It’s a lithium power play that has created an excited buzz in Canada’s capital markets.
Earlier this week, investors went on a buying frenzy after American Lithium Corp. (TSX.V: LI) (OTC: LIACF) (Frankfurt: 5LA1) swooped in to acquire a rival lithium developer, Plateau Energy Metals, in a deal currently worth about CDN $120 million.
In fact, investors actively drove both stocks significantly higher on heavy volumes. In particular, American Lithium has risen approximately 40% so far just this week, taking the company’s share price to around CDN $4 and its market capitalization to around half a billion Canadian dollars.
This game-changing buyout is yet another signal that the green energy revolution is shifting into a higher gear as companies race to bring new lithium supplies onstream. With this in mind, investors are taking note that some of the world’s most sought-after lithium riches can be found in Nevada, where American Lithium has one of the largest greenfield deposits.
Also, Peru is host to world-class lithium deposits as well. And this is where Plateau’s Falchani hard rock lithium deposit is located.
This is what makes this buyout so strategically significant. It is important to note that this transaction consolidates two of the largest undeveloped lithium deposits in the Americas under the control of one single well-financed and highly ambitious lithium exploration/development company with a technical team deep with knowledge on lithium extraction.
All told, American Lithium’s resource base now grows to 6.3MT Li₂CO₃ Measured & Indicated and 5.5MT Li₂CO₃ Inferred, thereby establishing American Lithium as one of the largest developers of lithium projects in the Americas.
Oliver O’Donnell is a senior mining analyst at London-based VSA Capital Research, an investment research firm that covers American Lithium. He sees considerable accretive value in the buyout of Plateau and the consolidation of these valuable lithium assets.
“The deal looks set to transform American Lithium into a diversified and more advanced lithium play…,” he says in a February 11th note to investors.
A Lithium Heavyweight for the Americas Emerges
The dire need to accelerate the development of lithium deposits throughout the Americas cannot be overstated due to the threat of future supply shortfalls. After all, more than 60% of lithium-ion batteries are now made in China which controls most of the supply of raw materials for these batteries, most of which are destined for Chinese automobiles. This means that the US and Latin America need to ensure the security of their own massive supply chains.
American Lithium is therefore in the right place and at the right time as the new “Lithium Rush” gathers momentum. As already mentioned, the company had amassed a large strategic stake in Nevada’s vast lithium fields with its TLC project long before the buyout of Plateau.
As the company’s flagship project, TLC is a highly prized asset in the race to satisfy the battery needs of nearby Tesla Motors and a handful of other “giga” factories that are being built on US soil.
The company’s 6,000-acre TLC claystone project site is near the town of Tonopah within several hours drive of the Tesla giga-factory in Nevada. Due to its prolific size, it bears repeating that this is where a measured and indicated resource of 5.37 million tonnes of LCE has been drill-delineated, while another 1.76 million tonnes are currently designated as inferred.
As well as its size, TLC also exhibits the prospect of a low-cost production profile, while the company also wants to be known for its commitment to being environmentally-conscious and to sustainable business practices. It has already completed agreements for water rights and has undertaken a number of environmental studies as part of its recently filed Plan of Operations with the BLM.
The addition of Plateau’s Falchani lithium project in south-eastern Peru now adds further world-class, strategically-located lithium assets to American Lithium’s portfolio, along with a potentially world-class uranium deposit (which will be discussed in another article).
The Falchani deposit measures 0.96 million tonnes of LCE indicated and 3.74 million tonnes inferred and has significant exploration potential to expand these resources further. And it already has a preliminary economic assessment (PEA) that assigns a net present value of US $1.55 billion to the deposit. On this basis, a mine would be capable of producing an average of 33,842 tonnes per annum of battery-grade lithium carbonate per annum over a mine life of 26 years.
This acquisition also offers American Lithium geographic and geological diversity in one of the leading mining jurisdictions in South America, as Peru was recently ranked second in emerging markets by Bank of America. In other words, this transaction also acts as a de-risking event in that the company’s success is no longer entirely dependent on just one project alone.
All of these key value drivers are what should make American Lithium’s investment risk/reward profile particularly attractive to investors, both young and old.
With this in mind, the company is still at a relatively early stage of its developmental cycle. In other words, the advent of a steady flow of positive news releases in the coming months should help continue to build considerable intrinsic value into the company’s ascendant share price, as will the projected demand for electric vehicles and battery metals.
Nevada: World-Class Lithium Grades and an Ideal Location
American Lithium is based in the heart of a mining-friendly region in Nevada, with robust access to water, power, manpower and transport links. It has purchased the rights to more than 1,100 acre-feet of water to cover all of its processing needs within this enviable location.
It has one of the largest lithium claystone deposits in North America. Its TLC deposit boasts quality lithium grades as high as 2,600 ppm. Also, the deposit is close to the surface, which will contribute to the likelihood of achieving lithium recoveries that are over 90%.
Located near the town of Tonopah, the project is east of the remote, desert-like Big Smoky Valley, where there are no obvious environmental concerns. Nonetheless, the company is committed to being a conscientious steward of the land. Mine modelling suggests that there will be no deleterious waste products such as mercury, arsenic, or contaminants in waste ore. This should offer the potential to fast-track the permit process for a prospective mine.
TLC is scalable, and amenable to low-cost mining, with the ability to excavate large quantities of claystone in relatively short space of time. American Lithium is now moving to the next stage of a preliminary economic assessment, including a pilot plant design and engineering.
