Lithium Co. Sees Heavy Volume as Big Three Automaker Deal Closes

October 11, 2023

Source: Streetwise Reports (10/9/23)

The markets were buzzing after the deal between this lithium explorer and big-three automaker Stellantis closed. Find out which newsletter is now recommending this stock.

The US$90 million investment deal in lithium explorer Argentina Lithium & Energy Corp. (LIT:TSX.V; PNXLF:OTC; OAY3:FSE) by big-three automaker Stellantis (formerly Chrysler) has closed.

Upon the announcement of the closing Thursday, LIT was the top trader on the Toronto Venture Exchange Thursday and into Friday morning, when 1.8 million of its shares traded by 10 a.m. ET.

The company’s stock rose 165% from CA$0.23 last week to CA$0.61 Friday morning.

The investment by the auto industry heavyweight in South America’s Lithium Triangle looking for the battery metal vital to the new green economy prompted one watcher, Chris Temple, editor of The National Investor newsletter, to call his readers to action.

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“But to be sure: There will be growing production in the years ahead from this region,” Chris Temple of The National Investor wrote.

“This factor is what prompts me to go from watching to recommending with Argentina Lithium & Energy, given the news just out the last few days that car maker Stellantis (today’s owner of the Chrysler and Jeep brands, along with several others) has decided to put US$90 million into LIT’s wholly owned local subsidiary companies exploring these projects,” Temple wrote.

The Stellantis umbrella includes iconic brands like Chrysler, Alfa Romeo, Citroen, Dodge, Fiat, Jeep, Maserati, and Peugeot. Under the agreement, Peugeot Citroen Argentina SA, a Stellantis subsidiary, owns 19.9% of the company’s issued and outstanding shares, and Argentina Lithium will own 80.1%.

Temple also noted that mines bought or consolidated by larger companies will play a part in making the Lithium Triangle economical for investors.

“But to be sure: There will be growing production in the years ahead from this region,” Temple wrote. “And it will be fostered, in part, by O.E.M.’s (original equipment manufacturers) and others placing their much bigger bets today.”

Fundamental Research Corp. analyst Sid Rajeev, while initiating coverage on the company in July, agreed.

Fundamental Research Corp. analyst Sid Rajeev, while initiating coverage on the company in July, agreed.

“As LIT’s projects are close to well-known projects held by majors, the company can be subject to M&A events if it is able to delineate a resource in one or more of its assets,” noted Rajeev, who rated the stock a Buy with a fair value target price of CA$0.52.

Argentina Lithium has acquired resource properties across the Americas, with a considerable focus on Argentina and the Lithium Triangle. Its current projects include

Argentina Lithium’s projects are all within the Lithium Triangle in the Argentinian provinces of Salta and Catamarca. They include Rincon West, Antofalla North, Pocitos, and Incahuasi. All are “salar” properties were the company hopes to produce lithium carbonate from brines enriched in lithium. They are currently at the exploration stage.

The Catalyst: A ‘Fast and Furious’ Transition

Stellantis’ investment highlights the approaching shortage of lithium, a metal it will need for electric vehicle (EV) batteries.

The EV transition is “is coming fast and furious,” Argentina Lithium President and Chief Executive Officer Nikolaos Cacos said.

Stellantis’ investment “allows us to not think about funding anymore as an exploration company,” Cacos said. “I think we can advance all our projects over the next three years, right up to the announcement, define resources and pre-feasibility studies just before . . . (and) announcing making a decision or going forward and commercial production.”

Analysts from Eight Capital predicted that lithium market deficits will widen this decade, and the shortfalls will be driven by demand in North America.

After the issuance of exchange shares and at the close of the transaction, on or about October 4, Stellantis will own at most 19.9% of the common shares (on an undiluted basis) of Argentina Lithium, the company said.

The exchange agreement also provides Stellantis with observer rights to attend Argentina Lithium’s board meetings for as long as Stellantis owns at least 10% of the company and allows it to nominate one director to the Board of Directors.

The companies will enter into a lithium offtake agreement in which Stellantis will buy up to 15,000 tonnes per year of lithium produced by LIT over a seven-year period. The agreement may be extended by the companies.

The supply obligation of the agreement is conditional on the start of commercial lithium production at one or more of Argentina Lithium’s projects, as well as other terms, including Stellantis having a first right of first refusal on the sale of lithium products to third parties after production starts.

Analysts: Market Deficits Will Widen

Lithium is a major component of EV batteries, where it is used as a cathode and electrolyte. A soft, silvery metal with highly reactive and flammable properties, lithium is also used to strengthen alloys, as a high-temperature lubricant, and as a drug to treat bipolar disorder.

Analysts from Eight Capital predicted that lithium market deficits will widen this decade, and the shortfalls will be driven by demand in North America.

The United States’ EV penetration of 6% lags China’s 26% and Europe’s 20%, analysts Anoop Prihar and Alex Riazanov of Eight Capital wrote in a recent research note. But President Joe Biden’s administration has committed to a target of 50% of new vehicle sales being EVs by 2030.

“We estimate North American lithium nameplate production capacity will be 262,900 LCE (million tonnes lithium carbonate) in 2026 based on projects that currently have completed a Definitive Feasibility Study (DFS),” Prihar and Riazanov wrote.

Streetwise Ownership Overview*

Argentina Lithium & Energy Corp. (LIT:TSX.V; PNXLF:OTC; OAY3:FSE)

	Retail: 63%
	Strategic Investors: 37%

63%

37%

^*Share Structure as of 9/29/2023

“Although this is a significant increase from the current North American production capacity of 6,000 tonnes LCE, it’s still more than 128,000 tonnes short of what we anticipate will be required by the battery plants. As such, we anticipate the fundamentals underlying lithium demand to remain robust.”

Ownership and Share Structure

The company doesn’t officially share any information regarding management or institutional ownership, but Reuters reported that about 37% was owned by strategic institutions in the most recent reporting.

Its largest shareholders are Lithium Investment Partners LP with 17.68%, Jack Yetiv with 15.24%, Joseph J. Grosso with 3.05%, and the CEO Cacos with 1.04%, according to Reuters.

Its market cap is CA$77.39 million, with 130 million shares outstanding. It trades in a 52-week range of CA$0.60 and CA$0.19.

Important Disclosures:

As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Argentina Lithium & Energy Corp.
Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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