The lithium sector has been one of the few success stories across capital markets this year, with prices for the metal used in electric vehicle (EV) batteries skyrocketing by as much as 580% so far. Lithium stocks have yet to match this remarkable growth, but all that could be to come.
While lithium miners and producers have faced downward pressure due to rising costs and other macroeconomic variables, most analysts in the space refer to a lag between commodity prices and equities. Plus, the long-term dynamics look incredibly positive for lithium developers.
If the International Energy Agency (IEA)’s estimate of over 200m EVs being on the road globally by 2030 is to be believed, then lithium will be required in unthinkably vaster quantities. In fact, the IEA believes lithium demand could increase up to 40 times by 2040.
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With this in mind, I’m looking to get in on the market now to leverage this sky-high potential. There are plenty of lithium options on the London market, but I think Atlantic Lithium (LSE:ALL) has one of the most promising growth stories.
Atlantic Lithium
This well-run company is advancing a large-scale hard rock lithium mine through development studies, with the aim of producing Ghana’s first producing lithium mine.
The mineral resource estimate at the Ewoyaa Project has already grown from 21.3 million tonnes to 30.1 million tonnes ahead of a pre-feasibility study (PFS) in Q3, which I will be following closely.
In a December 2021 scoping study, Atlantic estimated a post-tax NPV of $789m and EBITDA of $178m per annum over an initial 11.4-year mine life. But the beauty of Ewoyaa is there is significant upside to grow the resource via drilling.
With an estimated capital expenditure of just $70m, operational expenditure running at $249 per tonne and the payback period lasting less than one year, the economics look highly attractive already. I expect to see a larger resource and even sweeter economics in the upcoming PFS.
The company has been conducting exploration across the property over the past year and will continue to do so with only 13km2 of its 560km2 tenure portfolio drilled to date.
Atlantic has also received significant backing from a well-known lithium player across the pond. US-based Piedmont Lithium’s $103m investment is helping the company progress through the studies stage and supporting exploration.
Furthermore, Piedmont has agreed to buy 50% of Ewoyaa’s annual lithium production, should certain criterion be met. Given projected future lithium demand, Atlantic should have no issue selling its product, but there’s no harm in securing a trusted buyer now.
It’s important to stress that building mines take time, therefore I’m viewing Atlantic as a long-term investment. Things can go wrong over multi-decade timelines and macroeconomic conditions often dictate the health of smaller mine developers.
But I believe that EVs are part of the clean energy solution, so I will be backing lithium stocks, starting with Atlantic Lithium. If the share price does eventually catch up with the current lithium price, I will be laughing all the way to the bank.