Why “Made in America” Lithium Matters So Much
The renewable energy revolution has dramatically fuelled the demand for lithium in recent years. However, global lithium supply remains tight. Also, much of it is mined in China, which is where about 60% of lithium-ion batteries are now made. Alongside its domestic production, a Chinese company – Tianqi Lithium – owns 51% of the world’s largest lithium reserves in Australia. And China has also been snapping up stakes in mining operations across South America.
This essentially means that the US needs to ensure the security of its own supply chain. Accordingly, North American electric vehicle producers are understandably keen to bolster their supplies from domestic producers.
In fact, reliance on Chinese lithium poses a huge industrial risk and arguably even a national security risk for the United States at a time of mounting tensions between the two nations. It’s a sobering thought to realize that the US produces just 1% of all lithium, despite having access to large, mostly untapped supplies in Nevada.
Accordingly, we should expect a concerted push to ramp-up domestic mining operations during this decade especially with lithium classified as a “Critical Metal.”
To this point, the North American lithium industry gained a shot in the arm when the Democrats flipped the Senate by prevailing in both runoff elections in Georgia in January. The White House and both chambers of Congress are now under Democrat control, so investors are bullish on the potential for progress on renewable energy measures designed to curb climate change.
Additionally, Lithium Americas (NYSE: LAC) was recently granted federal approval to proceed with two lithium mines in Nevada’s Clayton Valley. The Biden administration is expected to give the green light to more mining projects that fit in with the renewable energy drive, leading to a groundswell of optimism among industry leaders. This too bodes especially well for American Lithium.
Where Green Energy Meets 21st Century Mining
American Lithium has also developed a game-changing proprietary processing method that can extract battery-grade lithium at substantially lower costs than the industry average.
According to the company’s CEO Michael Kobler, “We have demonstrated that we can extract the lithium from our claystones in a matter of hours, versus days, weeks or even years with traditional processes.”
American Lithium has partnered with McClelland Laboratories in Sparks, Nevada, to develop this “optimized hydrometallurgical” process that has potential to enable up to 94% of the lithium in the soft claystone to be recovered/extracted within 30 minutes.
After the removal of impurities, the company expects to be able to produce battery-grade lithium carbonate (99.5% purity) and battery-grade lithium hydroxide monohydrate. This pioneering technological advancement promises to make the TLC project one of the largest and most cost-effective. And it will be in close proximity to future prospective end users, such as Tesla, which translates into even greater cost-cutting synergies.
As part of developing TLC, the company believes a mine can be built with a steadfast commitment to environmental stewardship – something that Tesla will surely approve of. This includes water conservation, preservation of wildlife, protection of air quality, and other “green” initiatives to minimize the company’s carbon footprint.
The Tesla Connection: Perfect Synergies
American Lithium’s asset is located near Tesla’s gleaming 10-million-square-feet factory (one-mile-long) giga-factory in Nevada, and an offtake agreement between the two firm’s would seem like a natural fit. Investors should view this viable opportunity as a powerful value driver for American Lithium’s share price.
This is especially the case due to diversification of supplies being crucial for producers like Tesla. Consider this: the four largest producers of lithium – Albemarle Corp., SQM SA of Chile, FMC Corp. and Tianqi – operate as an oligopoly by controlling more than 89% of the world’s current supply, dictating price and supply as they see fit. Tesla does not want to be completely beholden to this cartel.
Nevada only hosts one lithium miner at this time – Albemarle’s Silver Peak, which can only supply a fraction of Tesla’s burgeoning lithium needs.
Tesla therefore has a plenty of pragmatic incentives to work with companies like American Lithium and Lithium Americas. In terms of political incentives, Musk’s firm has already secured several billion dollars of government incentives from the State of Nevada, meaning that he is obligated to source as much “Made in America/ Made in Nevada” lithium as possible.
Whether Tesla and other giant battery developers flourish or falter hinges on whether they can get their hands on enough lithium, at best possible prices. Hence, they are aggressively securing long-term supplies via long-term offtake agreements.This ultimately boosts the odds in favour of the TLC deposit becoming a multi-billion-dollar mine. As this project continues to develop, it also makes American Lithium an increasingly attractive takeover target.
Keep in mind the fact that the majority of current global production – both brine and hard rock operations – is currently capacity-constrained by geopolitical risks. This reality alone offers American Lithium scarcity value due to its status as a leading lithium developer in the Americas.
American Lithium is therefore at the vanguard of a new generation of environmentally-conscious lithium developers that are poised to help power the green energy revolution. Especially because battery manufacturers are desperate for uninterrupted lithium supplies that are inexpensive and devoid of environmental concerns.
The company currently has 117 million outstanding shares (about 139 million fully diluted). Thanks to its relatively tight share structure, the advent of a continuation of positive news flow promises to be a powerful catalyst to higher share price multiples.
All told, American Lithium is expected to become a rising star within the fast-growing lithium industry, especially with the addition of Plateau Energy greatly enhancing this potential. Hence, the company’s share price trajectory appears primed for a sustained uptrend in 2021 and beyond. In short, this appears to be a success story in the making.
ABOUT THE AUTHOR: Marc Davis has a deep background in the capital markets spanning 30 years, having mostly worked as an analyst and stock market commentator. He is also a longstanding financial journalist. Over the years, his articles have appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, The Times (UK), Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post, AOL, City A.M. (London), Bloomberg, WallStreetOnline.de (Germany) and the Independent (UK). He has also appeared in business interviews on the BBC, CBC, and SKY TV. An enthusiastic shareholder of American Lithium, his opinions are therefore biased and should not be relied upon for making investment decisions.