To understand the value of Piedmont Lithium (NASDAQ:PLL), you need to understand the partnerships they have made.
Following a strategic investment and offtake agreement in January 2021, Piedmont is a partial owner of Sayona Quebec and its parent company Sayona Mining. The Sayona/Piedmont JV is set to start producing lithium spodumene concentrate in Q1 2023 from their NAL operation, which couldn't come at a better time. Lithium demand has hit all-time highs and is anticipated to stay elevated for the foreseeable future.
For the NAL mine, production is forecast to be 120,000 tons for 2023, with yearly nameplate capacity increasing to around 180,000 tons. Pilbara Minerals [ASX:PLS] (OTCPK:PILBF) recently sold 5000 tons of spodumene concentrate at US$7100/ton. So in 2023 alone, NAL lithium sales at those numbers would be $852 million.
The JV intends to develop an additional mine at Moblan, a deposit that is currently undergoing a new drilling campaign to expand the resource. In parallel, the JV plans to build a hydroxide refinery that will be fed from NAL and Moblan. The revenue from 2023 lithium sales will keep the JV well financed to execute these plans, which will greatly increase shareholder value. See the corporate presentation here.
It has been a long time since I wrote on Sayona Mining, but the premise that made me a believer in them still stands true. Management: James Brown and Allan Buckler are directors of Sayona Mining, and also the directors of Altura Mining (now Morella). They brought Altura from exploration stage to a fully operational lithium mine. They are second to none for discovering and developing lithium resources. Their experience is priceless for Sayona and Piedmont.
Morella corporation was born out of the ashes of Altura Mining. As many know, Altura's producing lithium mine was bought out by Pilbara Minerals in 2021.
This was a sad ending to an otherwise great success story of bringing a hard rock lithium operation from exploration to production. The low spot price for lithium and financing problems led to their downfall.
Now, Morella is a lithium exploration company once again, and have entered into an earn-in agreement with Sayona Mining to earn 51% interest in Sayona's massive (1095sq km) Australian tenements located in prime lithium districts.
From the announcement, "Sayona will retain the remaining project interest as well as the right to contribute to project evaluation and development in the future." *This is a key piece of information. Sayona will likely help be an offtake/finance partner for Morella in the case they discover a lithium resource.
With partner Sayona, and by extension Piedmont, Morella will have the financial and offtake support to become a producing mine, with ownership shared between Piedmont, Sayona, and Morella. All Morella has to do now is discover a lithium resource, and there is no better management team to do that. Some promising exploration announcements can be seen here, and here.
Their corporate presentation can be seen here.
By committing financial resources and working together with their JV partners, Piedmont is making what might be impossible for a single company, possible with two.
They partnered with Ghana-based Atlantic Lithium with a strategic investment and future financing in July, 2021. This deal greatly derisked Atlantic Lithium by providing needed capital. Piedmont initially invested $15 million to acquire a 9.47% equity interest in the company, **and to gain 50% interest in the project, Piedmont will spend $17 million to fund ongoing exploration and a definitive feasibility study, and an additional $70 million to fund the construction of the lithium mine.
If Piedmont fulfills these obligations, they will receive 50% of the future spodumene sales revenue when Atlantic starts producing lithium, scheduled for 2024. This will provide needed cash until Piedmont's Tennessee lithium hydroxide plant comes online, at which time the Ghana spodumene will be used as feedstock for conversion to hydroxide, which commands a much higher premium. In the end, both companies win.
The JV continues to surprise with excellent drilling results which will improve project economics. They are on their way to delineating a much increased resource, which already stands at a healthy 30.1Mt @ 1.26% Li20.
With Piedmont as their guide, Atlantic will follow in NALs success. See their presentation here.
Piedmont have realized that small lithium companies are stronger together. Using their strategy of partnerships, and the near term cash flow gained from high spodumene prices, their development plan is derisked.
Altura had a fully functional hard rock lithium mine producing spodumene concentrate. By bringing a lithium mine from concept to production, the board of directors gained lessons learned and expertise that will bring the NAL mine to production, and to nameplate capacity quickly.
Piedmont will share in this success. When constructing their lithium operations, they will have a blueprint to follow. This will prove invaluable in the construction and production of their Ghana lithium mine in 2024, and their own Carolina lithium mine in 2025. In my mind, this derisks Piedmont, and sets the stage for them to capitalize on high spodumene concentrate prices for the near term, and fund a lithium hydroxide plant that will intern unlock further shareholder value.
As a testament to Piedmont and the key role they will play in the near future, the U.S. Department of Energy ("DOE") awarded a $141.7 million grant to help fund the Tennessee Lithium Hydroxide plant. The United States is finally seeing the need for domestic production of battery-grade lithium hydroxide, which currently stands at only 15ktpa. Piedmont, when fully operational, will produce 60ktpa, or 4x the total current US output.
According to their corporate presentation, Piedmont is in a very secure cash position with US$118M in the bank. Upcoming revenue from NAL spodumene sales will add to this number in Q1 2023.
Piedmont is a small-cap commodity stock. Small-cap stocks have market capitalizations between 300 million and 2 billion. The big risks with these stocks are the lack of information available, fluctuating commodity price, possible bankruptcy, and low liquidity. Piedmont is currently a mining company without any revenue. Without revenue, the company may resort to raising capital via a rights issue, which will dilute their shares. This is unlikely as revenue from NAL should start flowing starting Q1, 2023.
Piedmont has all that is required to become the centerpiece of the next multinational lithium partnership. Some notable partnerships today include:
The market capitalization of these companies starts at 10x that of Piedmont, which is a great sign for investors.
Barron's rates PLL as a "Buy" based on 7 analysts. The 12 month price forecast predicts an average price of 105.61, representing a 79% increase from today's levels ($59 at 11/3/22).
In the lithium mining sector, sometimes you need to collaborate to succeed, and that is precisely what Piedmont is doing.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of PLL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.