The automotive sector is undergoing a transformative shift from traditional internal combustion engines to electric power, driven by a multitude of factors. Amidst widespread discourse on this transition's effectiveness and feasibility, one critical element often remains overlooked: lithium. Essential to the functionality of electric vehicles (EVs), lithium-ion batteries are so integral that Elon Musk has famously dubbed them “the new oil.”
Musk's predictions have a track record of accuracy, warranting attention. His enterprise, Tesla, is accelerating the development of its novel lithium refinery along the Texas Gulf Coast. Upon completion, this venture will crown Tesla as North America's premier processor of battery-grade lithium. With an investment of $365 million, the refinery's initial 2025 operational target has advanced to late 2024, aiming to generate sufficient lithium for 1 million EVs per year.
The demand for battery-grade lithium extends beyond EVs, encompassing essential everyday electronics like laptops, tablets, and smartphones. Recognizing this, Musk envisions his burgeoning Texas lithium operations as a veritable “money-printing machine.”
This burgeoning market presents a golden opportunity for investors. So, we've identified two undervalued lithium stocks, each trading under $10, that are poised for success according to some Wall Street analysts. Let's delve into the specifics.
Standard Lithium (SLI)
First, we turn our attention to Standard Lithium, a trailblazer in mining and exploration based in southwestern Arkansas. The company's focus is on two promising lithium mining endeavors within the Smackover formation, a vast, porous limestone bed extending from east-central Texas to the Florida Panhandle. This region, rich in bromine brine deposits, is now acknowledged as a treasure trove of premium lithium.
Standard Lithium is uniquely positioned to capitalize on this resource, thanks to pre-existing brine extraction facilities in the area. Through strategic collaboration with chemical titan LANXESS, Standard Lithium is set to inaugurate its premier commercial lithium extraction plant, the Phase 1A Project. Following promising feasibility studies in the third quarter of 2023, the company anticipates a definitive investment verdict by the first half of 2024, eyeing 2026 for the onset of commercial production.
Beyond Phase 1A, the company's greenfield venture, Southwest Arkansas (SWA), holds immense potential. Preliminary assessments suggest a productive lifespan of 20 years, yielding up to 30,000 tons per annum (tpa) of top-tier lithium hydroxide. Moreover, recent exploratory drilling within the Smackover formation has uncovered North America's richest lithium brine concentration to date.
Analysts, including Roth Capital's Joseph Reagor, have shown enthusiasm for Standard Lithium, endorsing a “Buy” rating with a prospective one-year surge of an impressive 167%. The consensus is a resounding “Strong Buy,” with a forecasted 140% growth over the next 12 months.
Lithium Americas (Argentina) (LAAC)
Our next focus is Lithium Argentina, an offshoot of the original Lithium Americas, established in 2009. Following a strategic bifurcation earlier this year, Lithium Argentina now oversees an array of lithium projects. Its crown jewel, Caucharí-Olaroz, represents the largest greenfield lithium brine asset in over two decades.
The company's portfolio is robust, with projects like Pastos Grandes and Sal de la Puna in the pipeline. Stifel's analyst Cole McGill highlights the company's potential to scale significantly, justifying a “Buy” rating and an ambitious 164% projected growth. Currently, the stock enjoys a “Moderate Buy” status, with an anticipated 80% appreciation within a year.
These insights underscore the immense potential within the lithium market, propelled by the relentless evolution of the automotive industry and the insatiable global demand for lithium-ion batteries.
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