The lithium sector has been swept higher in response to a flood of supportive news from auto makers, the US government, and Elon Musk with his quip last month that the business was a licence to print money.

But up until now, there has not been much rubber hitting the road in terms of earnings reports from the established lithium producers to confirm that their recent outperformance of all other mining stocks is warranted.

That changed during the week when Pilbara Minerals (ASX:PLS) announced that more product and sharply higher prices for its spodumene concentrate had powered it from a loss of $51.4 million in FY2021 to a $561.8m profit in FY2022, most of it arriving in the second half.

The second half step up in production and prices is continuing on with gusto into the new financial year. So much so that analysts have Pilbara’s FY2023 profit weighing in at around $2 billion.

That’s plenty of rubber, and it reflects a bumper outlook that the market is now starting to price into the lithium stocks for the next three years or so – the sensible outlook period in commodity markets, even for one like lithium where the once in a lifetime electric vehicle thematic is pushing things along.

Macquarie has just upgraded its price outlook in response to the “current tight lithium market and buoyant spot lithium prices.’’

It lifted its peak pricing assumption by 2% to $US5,000t on a realised quarterly basis (Pilbara averaged $US2,382/t in FY2022) and pencilled in upgrades to annual prices of 55% for CY2023, and 107%, 114% and 110% for the following three years.

Needless to say Macquarie has “outperform’’ ratings on all of the big names, with share prices targets that are 50%-80% higher than the ruling market price as of August 22.

On Macquarie figures, Pilbara could post a $2.1 billion profit in FY2023, $2.2bn FY2024, and the same again in FY2025. It has a $5.60 price target on the stock compared with its mid-week price of $3.36.

It is a similar story across the other big names – IGO Ltd (IGO, 74% upside implied by Macquarie’s share price target), Mineral Resources (MIN, 58% upside), Allkem (AKE, 70% upside), and Liontown (LTR, 49% upside).

So the lithium juggernaut is set to roll on. At Tuesday’s profit call Pilbara managing director Dale Henderson put any nervous nellies on the phone line at ease.
Henderson said there was strong demand from existing customers from all corners. “If we could produce more they would take more.’’ What’s more, inquiries from new customers were coming “thick and fast.’’

The big end of town in the lithium stocks is not Garimpeiro’s preferred hunting ground. So today he takes a look at an early stage stock in the lithium space that offers leveraged upside to the industry’s boom conditions.

DART MINING (ASX:DTM): Trading at a princely 7.6c for a market cap of $10.2m. The tiny market cap is justified on the unfolding copper-gold potential of Dart’s hunting in north-east Victoria alone.

But somewhat amazingly, the stock has been left at its modest level despite Dart recently signing up Chile’s lithium king SQM to a lithium exploration joint venture covering a swarm of pegmatites around Mitta Mitta and Eskdale, known well to Garimpeiro for their pubs and trout holes.

SQM is one of the big three of the lithium business and sports a $US28 billion market cap. It is best known in this market for its joint venture with Wesfarmers (ASX:WES) in the $US700m integrated development of the Mt Holland lithium project in WA.

And it recently reported its June quarter net earnings had surged 857% from the previous corresponding period to $US859m thanks to increased sales volumes and a 701% price increase for its lithium chemicals production.

So here we have a true lithium powerhouse scouring the world for new lithium exploration opportunities and what does it settle on – a joint venture with little old Dart in north-east Victoria under which it could spend $12m to earn a 70% interest. Maravilloso!

As suggested earlier, investors have looked the other way since the joint venture was announced. It seems there is a thought that only WA and Northern Territory can host big lithium deposits. SQM for one thinks otherwise.

Watch out for some news from Dart on what the joint venture’s initial work plan will be.

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