Piedmont Lithium (NASDAQ:PLL) Inc (ASX:PLL, NASDAQ:PLL, XETRA:) has made a strong case for generating an EBITDA of more than US$500 million in 2024, according to a research report compiled by RK Equity.
The analyst believes that this revenue will rise to greater than US$900 million in 2025, from spodumene concentrate production alone.
According to RK Equity, the company is trading at a substantial discount to its fair value, relative to peers despite its joint venture with Sayona Mining for North American Lithium (NAL) in Quebec.
The NAL project is progressing towards the restart of spodumene concentrate production in the first half of 2023 and Piedmont's Tennessee Lithium Project is securing a $US141.7 million DOE grant to offset the total estimated capex of US$570 million.
Following are the excerpts from the RK Equity research report:
RK Equity sees a strong case for PLL generating an EBITDA of over US$500M in 2024, rising to over US$900M in 2025 from SC production alone, implying a current valuation of just 1.2 times EV/EBITDA - glaringly cheap relative to producing and near-producing SC peers like Sigma, Core and Pilbara Minerals.
Should PLL successfully secure the necessary permits in North Carolina, the company's EBITDA will be further boosted from ~2026/2027 onwards. SC and lithium chemical prices have remained resilient, with upstream SC producers capturing a substantially higher share of the supply chain margins.
PLL can pivot in the near term and optimize its position. Few pure lithium plays are listed in the USA, and fewer are listed operating companies. Further, PLL is the only lithium developer 100% domiciled in the USA, making it uniquely qualified for inclusion into indexes such as the Russell 2000 and available for purchase by a greater share of the US investment community.
This garners the company's USA credibility/liquidity and could underpin a higher EBITDA multiple.
Livent produces approximately 20ktpa of lithium hydroxide, and while it has plans to expand to 50ktpa, its market cap is ~US$5.3B versus PLL trading at US$1.1B with sufficient SC to produce 30-35ktpa lithium hydroxide in 2025 and the potential to increase that to over 60ktpa if its North Carolina project progresses.
Depending on timelines, PLL could generate sufficient free cash flows to internally fund its expansion to 60ktpa hydroxide production.
Further, PLL has cash on hand, and the ability to raise additional capital through a prepay on NAL output will limit or eliminate shareholder dilution until NAL comes online in 1H 2023.
The company has a clear path with limited technical risk to becoming an SC-only producer with ~250ktpa generating an EBITDA of ~US$900M+ in 2025 – the capex required to achieve this EBITDA is low and requires no further equity dilution in our opinion.
PLL's Tennessee lithium hydroxide project (now partially funded by the US$141.7M DOE grant) and North Carolina lithium project offer EBITDA upside to ~US$1.5-US$2B by 2026/2027.
PLL's interests in Sayona Quebec (NAL) and Atlantic puts PLL on a path to cash flow generation by H2 2023.
NAL has derisked its flow sheet by adding new jaw crushers, screen/belt filters, ore sorters and magnetic separation.
Feedback from mine site visits is that the mine and concentrator are ready to restart in Q1 2023 – RK Equity has been more conservative and assumed Q2 2023.
Near and mid-term catalysts for PLL
- NAL restart and free cash flows (from Q2 2023) possible prepay agreement (US$50MM – US$100MM) raised against future NAL SC supply to be used to fund construction at the Tennessee plant
- ALL resource update (Q4 2022), definitive feasibility study (Q2 2023) and Mining License approval and final investment decision (Q4 2023) –
- Tennessee permitting and final investment decision (Q3 2023), possible JV partner and ATVM loan?
- NC permitting approval (2023/2024)