Piedmont Lithium: Acquisition Of Vallee Lithium Project Could Boost Growth (NASDAQ:PLL)

Investment Thesis

Piedmont Lithium Inc. (NASDAQ:PLL) deals in developing an integrated lithium business supporting the transition to a net-zero world. The company has recently announced that it has entered into a strategic acquisition and earn-in agreement with Jourdan Resources which I believe can act as a primary catalyst to accelerate the company’s growth by expanding its operations and production levels by further expanding its profit margins.

About PLL

Piedmont Lithium Inc. is an industry-leading company in the United States which focuses on developing an integrated lithium business in order to contribute to the aim of achieving net zero carbon emissions. It develops and manufactures battery quality lithium hydroxide which is used in the fastest-growing electric vehicle industry. The company has four lithium projects: Carolina Lithium Project, Ghana Project, Quebec Projects and Tennessee Lithium Project. It is highly focused on its recently developed wholly-owned Carolina Lithium Project, which is located in North Carolina’s well-known Carolina Tin-Spodumene Belt. As of December 2021, this project consisted of real property and related mineral rights for a total of approximately 3245 acres of land. The Quebec Projects comes under the Abitibi region of Quebec and by holding 25% and 75% equity stakes in Sayona Quebec, Piedmont Lithium and Sayona jointly own these projects.

The company has a strategic partnership with Sayona through which it focuses on manufacturing of lithium products and gains competitive advantage by getting access to strong infrastructure and governmental mining support in Quebec. The Ghana Project is spread approximately 348 square miles and acts as an exploration project in mining, developing and producing spodumene concentrate particularly covering the south coast of Ghana. This project is owned by Atlantic Lithium Ghana with which the company has a strategic partnership with an equity interest of approximately 10%.

Piedmont Lithium Inc. has recently announced a new project in Tennessee which is also likely to be the largest lithium hydroxide plant in the country. I believe this project can contribute to the company’s growth in the long term, as it will be increasing the production of lithium hydroxide at large scale.

Acquisition of Vallee Lithium Project

The demand for electric vehicles (“EVs”) has experienced a robust growth since the last few years in order to achieve net-zero carbon emissions in the coming decades. EV purchases saw a dramatic rise in 2021, and this demand is consistently increasing as people are slowly phasing out the usage of fossil fuel vehicles. As lithium is one of the most essential components used in electric vehicle batteries, the boom in the EV industry has helped the lithium business to gain significant momentum in the global markets. The demand has reached extremely high levels, which has caused strain on global supplies of lithium and even intensified competition in the industry.

In such a scenario, the competitive advantages of the company such as strong infrastructural facilities and good road and rail access plays a vital role in capturing additional market share and in achieving superior profit margins by increasing the production levels. Identifying this opportunity, the company has recently announced that it has entered into a strategic acquisition and earn-in agreement with Jourdan Resources. It will add 20 claims of Vallee to North America Lithium Project’s (NAL) 19 claims on adjoining property as part of the agreement.

Making staged investments will allow Sayona Quebec to gain control of 51% of Vallee’s remaining claims. Spending C$4 million within a 12 months period and spending another C$6 within 24 months particularly on exploration can facilitate the company to earn 50% equity interest. It can earn the remaining 1% by arranging funds for developing a mine at Vallee. Additionally it has also obtained 9.99% ownership in Jourdan Resources. This acquisition has expanded the potential NAL operating area and can increase its operations on a significant level. The company is currently focused on spodumene concentrate production, and I believe this acquisition can act as a primary catalyst in accelerating the company’s growth as it can expand operations and help to increase the production levels of spodumene concentrate due to increased resources, demand of which is rapidly rising.

The company also has recently amended agreement with Tesla for delivering approximately 125,000 metric tons of spodumene concentrate (SC6), which reflects the high usage of lithium in EVs. I think this acquisition and increased availability of resources can help the company to deliver and fulfill more such orders and cater to the increasing demand of lithium, which can further help it to generate more revenue and maintain superior profit margins.

What is the Main Risk Faced by PLL?

As this industry is highly regulated by the government, it becomes necessary for the company to obtain and renew permits and approvals from the government in order to conduct exploration and development activities. The overall process to obtain and renew governmental permits is time-consuming, complex and uncertain which involves various jurisdiction, public hearings and costly undertakings. Piedmont Lithium Inc. can also fail to obtain the permits and approval or can also incur high cost to obtain the same. If the process gets delayed or if the company incur high cost for permits, it can negatively affect its production activities and affect its revenue by further contracting its profit margins.

Conclusion

Piedmont Lithium Inc. deals in developing an integrated lithium business with the purpose of achieving net zero carbon emissions. It manufactures lithium hydroxide which is mainly used in electric vehicles. The industry in which the company operates is highly regulated which can further act as a growth barrier in the company’s performance.

The company has recently announced that it has entered into strategic acquisition and earn-in agreement with Jourdan Resources which I believe can accelerate its growth, as it will be expanding its operations which can also increase its production levels and increase its profit margins. After analyzing all the above factors, I assign a buy rating to Piedmont Lithium Inc.