Emerging lithium plays steal limelight from older-guard near-term producers

Mon 11 Apr 22, 2:59pm (AEST)
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Key Points

  • Petra Capital has compared the top 10 emerging lithium producers on the ASX
  • Core Lithium was the most expensive company on an EV/resource basis
  • Galan Lithium, Sayona and Firefinch all received Buy ratings with varying levels of upside

Despite a rocky start to the year for equities, several near-term lithium producers have run up more than 100%.

There seems to be a passing of the torch from now established and more mature lithium names like Allkem (ASX: AKE) and Pilbara Minerals (ASX: PLS) to emerging players in the small-to-mid cap space.

Petra Capital, a boutique Australian stockbroking firm has compared the top 10 emerging lithium producers on the ASX.

Here are some interesting takeaways from their lithium coverage.

Core Lithium has run its course

Petra was Hold rated on Core Lithium (ASX: CXO) shares with an 82 cent price target. This represents a downside of -39% compared to Monday’s open of $1.34. 

Core Lithium Ltd (ASX CXO) Share Price - Market Index
Core Lithium 12-month price chart

Coined ‘Australia’s next lithium producer’, the company is targeting first production in the December quarter, 2022. 

Analysts said that there is “a lot to like about a domestic, funded, near-term lithium producer.” Though, it is trading relatively expensively compared to peers.

Core Lithium had an EV/Resource of $4,944/t, whereas the average EV/Resource of the 10 companies was $1,288.

This does not take into consideration that Core is currently undergoing active exploration drilling at its flagship Finniss Project.

CXO DFS Investor Presentation (July 2021)
Source: Core Lithium DFS Presentation (July 2021)

Near-term catalysts for the company include an increase in ore reserves, life of mine extension and a Stage 2 expansion for Finniss.

Galan Lithiun could be massively undervalued

Galan Lithium is developing its 20,000 tpa Hombre Muerto West (HMW) Project in Argentina.

Petra analysts estimate a net present value of $1.03bn for the HMW project. If Galan was valued on an EV/resource basis, the company's valuation balloons to $4.90.

Galan Lithium Ltd (ASX GLN) Share Price - Market Index
Galan Lithium 12-month price chart

Galan boasts the lowest EV/resource of the top 10 lithium developers, at just $204 a tonne.

Sayona poised for near-term production

Sayona Mining (ASX: SYA) hopes to restart spodumene production at its North American Lithium (NAL) Project in the first quarter of 2023.

A definitive feasibility study (DFS) is underway for the profitable production of spodumene at NAL, combined with production from the nearby Authier Project. The combined projects aim to produce 220,000t of spodumene.

Petra is Buy rated with a 42c target price. The broker notes that the restart of NAL will only require $75m.

Firefinch Ltd (ASX FFX) Share Price - Market Index
Sayona 12-month price chart

Another broker calling out Firefinch

FireFinch (ASX: FFX) had the highest upside with a $1.85 target price.

The broker held views similar to the recent note out of notorious short-sell J Capital.

Petra analysts said that the Firefinch was trading below the median EV/resource of $977/t.

The company is expected to spin out its lithium assets into Leo Lithium Limited in the near-term.

Firefinch Ltd (ASX FFX) Share Price - Market Index
Firefinch 12-month price chart

Other considerations

Beyond Petra's views and price forecasts, the broader market certainly has a "wall of worry" to climb amid Fed tightening and the end of pandemic stimulus, earnings growth decelerating, Ukraine-Russia risks, surging inflation and covid.

If a world where a risk-off attitude accelerates, growth pockets of the market, including lithium, could struggle for upside.

Investors should be weary of the broader market risks and how that may weigh on what is otherwise a bullish environment for lithium demand, prices and miners.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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