With the long-term trend toward electric vehicles continuing to gain momentum, I’ve continued my search for a high-quality lithium play for our portfolio. I believe I’ve found a standout in Piedmont Lithium ADR (PLLL), asserts resource sector expert Brien Lundin, editor of Gold Newsletter.
The Australian-listed company has ADRs listed on the Nasdaq and an American spodumene project in North Carolina located along the Carolina Tin-Spodumene Belt. For the uninitiated, spodumene is the hard-rock source of lithium that, along with the lithium brines of South America’s Lithium Triangle, accounts for most of the world’s lithium production.
And while the majority of spodumene production comes from Western Australia, the U.S. address of Piedmont’s flagship project offers some significant advantages. Chief among these is proximity to all needed infrastructure, as well as to nearby EV manufacturing plants.
In spite of some weakness in spot lithium prices in 2018, contract prices for lithium carbonate and lithium hydroxide remain near historically high levels. Of those two lithium end products, lithium hydroxide is the higher-value product and a more suitable input for nickel-intensive lithium ion batteries.
Lithium hydroxide is more cost-effectively produced from spodumene than from lithium brines. Moreover, lithium hydroxide carries about a $2,000/tonne premium compared to lithium carbonate.
Given the EV market’s movement towards nickel-intensive battery designs, demand for battery-grade lithium-hydroxide is expected to grow from 20,000 tonnes per year to 400,000 tonnes per year by 2027.
According to a recent PEA Piedmont produced on its lithium project, it offers a low-cost supply of spodumene. Its $193/tonne net cash costs put it at the low end of cost curve for the world’s lithium concentrate projects. That’s also true of the cash production costs for lithium hydroxide from the project. Those are estimated at $3,111/tonne versus about $5,300/tonne for a typical spodumene mine and $6,165 for a lithium brine operation.
The project’s current resource contains 16.2 million tonnes of 1.12% lithium oxide. That’s enough to make 170,000 tpy of 6.0% spodumene concentrate and 22,700 tpy of lithium hydroxide. The deposit will also kick off saleable quantities of quartz, feldspar and mica that will help defray project costs.
To give you a sense of the potential here, the PEA pegged the project’s after-tax NPV at $888 million, or more than 17 timesPiedmont’s current market cap.
The one thing the deposit currently lacks is scale — it’s on the small side compared to other spodumene deposits. That’s in the process of changing, however, as a recently completed Phase 3 drilling program included 15 holes drilled outside the current resource and a Phase 4 program is planned for Q2 2019 that could upgrade the resource by as much as 50%.
To fund this and other work on the project, Piedmont recently announced an A$12.2 million placement that will see the issuance of 111 million shares priced at A$0.11 per share. The share price weakness that will likely attend this placement gives us a terrific entry point for this stock.
With the advantages that accrue to an infrastructure-intensive locale like North Carolina, an upcoming expansion drill program and more targets available for testing on a large land position, Piedmont is ideally positioned to deliver leverage on rising lithium prices. The company’s a buy at current levels.
