Our Analysis
On April 21, 2023, Chilean President Gabriel Boric made shockwaves around the world following the announcement that he intends to nationalize much of the country's lithium industry to redistribute the country's mineral wealth among the people. Various CEO’s of mining stocks operating out of the country were quick to downplay the announcement. Despite best efforts, this wasn’t enough to reassure many investors, with shares Sociedad Quimica ($SQM), and Albemarle Corporation ($ALB), down over 17% and 20% on the month respectively.
When you consider that Chile has the largest proven lithium deposits of any country on earth by most geological surveys, coupled with the ever-growing demand for lithium to produce countless amounts of goods, it's easy to see how this announcement caused concern. This concern was especially high in countries like the United States, who is almost entirely dependent on foreign countries like Chile for their lithium needs. Moreover, this also served as a much-needed wake-up call that the US can't depend on countries like Chile or China for critical materials like lithium.
Seeing this unfold, I went to work looking to identify what US-based lithium miners might benefit from a potential lithium supply chain shift towards the United States.
Interestingly, this presented a challenge because to this day, the U.S. produces almost no lithium domestically. This comes despite the U.S. have several lithium deposits scattered across the country containing millions of tons of Lithium Carbonate. Further research revealed that main reason behind this stems from the fact that nearly all attempts to extract the white gold have been met with strong opposition from environmental groups, and/or substantial federal permitting delays. As you'd expect, this lack of domestic lithium production has forced many U.S.-based companies to look abroad for lithium and other rare-earth materials needed to produce goods.
This problem only increased last year when The Inflation Reduction Act was passed which allocated $360 billion to “green energy” investments, many of which are dependent on materials like lithium as their core ingredient. As a result, foreign companies have been the largest beneficences of the bill so far. For instance, late last year, The Department of Energy awarded a $200 million grant to lithium battery company, Microvast ($MVST). However, shortly after the announcement, it was discovered that while Microvast ($MVST) has corporate headquarters in Stafford, Texas, most of the company operates exclusively out of China.
Given the seemingly poor state of the domestic lithium industry, I wasn't sure that many U.S. stocks would be able to capitalize on this. However, this quickly changed following a newly proposed bill by West Virginia Senator Joe Manchin called the “Building American Energy Security Act of 2023”. In summary, this bill proposes to shorten the environmental review timelines for major of major federal renewable and fossil fuel projects to 1-2 years, compared to the potential 10+ years it can take today (Cough* The Willow Project). And despite the gridlock in Congress, this bill has potential to pass with widespread support from both parties, including President Biden, who expressed support for the bill the day it was announced.
If the bill is passed, there’s two specific lithium mining companies to keep an eye on as potential beneficiaries from expedited permitting timelines:
The first company being, Piedmont Lithium ($PLL), a lithium mining company several years into the application process to excavate a lithium mine in North Carolina, which upon its approval can fulfill it’s multi-billion-dollar lithium supply agreement with Tesla ($TSLA). Additionally, former Congressman Chris Jacobs purchased shares of Piedmont late last year. Not only does Jacobs have one of the best trading records of any member of Congress, but at the time of his purchase, he sat on the sub-committee for energy.
The second company is Ioneer ($IONR), an Australian lithium mining company which was recently granted a $700 million loan from The Department of Energy to help develop it’s mammoth lithium-boron project in Nevada, with recent geological surveys estimating it’s contains over 3.4 million tons of lithium carbonate. Assuming an average sales price of $26,000 per ton of lithium carbonate, that would equate to about $88 billion in lithium reserves alone, or about 200x higher than its current market cap of just $430 million, presenting a massive potential upside.
While these are just educated guesses, and it’s impossible to know for sure who would be granted expedited permitting timelines, be sure to check Quiver Quant as much as possible to see what stocks members of Congress are buying ahead of the potential vote on the bill, because let's be honest, if anyone knows what stocks are going to benefit, it'll be them.