Patriot Battery Minerals: The Long Game

This story features PATRIOT BATTERY METALS INC. For more info SHARE ANALYSIS: PMT

Despite weak views on near term lithium pricing, brokers line up with Buy ratings for Patriot Battery Minerals given the size and quality of its resource.

-Near term price weakness anticipated to prevail for lithium
-Patriot Battery Minerals’ project is nevertheless impossible to ignore
-North America a clear demand driver
-Buy ratings all round

By Greg Peel

The trajectory for lithium prices in the near term remains uncertain, given ongoing growth in global supply meeting falling demand. While analysts remain of the view longer term growth in electric vehicle demand will eventually rebalance the market, timing is up for dispute.

An industry response to low lithium prices is anticipated shortly, with mine shutdowns and/or halting of expansion projects expected due to unprofitability, but so far evidence has been limited. Some analysts believe a price floor is near, while others are less convinced at this stage. (See: Awaiting The Next Lithium Upswing, July 17). (https://fnarena.com/index.php/2024/07/17/awaiting-the-next-lithium-upswing/)

In late June, UBS reduced lithium price forecasts by -10% and -7% for 2024 and 2025, alongside -4% in 2026 and -10% for 2027. The broker believes lithium markets will remain “well-to-over supplied” and expects prices to remain lower for longer. Compared to consensus, UBS sits -20% below market forecasts, and remains Underweight the sector.

At the same time, Macquarie reiterated its Underweight recommendation for lithium miners, noting forecast price declines have a material impact on the broker’s earnings forecasts and valuation for stocks under coverage in the sector.

Yet, UBS retains a Buy rating for lithium miner Patriot Battery Minerals ((PMT)), and Macquarie retains Outperform.

No Little Corvette

Patriot’s Corvette spodumene project in Northern Quebec is one of the largest and highest-grade lithium pegmatite deposits globally. The project has the hallmarks of a tier one deposit, Citi suggests, in term of location, size and grade, and the company boasts an experienced team.

The broker expects ongoing exploration success to support resource upgrades. As it is, the inferred resource can support some 800ktpa of production for decades, which could underpin a sizeable multi-train 100ktpa chemicals facility. This would place Corvette in the top ten lithium mines by lithium carbonate equivalent (LCE) globally, Citi notes.

Corvette will underpin a significant lithium project ideally positioned and timed to feed the burgeoning North American battery supply chain by the end of the decade, Shaw and Partners suggests.

Corvette is already the largest lithium pegmatite in the Americas, this broker notes, and the eighth largest globally, with significant exploration potential remaining. Large spodumene crystals will allow for a simple process flowsheet and high recoveries.

Corvette will be the largest spodumene supplier in the Americas by the end of the decade, which is “superb timing”, Shaw notes, given the nascent 600GWh North American battery supply chain being built out by then.

Fighting the Dragon

While lithium prices have fallen from peak levels over the past 18 months, Shaw continues to forecast robust demand driven by the energy transition and, increasingly, resource nationalism as pressure builds on western EV and battery makers to diversify supply chains for all battery metals, including lithium, away from China.

Starting this year, the US will increase the tariff rate on lithium-ion batteries and battery parts from 7.5% to 25%, which will make prices of Chinese cells imported higher than those produced in the US, Shaw notes. The US imports a lot of Chinese batteries, but hardly any EVs, so the tariffs are largely pre-emptive.

The Big Three US car manufacturers are all on the EV bandwagon, although recent sales trends have disappointed and production has been cut back. Cost of living pressures are one reason. Also limiting production is Tesla, albeit US-based Tesla remains, for now, the world’s largest seller of EVs.

The tariff signal itself is important, Shaw believes. The US is doubling down on building out its own clean energy industries and showing it is willing to tie hundreds of billions of dollars in domestic subsidies with overt protectionism to do it, even with the Democrats still in office.

If Trump wins office, he has pledged to place a 10% tariff on every good imported into the US, and 60% on anything from China. Never mind the inflation implications.

Corvette’s location is a key positive, Citi suggests, in proximity to the Quebec battery hub, and with expected favorable tax incentives from the Canadian government. Access to hydropower would also support a mid-stream option.

Indigenous Involvement

One of the key uncertainties for the market is Corvette’s environmental and First Nation approval process. There are three key approvals required and Patriot has a well-defined path to each over an assumed two-year timeframe, Shaw notes. All approvals can run in parallel although the Environmental and Social Impact Assessment is the focus. Management has been collecting environmental data for the past two years in anticipation.

Patriot Battery Minerals has a quality management team, Shaw believes, led by Ken Brinsden, who brings significant pedigree in lithium, was formerly with Pilbara Minerals, and is now Canada-based. Engagement with Traditional Owners has been a focus from project inception and relations with local community and stakeholders are acknowledged as a critical business activity.

More Buy Ratings

Citi has initiated coverage of Patriot Battery Minerals with a Buy rating and 75c target price. The broker applies a 50% risk factor and assigns a High Risk rating to account for the early stage, noting the project carries study, exploration and funding risk.

Citi assumes an equity raise of around CA$600m which it factors into the share count, with CA$800m of debt to fund a CA$1.05bn capex assumption. At the group level this provides a CA$7.07/share valuation, which rounds to A75c for the ASX-listed CHESS Depository Interest on which Citi bases its target price.

Citi expects the lithium price to trade sideways to lower over the next three to six months until supply cuts rebalance the market. A depressed pricing environment (and Patriot’s share price at more than a one-year low) is favorable for acquisitions and Patriot’s scale, progress on permitting and location could make it attractive to a major.

Citi’s target nevertheless sits well below consensus.

Shaw and Partners initiated coverage with a Buy recommendation and $1.80 price target, also applying a High Risk caveat. This broker recommends an Overweight exposure to critical minerals, with Patriot Battery Metals considered a core holding.

Canaccord Genuity noted earlier this month Patriot’s (northern) winter drilling program had found the highest lithium grade to date and the summer-fall program has commenced, focusing on infill drilling to upgrade resources for the Feasibility Study, which is targeted for the second half of 2025.

Canaccord has a Speculative Buy rating and a $1.70 target.

Aforementioned updates in June from UBS and Macquarie regarding lithium price downgrades led to UBS reducing its target to $1.00 from $1.30 and Macquarie to $1.50 from $1.90, with both retaining Buy or equivalent ratings as noted.

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