Commodities & Metals

Lithium Americas, Microvast, Romeo Power, Standard Lithium: Dead Batteries?

Paul Ausick

Published: August 18, 2021 12:26 pm

Last week, BofA Securities reiterated its Underperform rating on lithium products maker Livent Corp. (NYSE: LTHM). A week earlier, the analysts had taken the same action on Albemarle Corp. (NYSE: ALB), citing “significant hype in current equity valuations” and added that “expectations are ahead of the most likely outcomes.”

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In both cases, however, BofA lifted its price targets, from $18 to $19 on Livent and from $121 to $140 on Albemarle. Both already trade well above those targets. BofA is not sanguine about the industry’s or either company’s ability to live up to such high expectations: “In the case of [Albemarle] and [Livent] however, we find equity values bake in substantial premiums to what companies can achieve based on their footprints and market growth and reiterate Underperform.”

Supply has been tight recently and, while prices have begun to improve, BofA expects supply to double next year, primarily from Albemarle, Chile-based Sociedad Química y Minera de Chile S.A. (NYSE: SQM) and Canada-based Lithium Americas Corp. (NYSE: LAC), as well as others, primarily in Australia. That does not leave much room for new entrants into the lithium production sector.

Here’s a brief look at Lithium Americas and three more lithium stocks.

Lithium Americas reported second-quarter results almost two weeks ago. The company said it had no revenue and a net loss of $19.3 million ($0.16 per share). A total cash pile of $505.2 million mitigated the damage, and the stock price added about 18% in the following week. This week has been a different story, however, with the shares returning about 80% of the prior week’s gain. As of late morning Wednesday, the shares had added about 8.8% back.

Late last month a federal judge in Nevada ruled that Lithium Americas could begin excavation work at its Thacker Pass mine in Nevada, about 35 miles north of Winnemucca. However, the excavation was approved in order to determine whether the proposed mine site includes about a quarter of an acre of land (of about 18,000) that may be of cultural and religious importance to the Reno-Sparks Indian Colony and Atsa koodakuh wyh Nuwu/People of Red Mountain. The judge did not rule on the larger issue of whether the Trump administration erred when it approved the project in early January.

Lithium Americas does not expect to complete construction at Thacker Pass until early next year and does not provide an estimate for when it may begin to realize revenue.

Of 10 brokerages covering the company, eight give the stock a Buy or Strong Buy rating. Based on a median price target of $21.96 and a recent price of around $16.70, the upside potential is about 31%. The stock’s 52-week range is $6.30 to $28.75. The Lithium Americas market cap is $2.02 billion.

Standard Lithium Ltd. (NYSEAMERICAN: SLI) is based in Canada and is focused on developing its  150,000-acre Lanxess Project in the brine region of southern Arkansas. The company has developed a process that its says can “vastly reduce the recovery time of extracting lithium from brine from as long as a year for conventional evaporation pond processing to just several hours. The process may also prove to be much more environmentally friendly with a significantly smaller footprint–compared to the conventional evaporation pond processes.”

Standard Lithium will not extract the brine directly but has a supply contract with a commercial operator. According to the company, the Arkansas oil and gas commission produced an average of 9.4 billion gallons of brine annually between 2010 and 2016. A preliminary economic assessment targets production of 20,900 metric tons of lithium carbonate from 3.14 million metric tons of “indicated resource” on the 150,000-acre project.

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The share price rose above the August 2018 IPO price for the first time in more than two years in May. By August 13, it had increased by more than 850% from the IPO price, and it remained 750% higher Wednesday morning. The stock began trading on the NYSE American exchange in mid-July.

In May, Standard Lithium filed its nine-month financial statement with the Canadian regulator, reporting a March quarter comprehensive loss of C10.3 million and a nine-month comprehensive loss of C$22.2 million. The company reported C$30.26 million in cash at the end of the quarter and total assets of C$77.1 million.

There are three brokerage ratings on the stock, two at Buy and one at Hold. The median price target is C$4.30, and the stock traded at more than double that level just before noon Wednesday. The stock’s 52-week range is $0.79 to $9.09, and the company’s market cap is $1.15 billion.

Romeo Power Inc. (NYSE: RMO) manufactures lithium-ion battery modules and packs for commercial vehicles in the United States. The company came public in late December following a SPAC merger that valued the company at $900 million and raised $394 million in proceeds.

As was the case with many SPAC mergers, Romeo Power’s share price skyrocketed to near $39 following the IPO but has plunged since then. Shares traded at around $4.70 Wednesday morning.

When the company reported June quarter results on Monday, it missed revenue expectations badly, reporting sales of $926,000, compared with estimates of $2.37 million. The loss per share came in at $0.22, below the estimate of $0.16. Since its IPO, the stock has traded in a range of $4.60 to $38.90 and has a consensus price target of $12.00.

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Microvast Holdings Inc. (NASDAQ: MVST) manufactures fast-charging lithium-ion batteries for commercial and passenger vehicles. The company came public in late July in a SPAC merger that valued the firm at around $3 billion and generated about $822 million cash proceeds.

The other thing the IPO accomplished was to rev up the WallStreetBets readers, who helped push the stock to a post-IPO high of almost $14. Even though the stock’s trading volume is only around 2.3 million, the stock still drives a lot of comments on r/wallstreetbets. But with barely more than 1% of the shares sold short, a big move is unlikely.

The stock’s post-IPO trading range is $7.83 to $25.20, and shares traded Wednesday at around $9.40, up more than 5%. The only rating (Sell) on the stock comes with a price target of $6.