Lithium stocks’ fall from favour has created a swath of buying opportunities across the sector Macquarie says, with its analysts keen on no less than 16 ASX-listed Australian producers and explorers.
The broker says a buying opportunity has presented itself for long term investors, and says there are significant gains to be made on some stocks, listing 16 with an “outperform’’ rating.
Macquarie says in a note to clients that Piedmont Lithium boasts a valuation upside of more than 200 per cent from current levels while Mineral Resources, Allkem and Pilbara Minerals could deliver 100-160 per cent.
“We believe this is a buying opportunity for investors, especially the ones who look past
short-term volatilities, to increase their exposure to a critical mineral at an attractive price level,’’ Macquarie says.
“Despite a softer market sentiment, we see value in lithium developers underpinned by resource quality and/or favourable jurisdictions.
“The short-term market trough creates an opportunity for strategic investors which could unlock value through business consolidation or offtake agreements.’’
Macquarie said it had formed its view following meeting with investors from across the region, “discussing a wide range of battery material topics’’.
“Given the recent midstream destocking, the market anticipates stronger correlation between upstream lithium demand and downstream electric vehicle sales.
“Macquarie auto analysts highlighted that August internal combustion engine-to-EV transition gained further momentum, driven by price competition, higher fuel prices, and launch of new models.’’
Pilbara Minerals is Macquarie’s preferred producer, while it says Patriot Battery Metals presents “the greatest upside on exploration over the near term’’.
“We see value in both Allkem and Liontown Resources, with Allkem offering unique exposure to both lithium brine in South America and spodumene production in Australia.
“Global Lithium Resources also offers great near-term exploration upside, in our view.’’
Cannaccord Genuity also likes Patriot, which this week provided a drilling update extending the strike length at its Corvette project in Quebec.
CG has a price target of $C17 on Patriot’s Canada-listed shares, against $C10.40 now, and rates it a speculative buy.
The company’s ASX-listed shares are trading at $1.21, down from a 12-month high of $2.07.
E&P Capital analyst Adam Martin, who attended a site visit at Corvette but does not formally cover Patriot, said the expansion potential at the project explained speculation a deal could be brewing at some stage.
“Our visit has reinforced our view that the Corvette deposit is a globally significant resource, with considerable room for expansion and a viable path to first production.
“In our view, this means the recent interest from Australian and International lithium majors appears justified.
“While any deal would have to factor in exploration upside, we get the sense that management wants to drill out the resource further before actively engaging in any M&A discussions.’’
Meanwhile lithium stocks continued to feature in the list of top 10 most shorted stocks on the ASX, with S&P Global Market Intelligence saying this week Pilbara Minerals acme in at number 3 with 10.9 per cent of its register outstanding, Core Lithium fourth with 10.5 per cent and takeover target Liontown ninth with 9.4 per cent.
On Monday Gina Rinehart’s Hancock Prospecting announced it had bought another 44.1 million Liontown shares at the takeover price of $3 each, pushing its stake to 10.69 per cent.
Liontown has accepted a $6.6bn takeover bid from US battery chemicals producer Albemarle which is currently going through due diligence.
Macquarie’s 16 “outperform” picks
Mineral Resources
Pilbara Minerals
IGO
Allkem
Argosy Minerals
Global Lithium Resources
Galan Lithium
Piedmont Lithium
Sayona Mining
Atlantic Lithium
Leo Lithium
Iluka Resources
Lynas Rare Earths
Core Lithium
Meteoric Resources
Patriot Battery Metals
Neutral
Liontown Resources (under bid)
Hastings Technology Metals
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