Huge upside for ASX fab five as lithium lifts: Canaccord Genuity

Canaccord Genuity says the lithium market has bottomed out – and it sees upside of as much as 384 per cent in these five ASX stocks.

Lithium prices are heading up, says Canaccord – and these stocks are likely to elevate with it.

Canaccord says the lithium market has bottomed out – and it sees upside of as much as 384 per cent in five ASX stocks.

When Canaccord Genuity talks about lithium people listen, says respected former investment banker, analyst, and lithium market commentator Howard Klein.

“No broker has covered lithium longer, has as big research coverage or done more equity placement,” he tweets.

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“Seems they were waiting for a bounce to call the bottom.”

Which Canaccord has, in a May 5 note.

“We think the recent lows in reported Chinese chemical pricing of ~$US23/t are not sustainable, nor reflective of the overall market and outlook, and on a medium-term view see reasons to be optimistic for a Chinese-led recovery from 2H’23,” it says.

“Lithium equities are down 25-30 per cent on average since 2022 high, reflecting weaker pricing.

“The potential for price rises into 2H’23 represents a … powerful catalyst for shares, in our view.”

It supports late April commentary from hard rock colossus Pilbara Minerals (ASX:PLS) which also pencilled in a potential rebound for the second half of the year.

And remarkably, even permabear Morgan Stanley admits lithium is “looking up”.

“Lithium prices are bouncing after a five-month sell-off, as sentiment is improving, midstream inventories have fallen and actual supply growth has disappointed so far this year,” MS wrote, also in a May 5 note.

“We see some upside risk to our 2H23 base case forecast of an average China Lithium price of $US25/kg.”

My, my, #Lithium must really be a buy...

Perennial bears @MorganStanley sees upside risk to their 2H 2023 price forecasts... pic.twitter.com/743OCTjwud

— Howard Klein (@LithiumIonBull) May 5, 2023

Disappointing supply growth? No surprise there, for anyone who follows industry veterans like Canaccord, Benchmark Mineral Intelligence or Joe Lowry.

Lithium’s dirty little secret, Lowry reckons, is the industry has never built a mine on time.

Canaccord agrees, noting the industry’s poor track record of delivering projects on time (average delay of three years, excluding ramp up), driven mostly by permitting/financing/ technical challenges.

Here are the top five ASX stocks mentioned by Canaccord its note, which Klein has obligingly ranked by upside.

When @CG_Driven (EF Hutton) talks, people listen...

No broker has covered #lithium longer, has as big research coverage or done more equity placements.

Seems they were waiting for a bounce to call the bottom. Stocks ranked by % upside

Not advice. DYOR pic.twitter.com/8XDDFQ7gM7

— Howard Klein (@LithiumIonBull) May 5, 2023

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Five with huge upside

LITHIUM POWER INTERNATIONAL (ASX:LPI)

May 5 share price: 31c

Canaccord share price target: $1.50

(+384 per cent upside)

LPI is updating the DFS on its Maricunga brine project in Chile, where it has produced lithium carbonate from test ponds with a 99.92 per cent purity.

That’s well above the 99.5 per cent grade typically required for battery applications.

A stage 1 DFS put a $US626 million capex bill on the development, which would produce 15,200t of LCE annually over a 20-year period, with an IRR of 39.6 per cent.

Canaccord’s Reg Spencer says brine players such as LPI are attractive M&A targets, especially to the Chinese, due to their scale potential.

“The Chinese are effectively locked out of Australia and North America, so if you have a good brine project in South America, you are going to attract the interest of the Chinese,” Spencer says.

“For those guys you are looking at companies like Galan Lithium (ASX:GLN) and Lithium Power (ASX:LPI) – companies that have long life and scale potential.”

LEO LITHIUM (ASX:LLL)

May 5 share price: 55c

Canaccord share price target: $2.20

(300 per cent upside)

LLL owns half of the monster 143Mt Goulamina project in Mali, which is under construction.

LLL could potentially hit cash flow from Goulamina by the end of the year, eyeing two 30,000t shipments of direct shipping lithium ore in the fourth quarter.

Once it is fully built in 2024, Goulamina – a JV with China’s largest lithium company, Ganfeng – will have a more than two-decade life ahead of it.

In the first stage, 506,000t of spodumene will be shipped each year, ramping up to 831,000tpa in a second phase.

Last month, Argonaut said LLL could triple in value.

“Successful project development and export of product from LLL should see a major re-rating in market value,” said Argonaut.

“While nothing can be done about the project’s host jurisdiction, we expect timely development progress, endorsement by sophisticated institutional funds, comfort in funding options and successful execution of the logistics strategy to unlock value.”

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GALAN LITHIUM (ASX:GLN)

May 5 share price: 99c

Canaccord share price target: $3.30

(233 per cent upside)

Cannacord sees this as another potential takeover target.

GLN’s high-grade HMW lithium brine project in Argentina could eventually produce 60,000t of lithium carbonate equivalent every year.

Located alongside Livent’s major operating El Fenix project, Allkem’s Sal de Vida and POSCO’s Sal de Or, HMW boasts a freshly upgraded 6.6Mt LCE resource at a grade of 880 mg/l Li.

The higher confidence measured portion alone – 4.4Mt at 883mg/L – is one of the largest, high-grade resources in Argentina, GLN says.

Permit approval for a 4000tpa LCE pilot plant is due in the first half this year, with construction to follow. A feasibility study on HMW is also due out soon.

Full scale production is pencilled in for 2025.

GREEN TECHNOLOGY METALS (ASX:GT1)

May 5 share price: 60c

Canaccord share price target: $1.90

(208 per cent upside)

In 2021, GT1 inked a $9.2 million deal with Canadian gold explorer Ardiden (ASX:ADV) to develop ADV’s non-core lithium assets in Ontario.

Since then, it’s been a blur of activity. Aggressive drilling culminated in a recent 4.5Mt maiden resource at the Root project, taking its global inventory across that and the more-advanced Seymour Lake to 14.4Mt.

There’s plenty of room for growth, says the company.

With big shots like Primero, Lithium Americas Corp and AMCI in its corner, GT1 is targeting first spodumene production at Seymour Lake (9.9Mt at 1.04 per cent) in 2025.

A PEA on the project – the equivalent of a scoping study – is due out mid-year.

DELTA LITHIUM (ASX:DLI)

May 5 share price: 45c

Canaccord share price target: $1.30

(178 per cent upside)

DLI is completely focused on achieving production as quickly as it can, punching in cumulative 25,000m of drilling a month across its Mt Ida and Yinnetharra hard rock projects in WA.

It is one of the few ASX explorers with a lithium resource in the bag at Mt Ida (12.7Mt at 1.2 per cent). Extensional drilling hits like 90.1m at 0.95 per cent indicate this thing could get a whole lot bigger.

The company is aiming to kickstart a DSO mining operation at Mt Ida by the end of the year.

Then there’s Yinnetharra further north, where first pass drilling at Malinda is hitting ore grade lithium from surface and to a depth of 350m, along +950m of strike.

With the recent discovery of lithium 20km from Malinda at the Jamesons prospect, DLI boss David Flanagan says “Yinnetharra is looking more like a province than a project”.

READ: (re)Introducing Delta, one of Australia’s most exciting lithium stocks

This content first appeared on stockhead.com.au

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