Why Invest in Undervalued Lithium Stocks?
- The lithium mining industry is extensive. Lithium is used in everything from glass and ceramics to grease and polymers, it is even used in medicine for the treatment of bipolar disorder. However, the real growth potential for lithium is in batteries supporting three separate billion-dollar industries – smartphones, electric vehicles and energy storage. While batteries already make up 40% of the market for lithium, that number could grow to 65% over the next ten years.
- When talking about lithium’s demand, it is not just laptop batteries but the most important growth areas are in transportation (electric vehicle batteries) and renewable energy (grid storage). Most importantly, the growth in these areas will have a huge impact on demand because the type of lithium batteries used in electric vehicles and grid storage use much more lithium than those used in our laptop computers and mobile phones – pounds versus ounces. Macquarie Bank says “lithium is the new wonder resource in the mining sector,” and that “demand is expected to systemically outstrip supply in a few years, driven by an estimated 31% CAGR of EVs to 2021.”
- Goldman Sachs calls “lithium the new gasoline.” They forecast 22% electric vehicle (EV) penetration by 2025, and lithium demand for all EV applications could grow more than 11x by 2025.
- Electric cars have already taken the market by storm and with companies like Audi, BMW, Mercedes, Lexus, Volkswagen, and others either producing electric cars or in the process of developing them. That doesn’t even include tech giants such as Apple and Google entering the fray, which could reshape the automotive industry even further. Over the next two years, Twenty Five new makes and models of electric cars are expected to be released. BYD and Tesla currently lead global sales.
- Citi Research projects the global lithium battery market to be $40 billion by 2020. That’s a 10-year growth rate of more than 250%.
Which Lithium Mining Stocks to own?
With the booming lithium industry, many mining companies are now diversifying their resources and entering in lithium business. It’s very tricky to choose undervalued lithium stocks with great assets. The existing big three lithium producers: SQM (Chemical & Mining Co. of Chile Inc.) (NYSE:SQM), FMC Corp. (NYSE:FMC) and Albemarle (NYSE:ALB) – earn less than 20% of their revenues from lithium. These companies are somewhat limited in the rate they can expand capacity. Orocobre is likely to bring on only 35ktpa of LCE by 2019, and new lithium demand is expected to be a lot stronger than that. On the exploration and development side, not all lithium companies have simply staked claims. There are plenty that have conducted drill programs, have completed technical reports, or who even have the permits for their mine in hand. Lithium Americas (TSE:LAC), Galaxy Resources (ASX:GXY), European Metals (LSX:EMH), Pilbara Minerals (ASX:PLS), Altura Mining (OTC:ALTAF) (ASX:AJM), Nemaska lithium [CVE:NMX] (OTCQX:NMKEF), Bacanora Minerals (OTC:BCRMF) (CVE:BCN) and Lithium X (CVE:LIX) (LIXXF) – All of these are expected to come on as producers within the next few years prior to 2020, and only Galaxy (Sal de Vida) and Lithium X (80% owner of Sal de Los Angeles) have brine projects.
I came across a list of companies that have completed an Ni 43-101 or JORC compliant resource estimate for their projects. You can read a great summary of the 17 lithium miners with Ni 43-101 compliant resource estimates here. Some on the list are more advanced, and of course, it’s worth noting that technical reports are not infallible. Tim Oliver has written an excellent piece on the subject, which you can read here. Still, it’s worth taking a look at where some of the companies in the space are at with their lithium properties. I am particularly interested in finding the undervalued Lithium Stocks in Canada and present a list of stocks that I find interesting in terms of valuation or growth potential.
Lithium Americas (TSE:LAC) (OTCQX:LACDF) is a Canadian mining company founded on April 28, 2009, and headquartered in Toronto, Canada. They took over Western Lithium in September 2015.They have three main projects – joint ownership on the flagship lithium brine project at Cauchari-Olaroz in Argentina with LAC effectively owning 45.75%, SQM 45.75%, the Lithium Nevada Corp (formerly Kings Valley project) clay project in Nevada, and Hectatone Inc (manufactures organoclay products).
