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Atlas Lithium Company (NASDAQ:ATLX) has surged 290.84% (YoY) boosted by the rising world demand for lithium and accelerated useful resource mobilization for its major Brazilian mines. In keeping with the transition to inexperienced vitality, the corporate introduced that its first lithium manufacturing slated for This fall 2024 had been absolutely funded. ATLX is a manufacturing goal of no less than 300,000 tons (per 12 months) of “battery grade spodumene focus (containing lithium)” by 2025.
Thesis
I imagine that the partnership between Chinese language corporations; Chegxin Lithium, Yahua Industrial Group, and Atlas Lithium is strategic in not solely offering financing for the previous’s lithium exploration but in addition market windfall. In its announcement, ATLX said that these two chemical corporations are integral “suppliers of lithium hydroxide to Tesla, BYD, and LG.” Of particular be aware is the truth that ATLX has managed to lift its capital expenditures by means of 2023 with out diluting its inventory, rising its inventory worth by greater than 383% from its IPO worth of $6.
File win in opposition to Odds
Regardless of recording no revenues, ATLX’s CEO, Marc Forgassa has managed to transform the corporate from a start-up standing to a market capitalization of $322 million. Atlas additionally acquired a $20 million funding from Lithium Royalty Company (OTCPK:LITRF) to fund its Part 1 lithium exploration in Brazil in return for a gross overriding income royalty (GOR) of three.0%. Atlas’ administration is producing higher lithium with inexpensive property.
Noteworthy, is that regardless of being a U.S. agency, Atlas owns your entire mineral rights (for all of the minerals making up EV batteries) from its Neves undertaking space in Minas Gerais in Brazil. This location is a lithium-mining pleasant zone in South America. Because of this possession, Atlas was capable of formalize its settlement with Japanese improvement agency Mitsui & Co. (OTCPK:MITSY). Along with the $20 million funding for Phase1 (from institutional lithium traders), Atlas additionally negotiated an offtake funding settlement that included “a possible funding of $65 million granting Mitsui the precise to buy 100% of the lithium produced in its Brazilian mines.” On the time Atlas had envisioned a deliberate output of 150,000 tons of lithium focus, and with a prepared purchaser in place, Atlas appeared all set.
Talking throughout this announcement, CEO, Marc Forgassa said,
Our lithium property are world-class and due to this fact we’re enthusiastic concerning the prospects of a long-lasting and mutually rewarding partnership with such a widely known and global-reaching firm as Mitsui.”
This memorandum of understanding sweetens the take care of Chegxin Lithium and Yahua Industrial Group, who in return dedicated about $50 million to Atlas for the completion of Part 2 manufacturing of lithium focus. Within the settlement, a $10 million fee to Atlas could be used as fairness (with the inventory worth at $29.77) and the remaining $40 million could be prepayment in return for 80% of the corporate’s Part 1 lithium production- in a non-dilutive transaction. These two corporations are doubling the supply earlier made by Lithium Royalty Corp. indicating Forgassa’s Asian journeys searching for partnerships are steadily paying off.
Proximity to different lithium tasks
There are numerous lithium concentrator mining tasks situated within the Brazilian Minas Gerais state. Along with Atlas Lithium, Sigma Lithium Corp (SGML) has a high-grade Tier 1 lithium undertaking known as Grota do Cirilo. The corporate had estimated that the undertaking was alleged to ship about 27Mt of lithium concentrates by Could 2023. As of September 30, 2023, the corporate raised its manufacturing forecasts to vary from 26Mt to 30Mt. after it realized its first income of $95.7 million and a gross revenue of $61.8 million. Sigma Lithium is trying to increase its lithium manufacturing estimate to above 110 Mt (representing a rise of greater than 25%) to the present open pit deposits.
One other firm which I imagine has substantive tenements within the Minas Gerais location contains Latin Assets (OTCPK:LRSRF) with its Salinas Lithium undertaking. The Australian miner secured $22 million to help lithium exploration in its Brazilian mine into 2024. After this financing dedication, Latin Assets introduced expanded drilling conquests on the Colina deposit that sits inside the Salinas Lithium undertaking. The small print from the Colina deposit embrace the next, I quote
A peak intercept at Colina of 13.56m studying 2.03% li thium oxide (LiO2) from simply 98.44m, with a most width of 26.85m going 1.39% lithium oxide (LiO2) from 260.75m. Different headline outcomes embrace a 15.7m hit at 1.59 % lithium oxide from 206.09m, 20.74m grading 1.42% lithium oxide (LiO2) from 335.45m and 17m going 1.55% lithium oxide (LiO2) from 139m.
I may even deliver into the image, Lithium Ionic, a Canadian miner with its Itinga and Salinas tasks (in Brazil) situated Northeast of Minas Gerais overlaying greater than 14,000 hectares within the area. The corporate introduced a 20,000m drill program in the direction of H2 2023 with no less than 9 tenements within the area overlaying about greater than 5,700 hectares. In its Company Presentation, Lithium Ionic defined that it had signed an MOU with Make investments Minas (the area’s state division) that gave the corporate a precedence standing in its two major drilling tasks.
