Stock in exploration-stage
lithium miner Piedmont Lithiu has soared—by about 166%—since electric-vehicle behemoth T
esla hosted its
battery technology day on Sept. 22.
At the event, Tesla (ticker: TSLA) painted a picture of
future EV demand that implied the world needs a lot more EV-related materials,
including lithium. Now Piedmont (PLL) is using its recent share strength to raise money to fund growth.
On Monday, Piedmont announced plans to raise money by
selling stock. The company wants to sell up to 1.5 million American depositary receipts, or ADRs.
An ADR is, essentially, American stock in a foreign-listed company. Piedmont’s primary stock listing is in Australia, even though Piedmont’s assets are in the U.S. (Australia and Canada have investor bases that typically don’t mind investing in early-stage mining enterprises.) For Piedmont, one ADR represents 100 shares of underlying stock.
The sale has the potential to bring in roughly $45 million to company coffers, depending on the price discount offered on the sale. Piedmont has about $19 million in cash on its balance sheet, based on
recent filings.
The company might use the cash toward the hard rock mine it is developing in North Carolina. (Most of the world’s lithium today comes from evaporating salt from brine ponds.) Early phases of Piedmont’s mine should cost about $170 million, according to CEO
Keith Phillips.
Piedmont is also getting some money from Tesla. Piedmont stock soared
more than 200% on Sept 28, days after Telsa’s battery event, when Tesla signed a deal for five years of lithium-ore supply, with a possible extension for another five years. Deliveries from Piedmont to Telsa are expected to start around 2022.
The lithium sector is heating up, and
Barron’s recently
wrote positively about lithium miners. We prefer
Livent (LTHM), believing higher demand from EVs will drive higher commodity volumes for all miners, as well as higher lithium-linked commodity prices.
When we wrote about the miners, we focused on the established players, including SQM (SQM),
Albemarle (ALB), and Livent. Those three have an aggregate market capitalization of more than $19 billion. But there are riskier plays. Piedmont, with a market value of about $340 million, is one. Lithium Americas (LAC), valued at $1.2 billion, is another. Those two don’t have sales yet. Orocobre (ORE.Australia) is another small-capitalization lithium firm, though with some sales. It produces lithium from brines in Argentina, and has a market cap of about $640 million.
Orocobre stock is down 5% since Tesla’s battery event. Lithium Americas stock has climbed 42%.
Year to date, Piedmont shares are up about 250%. Excluding Piedmont, the other five lithium mining stocks are up about 77% year to date, on average, far better than comparable returns of the
S&P 500 and
Dow Jones Industrial Average.
To buy mining startups or exploration-stage companies, investors have to be confident in their ability to understand proven and probable mining reserves, along with how much the companies plan to spend before generating free cash flow.
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