Junior rare earth miner Piedmont Lithium (NASDAQ:PLL) stock was a relatively obscure developmental stage miner until it exploded on the news of a supply deal with electric vehicle (EV) giant Tesla (NASDAQ:TSLA). The EV revolution continues to accelerate as even legacy automakers like General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) have fully embraced the movement. EVs replace the combustion engine with batteries—lots, and lots of batteries (over 7,000 cells in a Tesla Model 3).
Batteries are the most expensive and crucial component of an EV. While the race to create faster charging, cheaper, safer, and more efficient EV batteries is a work in progress, they all need lithium. The world’s largest lithium supplier Albermarle (NYSE:ALB) is already sold out for 2021. This is why developmental stage lithium miners are seeing speculative price moves higher. Keep in mind, most of these companies have no revenues, heavy capex, and regulatory hurdles. However, when Europe’s largest automaker Volkswagen (DE:VOWG_p) (OTC:VWAGY)) (with over 19 million cars produced in 2019) plans to have all its vehicle models electric by 2030, it’s prudent to start looking early for potential lithium suppliers that can meet worldwide demand. Speculative investors looking to get in on the lithium segment can watch shares of PLL for opportunistic pullbacks.
The Merchant Project
The Company’s most ambitious projects are based out of North Carolina located in the Tin-Spodumene Belt (TSB), which is well known for its lithium deposits as its produced lithium since the 1950s. Feasibility studies have indicated potentially 27.9Mt combined resources. The Company has two projects to generate revenues. The first is the Merchant project, which would require the construction of a chemical plant that converts spodumene concentrate to battery-grade lithium hydroxide. Most lithium miners have to sell or outsource rare earth elements to merchant spodumene converters to produce the battery-grade lithium, which is expensive. By creating its own converter plant, the Company can produce its own battery-grade lithium. The capex for this project is estimated at $377 million.
Sayona Mining Partnership
This would require purchasing material from a third party. The Company entered a strategic partnership and supply agreement with Sayona Mining (ASX:SYA) to purchase a 19.9% equity stake in Sayona and a 25% stake in Sayona Quebec to supply the greater of 60K t/y or 50% of Sayona Quebec’s spodumene concentration production at market prices. The deal is expected to close in Q1 2021. Piedmont estimates the TSB chemical plant could generate 22,720t of battery-grade lithium hydroxide annually. The Company also changed its domicile from Australia to the U.S. This project seeks to establish Piedmont as the domestic alternative to Chinese merchant spodumene converters.
The Integrated Project
The big project is aptly called the Integrated Project. The Company would buildout the mine and concentrator to mine its own deposits for spodumene concentrate to convert to battery grade lithium (lithium hydroxide) in a true vertically integrated model. The capex for mine/concentrator is estimated at $168 million. Having all the pieces in one place dramatically improves efficiencies and costs resulting in greater margins. Piedmont estimates the average lithium hydroxide production under the Merchant Project to generate 22,720 tons but the average annual spodumene concentrate from the Integrated Project to be 160,000 tons. With the Merchant Project alone, the average cash cost of lithium hydroxide production would be $6,689/t. However, the Integrated Project brings that cost down to $3,712/t. Piedmont assumes an average long-term lithium price of $12,910/t averaged out over the 25-year lifespan of the projects. Keep in mind that current pricing has been chopping between $8,300 to $9,000/t.
Tesla Supply Agreement
On Sept. 27, 2020, Piedmont Lithium revealed a 5-year supply deal with Tesla to supply 160,00 tons of high-purity lithium ore mineral. Under the agreement, Tesla will purchase 160,000 tons annually of spodumene concentrate (SC6) from Piedmont mines in North Carolina. Piedmont states this agreement marks the first U.S. domestic lithium supply chain order. The five-year fixed-cost deal requires deliveries to start between July 2022 and July 2023 based on the development schedules of both companies. The biggest undisclosed question is what the fixed-price is that Tesla agreed to pay? Nonetheless, the Tesla news immediately launched shares higher giving it a Tesla halo premium. The execution of the plan is what awaits. However, in order to finance the Integrator Project, the Company will likely have to issue more shares and further dilute the float with additional secondaries. With that in mind, keep an eye on deeper opportunistic pullback levels if considering a speculative investment.
PLL Opportunistic Pullback Levels
We use the monthly and weekly rifle charts to provide a wider time frame price analysis for shares of PLL. The monthly rifle chart has been in a stochastic mini pup uptrend with a rising 5-period moving average (MA) support near the $35.40 Fibonacci (fib) level. The monthly upper Bollinger Bands (BBs) sit at $50.63. The weekly rifle chart has a pup breakout and a stochastic mini pup with rising 5-period MA support at the $44.86 fib. The weekly upper BBs sit at $56.72. The prior spinning top doji formed a weekly market structure high (MSH) trigger under $42.59. The daily formed a market structure low (MSL) buy trigger above $25.60. While the weekly rifle chart is very bullish, a MSH trigger can provide opportunistic pullback levels at the $44.86 fib, $42.08 fib, $38.18 fib, $35.40 fib, and the $31.86 fib. Deep opportunistic pullback levels sit at $27.30 to $21.64 level fibs. Keep in mind, this is a speculative lithium producer play that gained the halo effect and premium thanks to the Tesla supply deal with speculation of a potential acquisition. Be wary of any sharp spikes as they often precede a secondary offering announcement. The transparency has already unfolded and needs follow through execution fundamentally. The upside trajectories range from the $54.75 fib up through the $79.01 fib.