North Carolina Lithium for Growing Battery Market

Leadership from Piedmont Lithium Ltd. (PLL:  Nasdaq, PLL:  AX) took a virtual victory lap through the 121 Mining Investment Conference.  The company recently raised $57.5 million in new capital through the sale of 2.3 million American Depository Shares (ADS).  Each ADS consists of 100 shares of Piedmont’s common shares, which are listed on the Australia Exchange.  The mineral development company plans to use the money to push forward with plans to mine lithium from assets in North Carolina.  It will be the first time in decades that lithium has been dug out of U.S. hillsides.  The company owns 2,200 acres along those hillsides that is expected to yield 22,700 tons per year for 25 years. 

A recent report by industry analysts at Roskill suggests that demand for lithium could grow by 20% per year through 2030.  The fires of demand have been ignited by adoption of electric vehicles, all powered by lithium ion batteries.  Roskill pegs the battery market as at least three quarters of lithium demand by 2030.   

Piedmont is not the only producer to see the opportunity.  New supply is expected to come along from existing mines as well as new sites under development.  Indeed, there is so much lithium resources under development some analysts have expressed concerns about downward pressure on prices.  Lithium prices had already pulled back from peak prices in 2018, but appear to have stabilized in a range of US$8,000 to US$10,000 per metric ton for high quality lithium suitable for batteries.  Even though lower, relatively firm prices make it easier for new comers to configure a profitable operation.

Besides the balancing act between supply and demand, the lithium market is being shaken up by end users integrating back into supply.  Piedmont Lithium is among the first to benefit by the trend.  In September 2020, at its battery day event Tesla, Inc. (TSLA:  Nasdaq) announced a five-year commitment to buy lithium concentrate from Piedmont’s North Carolina mine.  Tesla has bragged of eventually controlling its own lithium sources and plans to develop its own processing technology.  Piedmont’s spodumene concentrate will be needed until Tesla has the kinks worked out of its process and has secured its own lithium resource.  It is notable that Tesla is more experienced in making batteries than in mining lithium.  Piedmont on the other hand has plenty of hands on deck who know mining and refining of metals. 

Proceeds from Piedmont’s offering will support completion of additional test work and a final feasibility study that will help secure financing for capital investment in a mine and processing facility.  Once in place, the company expects to mine around 160,000 metric tons each year and refine it to lithium hydroxide.  The company is targeting the second half of 2022, for its first shipments to Tesla.  It is a fixed price contract, but Piedmont management anticipates economies in operating costs, boosting their confidence in profits.

For investors squeamish at the sight of red ink’ should probably steer clear of Piedmont. The company has yet to record revenue from any of its resource development projects.  Thus Piedmont remains reliant upon capital resources to support development work.  The company used up $1.2 million of its cash kitty in the three months ending September 2020.  Investors can expect the ‘cash burn’ to increase in the coming months as management moves forward with engineers, construction companies and equipment suppliers. 

Experience on Piedmont’s team helps mitigate execution risk in the company’s strategic plan.  With a proven resource and a strong off-take agreement in hand management’s ability to deliver on promises might be investor’s greatest concern.

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.