Share prices of major lithium producers have rallied after the US Senate recently passed an anti-inflation bill. “The bill provides subsidies for electric vehicles and plug-in hybrids, and some minerals critical to manufacturing, including lithium, come from the United States or its free trade partners,” said Seth Goldstein, a Morningstar strategist who represents the mining industry. As follows. As expected, the House of Representatives passed the bill, confirming the positive outlook of lithium producers.
Lithium is an essential raw material for batteries used to power electric cars. Recently, investors are increasingly looking to lithium miners, as demand for electric cars is increasing, and this material is becoming more important and valuable.
Australia, one of America’s free trade partners, has one of the world’s largest resource mines. According to the US Geological Survey, Australia is by far the world’s largest producer of lithium, with production having quadrupled since 2017. Mineral Resources is Australia’s largest lithium producer with a market capitalization of approximately $11 billion.
The company’s lithium business accounts for more than 60% of Morningstar’s fiscal 2023 revenue forecast, a significant increase from 2022 to 20%. However, Morningstar’s equity analyst Mark Taylor gives Mineral Resources a No-Economy Treasuries rating and a negative mode trend.
Taylor argues, “Current supply-demand imbalances are expected to normalize eventually. Volatile energy prices, driven by the Russian invasion of Ukraine, have made the move from fossil fuels to cleaner alternatives more attractive, driving demand for electric cars — and therefore lithium — increased. At the same time, there is a risk that supply will decrease. The 19 lockdowns recently ordered in China have heightened concerns about the supply of essential parts.
Share of mineral resources (MIN) is now trading at around $60, a sharp discount from the $80.00 fair value Morningstar analysts assign to the stock. It’s a 4-star stock, meaning it’s underrated according to Morningstar.
Goldstein added: “We believe the new US legislation will benefit all lithium producers as demand increases. However, supply has not increased at the same rate, so prices are expected to remain above production costs for years to come. Hatch.”
The Best choice Among lithium producers is Goldstein Lithium Americas (LAC), which has a No Mod rating and 5 stars. The stock is trading below Morningstar’s fair share of $65. New US legislation has a major impact on this business; It has a lot to gain as it develops the Thacker Pass project, the largest lithium mining project in North America.
For investors wary of the risk associated with such a large company, Goldstein recommends Albemarle (ALB), the world’s largest lithium producer, has a narrow moat rating. The stock is trading at a roughly 30% discount to Morningstar’s $350 fair value.
“It is the only lithium producer that currently has mining operations in the US, although it produces only about 5,000 tonnes per year. However, the company is developing two other wells in the US and is building a fully integrated lithium production facility. Australia may qualify for incentives under the US Inflation Act. .”
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