Lithium is used in lithium-ion batteries for electric vehicles.
Krisztian Bocsi/Bloomberg
Miner Lithium Americas got a boost from Wall Street on Wednesday with a bullish call. B. Riley analyst Lucas Pipes launched coverage of the stock with a Buy rating and $25 price target.
Shares of Lithium Americas (ticker: LAC) were up 11.2% to $15.95 in afternoon trading. The S&P 500 and Dow Jones Industrial Average were up about 0.4% and 0.2%, respectively.
Lithium Americas is a development-stage miner, but Pipes calls its assets compelling. He particularly likes the economics of the company’s two projects, one under construction and one in the planning stages.
The company is building an project in Argentina that will produce lithium by letting salt brines evaporate and is working on a two-phase project in Nevada called Thacker Pass, where ore would be mined.
Thacker Pass really appeals to Pipes because the project is in the U.S.; most lithium is mined in South America and Australia. “Domestic projects offer several inherent advantages over overseas imports, namely lower freight rates and sourcing risk,” he wrote in a Wednesday report. “These advantages will, in our opinion, lead to local lithium projects, like Thacker Pass, outperforming foreign suppliers in the long run.”
His $25 price target, well above where shares are trading, is based on his assumption that lithium-carbonate prices, a key price benchmark, will average around $11,000 a metric ton.
Today, lithium carbonate pricing is at roughly $13,000 a metric ton in China, up about 140% over the past six months. Prices are on the move partly because more electric vehicles are being built—and sold—around the world. The lithium industry will have to expand production to keep up.
Lithium isn’t the only material in high demand because of EVs. So is copper, which is inside of electric motors. According to calculations by Morgan Stanley analyst Adam Jonas, EVs will drive demand for an incremental 1.6 million metric tons of copper by the end of the decade. Worldwide demand is about 20 million metric tons today.
The global market for lithium products is roughly 360,000 metric tons a year with a third going to the EV market. Using Jonas’ assumptions regarding EV penetration, lithium production would have to rise roughly fourfold in the same period.
While that’s a plus for lithium miners, the pace and amount of lithium supply additions, as well as the number of EVs sold, will determine the long-term stock price performance of the mining sector.
For now, investors are optimistic. Lithium Americas stock, for example, is up almost 500% over the past year.
Wall Street is optimistic, too. Roughly two-thirds of analysts covering Lithium Americas stock rate shares Buy. The average Buy-rating ratio for stocks in the Dow is about 60%. The average analyst price target is about $21 a share, a little below Pipes, but above where shares are trading.
Write to Al Root at [email protected]
