America’s Lithium Jackpot and the Small Company Poised to Capitalize
Until mid-2021, Lithium had been a relatively quiet metal. Prices generally between $10,000 and $20,000 per metric ton (mt). Then, in the fall of 2021, prices exploded, eventually peaking around $84,000 per metric ton. Unfortunately, 2023 hasn’t been kind to Lithium. Prices have fallen roughly 75%, and we still have two months left in the year.
It’s fair to say price got ahead of itself in 2022. As more Lithium came online, prices retraced; however, it won’t take long for the industry to work through the short-term supply gut. Depending on your analyst preference, demand should exceed supply sometime between 2024 and 2026. Yes, that’s a wide range, but demand and supply are volatile, typical of a “new” industry.
Lithium, as a metal, isn’t new, but the rise of electric vehicles is recent. That’s been the driving factor of demand, no pun intended. Elon Musk has said, “Lithium batteries are the new oil,” and getting into the lithium business is a “license to print money.”
Ironically, for many lithium mining companies, that hasn’t been the case…yet.
While most investors in traditional mining stocks are accustomed to majors versus junior miners, Lithium has yet to make that distinction. Essentially, it is Albemarle (ALB), the major, and everyone else, the juniors. So, when searching for the next Albemarle, why not start with a company with a surface deposit of Lithium located within 1 mile of Albemarle’s lithium brine operations?
That’s precisely what you’ll get with Noram Lithium Corporation (NRVTF).
Noram is a junior lithium explorer, holding 2800 acres in Clayton Valley, Nevada. Their current project, Zeus, sits less than one mile away from Albemarle’s 60-year-old Silver Peak lithium brine project. Within its perimeter, Noram has 146 placer claims and 136 lode claims.
Although Noram Lithium Corporation (NRVTF) is classified as a junior miner, the Zeus project is quickly moving past the junior moniker. Over the past six years, the company has completed six phases of drilling that includes 82 holes. The results of the drilling program put Zeus on the path to becoming the fourth-largest lithium resource in America.
The current Measured and Indicated Resources on the property equals 5.17 million metric tons. Currently, there are additional Inferred Resources of 1.09 million metric tons. That’s over 6.2 million metric tons, but even if we exclude the Inferred Resource, the resource is immense, especially for a company with a market cap of around $30 million.
If I put pen to paper, at $24,000 per metric ton, the 5.17 million metric tons is worth nearly $125 billion.
$125 billion.
Obviously, Noram can’t pluck 5 million metric tons from the ground all at once, even if the deposit is essentially surface level. Based on management’s projections, the life of the mine could be as long as 130 years. Once the permits and processing are ready to roll, the company anticipates processing up to 32,000 metric tons annually. That equates to $775 million per year in revenue.
Management’s focus for 2023 and 2024 is derisking the company.
Noram Lithium Corporation (NRVTF) isn’t without its challenges, though. At its current market, capital can be expensive. The company intends to build its processing plant, which comes with an estimated cost of $500 million. When you venture into projects of this size with half-billion cost estimates, it wouldn’t be surprising to see that trend higher, given recent inflation and a tighter labor market.
Management believes it can obtain attractive financing from the Department of Energy (DOE) or the U.S. Government for 75% of the construction costs at a rate of 10 basis points above the Treasury market. A grant could cover the remaining costs of construction.
Despite the high cost, a grant used to offset 25% of the construction costs would be a nine-figure benefit to the company’s book value, so the overall impact of building the processing plant could be a huge positive to the value of Noram Lithium Corporation (NRVTF).
Additionally, Noram will focus on its highest-grade core deposits first. That should accelerate revenue closer to $1 billion annually in the first 10 to 15 years. That will create significant cash flow to not only operate the company but also service the debt incurred to build its processing plant.
The other major challenge the company faces is access to water to process its lithium. Albemarle’s adjacent Silver Peak lithium mine holds the water rights in the area. Currently, Noram is exploring several possible solutions for their water needs. A solution, once announced, could act as a strong catalyst for the stock.
Going into 2024, three catalysts await Noram shareholders. First, optimizing around the high-grade plan and developing a mining plan to extract the highest grade and maximize income in the early years. Second, a solution to Noram’s water challenges. Third, completing a Pre-Feasibility Study (PFS) so the company can move forward with permitting.
Although capital or funding may be needed for the processing plant, the company has a strong balance sheet and capital to carry it through much of its de-risking process. With the ability to mine lithium at a projected cost of $3400 per metric ton, the margins are robust. Add in a strong insider position of 12% plus a sizeable single stockholder with another 15.7%, and shareholder interests become aligned.
With a market cap hovering around $30 million and taking the potential catalysts, strengths mentioned above, and the pure magnitude of the resource into accord, the potential reward compared to the risk of owning Noram Lithium Corporation (NRVTF) makes it a compelling consideration for an investor.