In 2012, LAC’s NI 43-101 compliant definitive feasibility study resources were an indicated 8.7 million tonnes lithium carbonate, and an indicated 26.3 million tonnes potash. The lithium grade is of a good quality similar to Orocobre at 666 mg/L.
The Lithium Nevada (Kings Valley) project is one of the largest lithium resources in North America. It is a clay resource, currently at the pre-feasibility stage of development with a production plan of 26ktpa.
Lithium Americas has USD 15 million in cash reserves (as of May 2016), Zero debt, 5 million liabilities. Cormack Securities price target is CAD 1.30.
Matt Bohlsen’s model shows an end of 2019 stock price target of CAD 1.31 2021 target of CAD 2.80, based on 45.75% share of 20ktpa production, at a lithium price of USD 10,000/t, cost of production of USD 2,500/t, and a P/E of 15.
The project is fully permitted (but requires some slight updates). Construction of the mine will begin in the first half of 2017 or earlier. Production is planned to begin early 2019, initially at 20ktpa, reaching 40ktpa by 2021.
Orocobre is a strong pure-play competitor, but it is likely to bring on only 35ktpa of LCE by 2019, and new lithium demand is expected to be a lot stronger than that.
The soon to be lithium producers are really all in a rush to fill the demand gap. Some will beat Lithium Americas to market, but they are spodumene or high-cost producers. Neometals (OTC:RRSSF) will produce spodumene concentrate in 2016 from its Mt Marion Lithium Project with partners Mineral Resources Ltd. (OTC:MALRF) and Jiangxi Ganfeng Lithium Co Ltd.
Nemaska Lithium (TSE:NMX, OTCQX:NMKEF)
Nemaska Lithium holds the Whabouchi lithium project in Quebec. Right now, in-pit measured and indicated resources at Whabouchi stand at 27.991 million tonnes at a grade of 1.57 percent Li2O, with inferred resources of 4.686 million tonnes at a grade of 1.51 percent Li2O.
Nemaska has all necessary permits to develop the Whabouchi project, and is currently in talks with potential funding partners to build the mine. The company recently secured its first commercial offtake agreement with Johnson Matthey Battery Materials (JMBM). It also received $12 million in funding from JMBM, completing the required financing for its Phase 1 hydromet plant.
Lithium X (TSE:LIX)
Lithium X only recently came onto the lithium scene, but one of its projects already holds a resource estimate. The company’s Sal de los Angeles project in Argentina was previously owned by Rodina Lithium, and as per a 2011 preliminary economic assessment, the project holds an inferred brine resource of 2.8 million tonnes of lithium carbonate equivalent grading 556 milligrams per liter of Li2O, and an inferred brine resource of 11.2 million tonnes of potassium chloride equivalent grading 6,206 milligrams per litre of potassium chloride.
Critical Elements (CVE:CRE)
Critical Elements is a junior mining company in advance exploration stage. Its Rose Lithium-Tantalum flagship project well located in Quebec with on-site access to infrastructures like: power line, road, airport, railway access and camp.
Critical Elements is currently advancing the Rose lithium-tantalum project in Quebec. The deposit consists of 26.5 million tonnes of indicated resources containing 1.3 percent Li2O equivalent, and 10.7 million tonnes of inferred resources containing 1.14 percent Li2O equivalent, 466480 metric tons of Li2O.
Pure Energy Minerals (CVE:PE)
Pure Energy Minerals (CVE:PE, otcqb:HMGLF) is focused on lithium-enriched brines that can be processed into battery grade chemicals. Pure Energy Minerals is advancing the Clayton Valley lithium brine project in Nevada. As of July 2015, the project holds an inferred resource of roughly 816,000 metric tons of lithium carbonate equivalent. The lithium-rich land is directly adjacent to the only active lithium mine in all of North America, which is operated by a major player in the industry.
Recent tests conducted by Pure Energy show that the chemical composition of its brine is similar to the published brine chemistry of its neighbour, the Silver Peak Mine. The Silver Peak Mine was the first lithium brine mine in the world, in operation since the late 1960’s. So this brine has been well tested as a commercial lithium producer, so the prospects are good for Pure Energy’s success. In fact, the company’s exploration work to date indicates the project may hold lithium resources of more than 800,000 metric tons of LCE.
