Lithium has gotten my attention this spring as the Global Lithium ETX (LIT) has quietly climbed to 5 year highs ($29.34). Indeed prices have not been this high since the summer of 2012 and there is substantial upside before hitting early 2011 peak of $45. The lithium spot price itself is at an all time high north of $20,000 USD/tonne having quadrupled since 2015.
Goldman Sachs has called lithium the “new gasoline” and there is a supply problem according to GS:
“Total lithium demand today is 160,000mt of lithium carbonate equivalent (LCE) per year. We estimate that a 1% increase in battery electric vehicle (BEV) penetration would increase lithium demand by 70,000mt of LCE/year (or roughly half of current global demand for lithium). In order for electric vehicle penetration rates to hit industry forecasts, significant capital investments to expand commercial lithium capacity will be needed, particularly from producers and/or EV OEMs.”
Annual growth was 11% in the lithium sector from 2010-2015 but is currently forecast to average 16% through 2025.
Lithium prices will remain firm if not strong for years so I’ve searched for unique companies to take advantage of this environment. Millennial Lithium (ML/MLNLF) is in a very attractive position with a terrific asset being fast tracked and a disconnected valuation in their share price. Technically, as I will show below, the stock couldn’t look more setup for a run than it is right now. But first some color on their projects.
Argentina is clearly the place to be to develop a lithium brine asset into production relatively quickly and profitably. Argentina already produces 17% of the world’s lithium and the environment since the election of President Macri is extremely business and mining friendly. There are more than 500,000 people employed in the mining industry in Argentina and the government is very motivated to attract international capital.
Millennial owns a 100% option to acquire the advanced stage Pastos Grandes flagship project in the “Lithium Triangle”. The land size is significant at 25,000 plus hectares and the company is currently drilling to define a maiden 43-101 resource. The initial resource will be defined in Q3 followed by a PEA (preliminary economic assessment) being released by year end (work was initiated in Q2).
Drilling is ongoing and we see a new release out this morning with very robust results (535 milligrams per litre (mg/L) from 93.5m to 475m or 381 meters and open at depth).
I expect more news on drilling and as the company marches towards the resource definition and PEA release the stock price should climb nicely. In fact, once at the PEA stage, we can compare Millennial’s value with the current valuation of Lithium X (LIX) which has a very similar project in terms of size, grade, virtually everything important. To catch up to a LIX comp now, ML.V would need to triple from the current $1.40 price point. The table below pulled from ML’s investor presentation shows that the best value in Argentina based lithium explorers/developers is in Millennial Lithium.
Now let’s look at the charts which is really why I’m so bullish currently.
After exploding in 2016 from pennies to $2.50 per share, Millennial has consolidated for 9 months! Sticking to the 50 week moving average like glue, we see the 3 “hangers” dipping below the trend line then recovering each time. This is a signal that the selling is being exhausted. MACD circled in the lower right corner has flattened and is about to turn higher. Once the dark line crosses above the red line, we will see a multi month new rally, which could be triggered as soon as this week or next. The arrows on the right are close to what I expect of the trajectory although it may be a bit more of an angled movement taking more than a couple of months to trade above the previous high of $2.50.
I think it is an easy call to put a 6-9 month price target on ML.V of the previous high at $2.50, which is over a 70% gain from the current price of $1.43. The time line is along the track of a post PEA release run near year end, giving Q1 2018 as the cushion to make a push into the mid $2’s. However, this could happen much sooner.
Yesterday on the daily chart we saw another “hangman” showing buyers stepping in on the dip intra-day similar to what we’ve been seeing on the weekly pattern. This is bottoming activity folks…very basic stuff and bullish. The top blue line will be the first area of resistance around $1.80 where it hit in early February. After that some $2 overhead but then blue skies to $2.50. The stock may need a couple/few runs at $2.50 to break into new highs but we’ll cross that bridge when we arrive. On the way is a 70% potential gain so I suggest readers add ML.V up to $1.50-$1.55 and MLNLF up to $1.15.
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