MoneyTalks: Wilsons' Sam Catalano reckons lithium is way under-owned and offers these 3 gems for the long-haul

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Wilsons Advisory senior mining analyst Sam Catalano.

What’s hot right now?

Catalano said despite a muted reception for the Critical Minerals Strategy 2023-2030 unveiled by Federal Resources Minister Madeleine King this week, Australia remains the world’s largest lithium producer.

Australia has numerous ASX companies exporting their operational expertise by way of joint ventures on offshore assets, often with global lithium players.

Catalano strongly backs lithium for the long haul, describing the past seven month period of price retracement as “sobering” but also, “minutiae” which simply reflects normal sentiment swings and stocking cycles.

“While everyone expects lithium stocks to benefit from the low-carbon energy transition, the structural dislocation implied by lithium’s chronic shortfall isn’t properly factored into the market’s price predictions,” he said.

Catalano reckons most forecasters of lithium pricing are reverting to “long-term incentive price” forecasts far too early.

“They implicitly assume supply/demand equilibrium in only five years, but the massive structural shift to decarbonisation and electrification will take decades,” he said.

Catalano argues the lithium market may only reach equilibrium when the energy transition is complete – perhaps close to the United Nations target of net zero by ~2050.

In addition to expecting long-term lithium prices above market consensus, Wilsons points to another thematic driver which Sam describes as “more splash than cash”.

According to a Wilsons analysis of ownership statistics, many Australian-listed lithium developers remain under-owned amongst the institutional investment community, when compared to developers focussed on other commodities.

The mid-cap lithium developer sector in Australia typically sees only ~10% institutional ownership, which is far less than copper, iron ore, or gold.

“Arguably, retail investors have bid up the prices of Lithium stocks ahead of valuation levels where many institutional investors feel comfortable,” he said.

“However, we believe these to be quality emerging businesses which will unlikely remain under-known and under-owned for long.”

Top Picks

Leo Lithium (ASX:LLL)

A bargain at 56 cents when first nominated as a Wilsons’ top pick in early May, LLL remains the firm’s favourite at double that price $1.12.

Catalano said LLL’s recently inked share placement, mine expansion and processing deal with Chinese entity Ganfeng Lithium (LLL’s existing JV partner in the Goulamina asset in Africa) is a key marker in the evolution of the lithium market’s geopolitical outlook.

He said If all goes to plan, some of the JV’s increased offtake will be diverted to their new downstream lithium processing plant in Europe, the shipping timeframe for which is 7 days compared with 7 weeks from Western Australia, for example.

LLL this week announced it has upgraded the MRE of Goulamina by an impressive 48.2%, as it works on becoming one of the largest spodumene mining operations in the world.

Wilsons has a 12-month target price of Target price $1.75.

Atlantic Lithium (ASX:A11)

Catalano said A11 is a “relatively under-covered and under-known” lithium development company.

Dual listed on the ASX and London’s AIM market, A11’s flagship Ewoyaa Project is located in the mining-friendly jurisdiction of Ghana.

Piedmont Lithium (ASX:PLL) have an earn-in agreement with Atlantic, and are expected to fund the lion’s share of capex (which they estimate at US$160 million) for a 50% stake in Ewoyaa.

PLL hold 50% of the offtake for the life of the mine, but the other 50% of material remains uncommitted. Catalano said this represents a key trump card for A11, particularly given the project’s strategic location in Western Africa.

As for the March 2023 short-seller report levelling allegations of corruption at A11, Wilsons believes these allegations are unfounded, and view the share price weakness on the back of the report as a buying opportunity.

A11 only listed on the ASX in September 2022 and Catalano said it is still a relatively under known and under-owned opportunity amongst the ASX-listed lithium developers.

Wilsons has a 12-month target price of $1.10 on A11.

Ioneer (ASX:INR)

Catalano calls INR a potential sleeping giant.

INR is developing the unique Rhyolite Ridge Lithium-Boron project in Nevada, which has been caught up in a lengthy permitting process, and is also due a refresh of relatively old feasibility study numbers.

“Despite Rhyolite Ridge having potential as a best in class asset, the stock has perhaps been forgotten by some investors given it has been stuck in the permitting stage for quite some time,” he said.

INR recently announced a 168% increase to the unique and high quality siltstone-claystone resource.

Catalano said the presence of significant Boron provides a key differentiating factor for the Rhyolite ridge deposit, and could make INR among the lowest cost – if not ‘the’ lowest cost – carbonate producers in the world.

Wilsons has a 12-month target price of 55 cents on INR.

The LLL, A11 & INR share price today:

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.