On May 11, 2016 Pure Energy announced that it had commenced mini-pilot plant work with Tenova Bateman Technologies at its research and development center in Katzrin, Israel. Meanwhile, the company is conducting additional drill work at Clayton Valley in support of a preliminary economic assessment set to be completed in summer 2016. It is also the second company to sign a conditional lithium supply agreement with Tesla Motors (NASDAQ:TSLA).
Avalon Advanced Materials (TSE:AVL)
Avalon holds the Separation Rapids lithium property in Quebec. A 2002 resource estimate concluded that the project holds an indicated petalite resource of 8.9 million tonnes and an inferred petalite resource of 2.7 million tonnes, with both resources grading 1.34 percent Li2O, 0.007 percent Ta2O5 and 0.30 percent Rb2O.
Avalon completed pilot plant processing of a bulk sample from Separation Rapids in April.
Houston Lake Mining (CVE:HLM)
Houston Lake holds the PAK lithium project in Ontario, Canada. The company announced an updated resource estimate for the project in March 2016; PAK currently holds 7.89 million tonnes in measured and indicated resources grading 1.73 percent Li2O equivalent, in addition to 295,600 tonnes in inferred mineral resources grading 1.69 percent Li2O equivalent.
Glen Eagle Resources (CVE:GER)
Glen Eagle holds a number of precious metals projects, but also holds the Authier lithium project in Quebec. Authier has measured and indicated resources of 7.7 million tonnes grading 0.96 percent Li2) at a 0.5 percent cutoff.
However, Authier will soon be changing hands. On May 3, Glen Eagle announced that it had signed a letter of intent (LOI) with Sayona Mining (ASX:SYA) to sell the Authier project for $4 million.
Rock Tech Lithium (CVE:RCK)
Rock Tech Lithium holds the Georgia Lake hard-rock lithium project near Thunder Bay, Ontario. The project currently holds 3.19 million tonnes of indicated resources grading 1.10 percent Li2O, and inferred resources of 6.31 million tonnes grading 1 percent Li2O, according to a 2012 resource estimate.
In November 2015, Bacanora Minerals reported a 337 percent increase in indicated mineral resources for its Sonora lithium project. The clay-based lithium project is located in Mexico, and is owned through a joint venture between Bacanora and Rare Earth Minerals (LSE:REM).
Bacanora and Rare Earth Minerals have gotten plenty of attention for signing the first, albeit conditional, lithium supply agreement with Tesla. The company completed a prefeasibility study for Sonora in March 2016, indicating a post-tax NPV of $542 million, initial capital costs of $240 million, and a post tax IRR of 25 percent.
Canadian International Minerals (CVE:CIN)
Canadian International Minerals holds the Alberta lithium brine project in west-central Alberta. The Project is host to the multi-element Sturgeon Lake Brine Deposit, which has a National Instrument 43-101 Inferred Resource estimate of 2.049 million tonnes of Lithium Carbonate Equivalent (“LCE”).
On May 2, Canadian International Minerals announced it had signed a letter of intent to develop the project with Noram Ventures (CVE:NRM) to develop the Alberta lithium property. Noram has an option to earn a 50 percent interest in the project. The letter of intent was cancelled on June 10 by Noram Ventures after the initial sampling results from Noram’s 100% owned South Block Extension of its Clayton Valley Lithium Project showed positive indications. Noram’s Clayton Valley Lithium Project is located adjacent to Pure Energy’s lithium project and south of Albermarle’s Silver Peak mine that is North America’s only producer of lithium carbonate and lithium hydroxide.
Plateau Uranium (CVE:PLU)
Plateau Uranium is advancing its Macusani uranium project in Peru. However, this March, Plateau also released a lithium mineral resource estimate for the project.
Calculated within the defined uranium resource using a 75-ppm uranium cut off, the project has an indicated lithium resource of 52.3 million tonnes at 0.13 percent containing 67,000 tonnes of Li2O; meanwhile, it has an inferred lithium resource of 87.7 million tonnes at 0.12 percent containing 109,000 tonnes of Li2O.
