FYI | Oct 07 2020
Pitt Street Research updates on Piedmont Lithium post its binding sales agreement with Tesla
By Pitt Street Research
Tesla to source spodumene concentrate from Piedmont Lithium
On 28 September 2020, Piedmont Lithium ((PLL)) reported that it locked a binding sales agreement with Tesla Inc (NASDAQ:TSLA) to supply spodumene concentrate (SC6) to the leading electric vehicle company on fixed pricing arrangement for an initial five-year term.
The agreement is subject to renewal of a second five-year term. In our view, this agreement marks a significant milestone for PLL and unlocks the potential for further offtake agreements for its lithium and by-products.
In addition, the deal also highlights the strategic importance of PLL’s unique American spodumene deposit as well as the nature of spodumene as the preferred feedstock for the lithium hydroxide required in high-nickel batteries.
Favourable LiOH test results mark significant milestone
In July 2020, PLL completed a bench-scale testwork programme to produce LiOH.
This is a significant landmark as the study proved that the ore from PLL’s acreage in North Carolina can be used to produce battery-grade LiOH.
PLL can leverage this study results to pitch to potential customers.
ECP contractor secured
In our view, Piedmont Lithium’s appointment of its experienced technical consultant, Primero Group ((PGX)), as its engineering, procurement and construction (EPC) contractor, will significantly mitigate execution risk relating to the lithium project.
Additionally, the joint venture formed by PLL and Ion Carbon & Minerals for the marketing of by-products (quartz, mica and feldspar) and securing related offtake agreements will help further de-risk the lithium project.
Valuation upgraded to $0.69–$1.26 per share
We continue to value Piedmont Lithium using a DCF analysis of the integrated model.
Based on the re-rated stock price, we upgrade our valuation range to reflect the reduced dilutive impact of future equity raise required to fund the upfront capex of PLL’s integrated project.
We also revise our SC6 production and revenue modelling to incorporate PLL’s latest deal with Tesla. Key risks we see are: 1) lithium pricing risk; 2) geological risk; 3) funding risk and 4) execution risk.
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