Commodities & Metals

Good News and Bad for Lithium Stocks

Depending on your point of view, lithium stocks are either overhyped or underloved. Last month, analysts at Bank of Americas Securities reiterated Underperform ratings on two lithium miners: Livent Corp. (NYSE: LTHM) and Albermarle Corp. (NYSE: ALB).

At the same time, BofA Securities raised its price targets on the two stocks, even though the new targets were still well below the then-current price of the stocks. Since then, Livent’s shares have added another 40% and Albemarle’s have added 3.2%. At one point, however, Albemarle set a new 52-week high that was nearly 18% higher than its mid-August price.

The good news for the lithium miners on Thursday came in a report from JPMorgan that initiated coverage of Lithium Americas Corp. (NYSE: LAC) with an Overweight rating and a 15-month price target of $28 (C$35). In its report, analysts Tyler Langton, Michael Glick and Naomi Kim said that they expect lithium prices to remain supported by strong demand and “to lead to a greater supply/demand imbalance over the next decade.” They also note that Lithium Americas is “favorably” positioned to “take advantage of this price environment.” The company’s stock traded up by about 9.7% earlier in the morning before pulling back somewhat.

Before we get to more details of JPMorgan’s view on Lithium Americas and the lithium sector in general, let’s also note a Bloomberg report Thursday morning related to a recent agreement between a Softbank-controlled renewable energy firm and an Oregon-based maker of iron-flow batteries. Battery maker ESS has signed a deal with Softbank’s SB Energy to supply 2 GW of its iron-flow batteries for $300 million. The storage capacity of the batteries is large enough to supply 50,000 homes for a full day.

Iron-flow batteries do not use any toxic chemicals or scarce, expensive materials like cobalt. ESS batteries use iron salt and water. That’s it. Plus, it’s cheap, especially for grid-scale applications like storing electricity generated during the day by solar farms. A lithium-ion battery can cost as much as $350 per kWh of storage compared to an estimated cost of $200 (or less by 2025) for a similar amount of storage.

The iron-flow batteries are not expected to supplant lithium-ion batteries for transportation purposes, though, because each module is about the size of a 40-foot cargo container. According to Bloomberg, ESS is looking to begin trading publicly “within weeks” as a result of a SPAC merger.

Back to lithium. JPMorgan’s analysts say that lithium prices have rebounded from just under $5,700 per metric ton (tonne) in the summer of 2020 to $27,000 per tonne currently. The analysts are forecasting an average price of $22,500 per tonne in 2022, $20,500 in 2023 and $19,133 in 2025. Looking further ahead, for the three-year period between 2025 and 2027, JPMorgan forecasts an average price of $15,632 per tonne.

JPMorgan’s analysts recognize several risks to their rating and price target for Lithium Americas. First, obviously, is lower-than-forecast lithium prices. Delays and higher-than-expected construction costs at Argentina’s Cauchari-Olaroz project in which Lithium Americas is a 44.8% stakeholder are another. Third, an unfavorable ruling related to the company’s Thacker Pass project in northwestern Nevada, and fourth, the company’s potential inability to raise funds to support the Thacker Pass project.

Lithium Americas stock traded up about 7.3% at $22.03 in the late morning Thursday. The stock’s 52-week trading range is $8.95 to $28.75, and the consensus price target on the stock is $25.68. The market cap is about $2.7 billion. Over the past 12 months, Lithium Americas’ share price has risen by about 110%.

Albemarle traded up about 1.8% to $222.85, in a 52-week range of $84.57 to $253.10. The consensus price target is $229.81. Albemarle has a market cap of about $26.1 billion. Its shares have added almost 160% over the past 12 months.

Livent traded up about 1.8%, at $23.16 in a 52-week range of $8.52 to $27.28. The consensus price target is $24.44, and Livent’s market cap is around $3.7 billion. The company’s stock price is up about 157% over the past 12 months.