“By-product lithium production has the potential to add value to the Company’s compelling uranium story that already has lowest quartile potential operating costs of $17.28/lb U3O8,” the company stated.
Victory Ventures Inc (CVE:VVN)
Victory Ventures Inc. has submitted four metallic and industrial exploration applications to the Province of Alberta to acquire a 100% undivided interest in four contiguous townships northwest of the Fox Creek-Swan hills area in the Peace River Arch. , the acquisition will cover an area approximately 36,800 hectares (91000 acres) or about 400 square km (144 sq. miles). There are more than 800 well sites within the acquisition area as documented by the Province of Alberta of which some are producing wells with lithium content in well brines. The acquisition area is fully serviced with major roadways, power, wellheads, and several waste water well injection sites. An exploration program focusing on the Lithium brines in wells will be developed after the acquisition and transfer of the minerals rights to the Company.
Lithium Stocks with High Grade Assays
Investors interested in the lithium industry are always interested in discovering Lithium stocks with high grade assays. There is also a full research report by Rockstone Research that can be accessed at http://rockstone-research.com/images/PDF/92Resources3en.pdf (English PDF) and http://rockstone-research.com/index.php/en/research-reports/1152-Extremely-high-grade-lithium-assays-from-surface (English web version).
Alset Energy Corp.
Alset Energy Corp. (https://alsetenergy.ca/) published high-grade lithium assays from its hard-rock lithium property in Ontario on May 3oth, 2016 published assays from its first surface sampling program: 1.23%, 1.44%, 2.19% and 6.38% Li2O, and on May 25th, 2016: 0.95%, 1.4%, 1.45%, 1.47% and 1.75% Li2O (average: 1.4% Li2O). The total average of their sampling results is now at 2.03% Li2O. The historical North Zone at their Wisa Lake property is host to a non-NI 43-101 compliant historical resource of 330,000 tonnes grading 1.15% Li2O (Lexindin Gold Mines Ltd., Manager’s Report, 1958 (as referenced in Ontario Geological Survey, Open File Report 6285, Report of Activities 2012)).
Read more at http://www.stockhouse.com/news/press-releases/2016/05/30/alset-energy-samples-up-to-6-38-lithium-oxide-at-wisa-lake#rCHLWKOcRzsGExmX.99
During the last 17 trading days since publication of the first assays, Alset’s stock increased strongly with high volumes and has a current market capitalization of $31 million CAD.
92 Resources Corp. (CVE:NTY)
On June 7th 2015 , 92 Resources Corp. published the assays from a first sampling program on its fully owned Hidden Lake Lithium Project near Yellowknife, NWT, Canada. The results confirm extremely high-grade lithium right at surface: 1.65%, 2.45%, 2.69%, 2.89% and 3.06% Li2O (average: 2.54 Li2O). 92 Resources has 25% higher grades than Alset Energy Corp.
92 Resources Hidden Lake’s historic lithium grades, and especially recent high-grade assays, are similar or better than advanced spodumene deposits in Canada (Nemaska), Australia and elsewhere. 92 Resources has a current market capitalization of $4.72 million CAD. Hence, a similar market capitalization to Alset Energy Corp. could be expected for 92 Resources, which translates into a short-term appreciation potential of 700%.
The real problem now is to get the drilling financed and I believe that that is the main reason the SP is so low. Probably some bigger players are interested to help financing but they want a large(r) piece of the pie. So they move the SP down. This can be done rather safely as no news is expected on the short term. Waiting for drilling approval and financing of the drilling. They have about 1m$ in cash but I guess that is not enough for (significant) drilling. So I guess market is playing “hard ball” with NTY and wants to get in cheap for the drilling.
Really believe NTY has done a great job in 2016. Great grab samples, new dykes detected, and detailed channel sampling. We have, as they said, just touched the “tip of the iceberg” and now have to start drilling to proof the resource. Financing at 20ct a share would have been much nicer then at 10ct a share. But we will need money to move (or rather drill) forward.