In light of the latest announcement by the City of Paris to ban all petroleum-powered vehicles by 2030, the future for electric vehicles just gets brighter and brighter. This is not only good for electric car makers, it also provides a valuable opportunity for producers of lithium – a major component used in electric car batteries.
One of the lithium explorers bound to become a leader of the industry is Standard Lithium Ltd (TSX-V:$SLL)(OTCQX:$STLHF), an emerging Canadian Lithium junior mining company that has outperformed many of its junior mining peers and seen its shares rise by close to an astonishing 600% over the past year – and this is only just the beginning.
This type of growth and potential is exactly what investors should be looking at in companies that are severely undervalued but have every chance to have lithium operations that can be measured against those of FMC or Albemarle.
To examine why Standard Lithium was able to garner this kind of enormous growth in a short period of time, we need to consider the following advantages that the company has to offer.
Advantage #1: A Large-Scale Lithium Brine Project In The United States
Standard Lithium is currently focused on the 25,000-acre Bristol Dry Lake lithium brine project in the Mojave region of California. The aim is to develop this project into the second operating lithium brine processing asset in the U.S., after Albemarle’s Silver Peak operation in Nevada.
So far, we can explore a few illustrations of why this project has huge potential:
A mining lease agreement with National Chloride Corporation of America, which has mined brines in the area for close to 100 years, reducing the project’s risks and permitting requirements;
Positive results from a controlled-source audio-magnetotellurics/magnetotellurics (CSAMT/MT) geophysical survey suggesting that high lithium brine concentrations are located across nearly every inch of the Bristol Lake claim package;
Commencement of a resource definition drill program, with National Instrument 43-101 resource estimates expected in the first half of 2018;
Testing showed that the raw brine pumped from the near-surface test pit contained an average concentration of 146 mg/L lithium;
Access to electric grid, paved roads and established infrastructure.
A key feature of Bristol Lake is that the low resistivity values measured on the project are very similar to those located in the lithium hotbed known as the Lithium Triangle (Chile, Argentina and Bolivia), and the project itself is located in a less risky geographical location.
Advantage #2: A Renowned And Experienced Management Team
Robert (Bob) Cross, the company’s co-founder and largest shareholder, is a mining “legend” who has made a career of identifying projects with blue-sky potential, accumulating stocks at rock-bottom prices and then growing these companies into major players in their industries.
In 2003, Mr. Cross acquired control of Northern Orion Resources, and its market cap grew from under $20 million to $1.4 billion when it was sold to Yamana in 2007.
Mr. Cross was co-founder and non-executive chairman of Bankers Petroleum Ltd, which began trading at $0.43 and went as high $9.64, providing shareholders a return of up to 1,995%.
Mr. Cross is also a co-founder and non-executive chairman of B2Gold Corp, which began trading at $0.30 and went as high as $4.30, providing shareholders a return of up to 1,333%.
He was also a director of Athabasca Potash, until it was bought out for $8.35 a share by BHP Billiton.
The company is also led by CEO and director Robert Mintak, one of the founders of Pure Energy Minerals. Mr. Mintak has considerable experiences with lithium projects and was instrumental in negotiating one of the first conditional lithium supply agreements with Tesla for the Gigafactory. Under his leadership, Pure Energy was recognized as the top mining company in the 2016 TSX Venture 50.
In June, the company also appointed lithium brine expert Dr. Andy Robinson, who previously served as a director for Pure Energy, as the company’s president and COO. Dr. Robinson is known as having compiled North America’s first NI 43-101-compliant resource estimate for a lithium brine deposit.
Advantage #3: Additional Promising Projects To Complement Bristol Dry Lake
In August, the company entered a memorandum of understanding with an NYSE-listed company for an option to acquire certain brine exploration and lithium extraction rights on approximately 30,000 net acres overlying the Smackover formation in a region with a long history of commercial-scale brine processing.
Smackover oil field brines are metal-rich brine anomalies in reservoir rocks along the Gulf Coast from eastern Texas to Florida known to be a prime lithium resource. The Smackover brines have been exploited for bromine by numerous chemical companies over the years and are currently one of the largest source of bromine in the world, accounting for 40% of world production. Lithium is present in abnormally high concentrations in salt brines of the Smackover formation.
Albemarle, the world’s largest lithium producer and operator of the world’s largest bromine-manufacturing operations, previously announced plans to separate lithium carbonate from Smackover brines. This resource may be one of the most promising ones to develop, given that a large-scale brine extraction, processing and reinjection industry is already well established.
Donald E. Garret, author of the Lithium Handbook, estimates that the Smackover is one of the world’s largest lithium brine reserves and contains one million tonnes of lithium metal.
Advantage #4: Lithium Prices Approaching Record Highs
Lastly, many experts are predicting that the price of lithium will reach new all-time highs partly due to the scarcity of lithium carbonate in the global market. Credit Suisse estimates that the global shortfall of lithium could reach nearly 150,000 metric tonnes by 2025.
Additionally, the electric car revolution is continuously “driving” up demand and thus price for lithium. According to Morningstar, lithium demand is set to increase by 16% per year for the next decade, quadrupling by 2025 to 750,000 tonnes. The prices for lithium carbonate have more than doubled since 2015.
Backing this in-demand metal is BlackRock, the world’s largest asset manager. The BlackRock World Mining Trust, which has more than £800 million in assets, is the largest shareholder in a handful of small mining companies aiming to produce lithium for use in batteries.
Thus, Standard Lithium is poised to take its gains even further as it moves forward with the Bristol Dry Lake project and the market for lithium continues its upswing.
A Closer Look At Standard Lithium’s Stock
For the past week alone, the company’s shares went up from $1.60 per share to $2.08 per share, a new 52-week high. The share price also more than doubled in just three months.
When looking at its price chart, there are several indications that Standard Lithium’s shares are a good buy:
Looking at the moving averages, the 200-day moving average line has been on an uptrend, showing a signal that the market is very strong.
Moreover, the company’s shares have been trading above the 50-day moving average line for almost two months, signalling a bullish market and giving investors an indication of the possible support levels.
The diverging Bollinger bands also give a signal that Standard Lithium’s share price is on an upward trend, as the price tends to move with the middle band.
The Relative Strength Index (RSI) indicates the stock is moving out of overbought territory, and another upward trend is possible moving forward.
The candlestick patterns show a potential for a price rally following a decline from the stock’s all-time high: a doji candlestick (October 17) after a big share price drop is a good indication that selling pressure is waning.
Moreover, the company’s stock currently has a beta value of 0.22, meaning that its shares have low volatility and low openness to risk.
In terms of the company’s financial health and valuation:
Standard Lithium’s balance sheet currently shows a current ratio (current assets/current liabilities) of 29.19. As a result, the company is more than capable to paying off its obligation if needed.
Standard Lithium’s price-to-book ratio (P/B) is at 4.9, compared with an industry average of 1.9. A high ratio shows that investors are expecting higher future gains from the company and are willing to pay a premium for its stock.
Standard Lithium’s Growth Is Just The Beginning
All in all, it is hard to ignore a high-growth company like Standard Lithium that has:
In terms of share price, Standard Lithium Ltd (TSX-V:$SLL)(OTCQX:$STLHF) is still at a seriously undervalued stage; it will not just stop at the near 600% gain it experienced for the past year. The company has every opportunity to post solid growth for years to come.