SC6 to Tesla. Those SC6 sales are anticipated to generate between 10% to 20% of PLL’s total revenues.

However, according to PLL, “The agreement is conditional upon Tesla and Piedmont agreeing to a start date for spodumene concentrate deliveries between July 2022 and July 2023 based on the development schedules of both parties.”

PLL’s proposed Lithium Mine in Gaston County

Piedmont Lithium intends to build a lithium hydroxide mine or concentrator in Gaston County, North Carolina. According to the scoping study that the company released last month, the initial cost of this project is estimated to be $838.6 million, and the company is looking at financing and strategic partnership options. (See Piedmont Lithium stock chart on TipRanks)

However, this project seems to be heading into trouble. According to a Reuters report from today, PLL has not applied for a state mining permit or a necessary zoning variance in Gaston County. This is in spite of the company telling investors since 2018 that it very much intends to do so.

The report also said that five of the seven members of the Board of Commissioners in Gaston County could block or delay the project “because Piedmont has not told them what levels of dust, noise and vibrations will occur, nor how water and air quality would be affected.”

Reuters quoted Tom Keigher, chair of the Board of Commissioners, as saying, “Piedmont has sort of put the proverbial cart before the horse. Why in the world would they make this deal with Tesla before they even have approval for the mine?"

Analyst’s Take on Piedmont Lithium

It is interesting here to note against this backdrop that Canaccord Genuity analyst Reg Spencer has rated the stock a Speculative Buy, with a price target of A$1.20 (U.S. $90). The analyst has pointed out two significant transactions that “could see the development of additional mines and chemical conversion facilities, and in our view, lead to significant increases in PLL's lithium production capacity beyond its planned 30ktpa [kilo tonnes per annum] LiOH project at Piedmont-Carolina.”

Now let’s look at these two transactions.

PLL’s Two Key Transactions

In recent weeks, Piedmont has been expanding operations.

On June 8, the company announced a ramping up in the production of mineral resources, including quartz, feldspar, and mica. Mining activity in these minerals targets a 40% increase in output. Later in June, Piedmont and its partner – Sayona Quebec, in which Piedmont owns a 25% stake – received approval from Quebec’s Superior Court to acquire North American Lithium. This acquisition will cost Piedmont C$23.5 million, in proportion to its share of Sayona.

And finally, in the first week of July, Piedmont announced that it will acquire more than 9% of IronRidge Resources, and 50% interest in that company’s Ghana-based lithium production.

According to Spencer, these transactions “highlight what is in our view a strategic, well-timed and low-cost plan to form a foundation for a significant increase in PLL's future LiOH production capacity...successful execution could see PLL emerge as one of the world's largest lithium chemical producers.”

Consensus among analysts on Wall Street is a Strong Buy based on 3 Buys. The average Piedmont Lithium price target of $88.33 implies approximately 74.8% upside potential to current levels.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.