From my perspective, these spodumenic performs particularly within the Brazilian context are buying and selling at discounted charges (some principally within the penny inventory class) making them very enticing. By September 2023, Sigma Lithium had already initiated a strategic assessment that might finally see the sale of the corporate’s core asset, the Brazilian Grota do Cirilo valued at about $155 million. I imagine SGML could also be bought by Q1 2024 whilst Atlas Lithium plans to develop its manufacturing in the identical interval. Sigma has already commercialized its mineral deposits elevating the stakes for ATLX’s performance within the world sphere. The price of spodumene ranged at $300 to $400 (per metric ton).
Utility of New expertise and sources price
ATLX’s Marc Forgassa has reiterated his dedication to creating the corporate, “the second-high-grade producer of focus” whereas supplying the commodity at “a aggressive price.” To realize this, the corporate plans to assemble the modular on-site “able to producing 150,000 mt each year of 5.5% to six% of spodumene.” This manufacturing will make the most of the dense-medium-mid separation approach.
Moreover, the US Division of Power (DoE) printed new necessities in December 2023 geared toward encouraging the availability of batteries and different electrical car elements. The draft coverage is geared toward rising the availability chain of “clear automobiles” referring to the carbon-less emissions by means of subsidies and tax credit. For my part, ATLX (after it begins manufacturing) qualifies to obtain subsidies for its supplies (particularly since these commodities may even be exported again to the U.S.). With these subsidies, ATLX will, as Marc predicted increase its stage of competitiveness for his or her inexpensive sources. This state of affairs may even maintain in case the corporate decides to enter a merger & acquisition with one other firm.
One other report additionally signifies that the annual processing capability of Lithium in Europe might improve to about 650,000 mt by 2028. Moreover, the continent has seen “greater than 20 mining and refining operations going to full-scale industrial scale.” For my part, these novel refining tasks point out the looming scarcity and low manufacturing of lithium. The article additionally estimates that the worldwide demand for lithium might attain 1.87 million metric tons by 2027 from 884,000 mt in 2023. This improve will doubtless be fueled by the rising electrical market battery.
Different alternatives to think about
In contrast to different junior miners, ATLX has continued to increase its drilling tasks within the Lithium Valley of Brazil. After manufacturing commences hopefully in 2024, ATLX is scheduled to gather added income with extra traders being added to the corporate’s portfolio. Atlas Lithium’s neighbor, Sigma Lithium could also be up on the market elevating consideration to ATLX. The corporate’s administration led by Marc Forgassa may develop drilling campaigns for different metals resembling iron, gold, and uncommon earths amongst others.
ATLX’s money place as of September 30, 2023, grew 5,625% (YoY) to $22.9 million from $0.4 million owing to the financing settlement by Mitsui & Co. I anticipate extra financing into 2024 that may cowl the corporate’s operational actions.
Dangers and Valuation
Atlas Lithium has managed to lift its CapEx going into 2024 with out promoting its excellent shares. Its major goal of $49.5 million could also be met with the $50 million financing from the 2 Chinese language corporations, “Chegxin Lithium and Yahua Industrial Group.” Nonetheless, a rise in operational bills in addition to R&D in 2024 might necessitate dilution to cowl the unexpected bills. This dilution might have an effect on the inventory’s worth.
ATLX generated much less money from its operational actions within the 12-month trailing to September 2023 as in comparison with the 12-month trailing to June 2023. This quantity decreased 81% to $2.1 million from $11.6 million within the earlier quarter. Continuous lower into 2024 will have an effect on the runaway steadiness in 2024 when it expects to start manufacturing.
There additionally stands the chance of the manufacturing attracting environmental protests, particularly from activists. ATLX might want to conduct environmental audits and share them with the native communities on the clean-energy manufacturing mechanisms in use through the drilling course of to avert unfavourable activism. In the long run, weaker demand for spodumene might have an effect on the product’s worth thereby affecting manufacturing.
With reference to valuation, Atlas Lithium Company’s price-to-book ratio stands at 47.39 in opposition to the business common of 1.75 (representing a rise of greater than 2,600%). This metric exhibits the inventory is barely overvalued and we may even see some draw back into 2024.
Backside Line
ATLX is working better off boosted by company investments because it prepares for its first manufacturing in 2024. Already, the corporate’s Neves undertaking has been funded to the tune of $20 million from Lithium Royalty, with different corporations leaping on board into 2024. With time, ATLX may even diversify its drilling actions as a result of availability of extra sources at its Brazilian mining base which as we have now seen is pleasant towards mining. The corporate’s administration is assured of commercializing the sources giving hopes for income introduction. I’d suggest a maintain score of the inventory as we await the useful resource report within the first quarter of 2024.
Editor’s Observe: This text discusses a number of securities that don’t commerce on a significant U.S. trade. Please pay attention to the dangers related to these shares.