In Brief: Lithium Focus & James Hardie

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            [3] => ((VUL))
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            [5] => ((LKE))
            [6] => ((AGY))
            [7] => ((ASN))
            [8] => ((AZL))
            [9] => ((CXO))
            [10] => ((SYA))
            [11] => ((PMT))
            [12] => ((JHX))
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            [7] => ASN
            [8] => AZL
            [9] => CXO
            [10] => SYA
            [11] => PMT
            [12] => JHX
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This story features PLS GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: PLS
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

In Brief lands on the lithium sector and the resilience of stocks that weathered the price decline, with James Hardie's AGM in focus for the wrong reasons.

-James Hardie’s governance and incentive debate for investors
-Lithium sector recovery, fund flows & stocks to focus on
-PMET’s Shaakchiuwaanaan development potential post site visit

By Danielle Ecuyer

This week’s quote comes from Luci Ellis, Westpac Group 

“With the economy already broadly at full employment and inflation at target, the RBA will not rush to cut rates, but neither will it see a need to keep policy unnecessarily restrictive for an extended period.

“The timing of future rate cuts remains uncertain and it is possible the RBA ends up cutting by less than our current base case.

“Nonetheless, cuts in November, February and May remain our base case.”

Brine producers look set to attract flow of funds

Living up to the historical volatility for commodity prices and stocks, the lithium sector has taken investors and traders on a roller coaster ride over the past two years.

As highlighted by Petra Capital, the decline in prices since the start of 2023 led to the usual market behaviour of adjustment in commodities.

Lower valuations on companies ensued on reduced capital flows which resulted in fewer companies continuing to produce or explore for lithium.

In April 2022, Elon Musk tweeted the “Price of lithium has gone to insane levels,” … “There is no shortage of the element itself, as lithium is almost everywhere on Earth, but pace of extraction/refinement is slow.”

Since January this year, Petra notes, listed lithium companies have experienced an increased flow of funds into share prices. Over the past twelve weeks total flows have risen 25% on the same period a year ago, boosting the sector’s valuation by 16%.

The largest fund flows have gone to Western Australian hard rock producers which also happen to be the stocks with the most elevated short positions on the ASX.

Pilbara Minerals ((PLS)) is the most traded stock and has received an estimated 63% of year-to-date flow with IGO Ltd ((IGO)) at 18% and Liontown Resources ((LTR)) at 10%. These three combined represent 91% of all flows into the local lithium sector.

The next fourteen companies, according to Petra, constitute the remainder of the funds flow including six brine companies, including Vulcan Energy Resources ((VUL)), Galan Lithium ((GLN)), Lake Resources ((LKE)), Argosy Minerals ((AGY)), Anson Resources ((ASN)) and Arizona Lithium ((AZL)).

All companies have weathered a challenging lithium bear market which places stocks in a great position to potentially be the recipients of more fund flows and thus higher valuations.

Petra also points to the elevated short positions in lithium stocks.

Pilbara, viewed as the “bellwether” company, has a 17.65% short position as at September 19 (check out FNArena’s Short Report at https://fnarena.com/index.php/analysis-data/the-short-report/) compared to 20% in the prior 12-month period.

IGO sits at circa 3.5% shorted, Liontown is down to 7% from 11%, Core Lithium ((CXO)) at 1.5% from 5% and Sayona Mining ((SYA)) at 0.4% from 10%.

In contrast, the short position in Vulcan has risen to 7% from 5% a year ago.

Petra prefers Galan and Anson which are focused on brine production in the US.

Galan is Buy rated with a 41c target and is expected to be in production by 1H2026 with offtake to a US customer in place. It owns 100% of its projects and has approval to expand to 21ktpa of lithium carbonate equivalent.

Anson is also Buy rated with a 38c target with a large resource of 1.6Mt lithium carbonate equivalent in Utah, a state that is pro-development and with partners and a pathway to advance its Green River project at 10ktpa of lithium carbonate equivalent.

Quality and scale make PMET’s greenfield project appealing

Canaccord Genuity concurs with Petra, explaining low lithium prices have “hollowed out supply growth over 2026–2028” which should underpin pricing upside.

Post a recent visit to PMET’s ((PMT)), formerly Patriot Battery Metals, Shaakchiuwaanaan lithium project in James Bay, Quebec, the analyst believes the timing in price recovery could benefit the explorer/developer due to the size and quality of the project and its stage of development.

The preliminary economic assessment in August 2024 showed a two-stage development plan. Stage 1 at 400ktpa of spodumene concentrate and Stage 2 includes expansion to 800ktpa with estimated capital costs of -US$579m and cash cost of US$560/t including US$173/t for transport to port for Stage 1.

The project is in a remote region but has good infrastructure with the all-weather Trans-Taiga road and power sourced from La Grande hydro facility, located 45km away. To reduce helicopter use, PMET has built a 100-person camp with an access road.

As detailed by the analyst, the project is estimated at 141Mt at 1.4% lithium oxide with the CV5 Nova zone at a grade of 5% and the CV13 Vega with an indicated resource of 1.8% lithium oxide.

The upcoming feasibility study is expected to focus on CV5 which is required alongside the environmental/social impacts assessment to secure mine approval. The expected timeframe for permitting is flagged at two-to-three years with first production possibly commencing around 2029, subject to final investment decision and financing.

Shaakchiuwaanaan is considered a top-notch greenfield development candidate. PMET continues to be rated Speculative Buy with target price set at 65c.

Will James Hardie’s CEO and Board be the most renumerated on the ASX?

James Hardie Industries ((JHX)) has had a long-standing US presence, with the author previously co-hosting a site visit to its Las Vegas gypsum operations for institutional clients.

Recent strategic moves are transforming James Hardie into a more fully US-centric company, which has drawn shareholder concern. The release of its AGM notice confirms the ongoing “Americanisation” of the business.

Jarden highlights both the board and CEO stand to benefit from the costly Azek acquisition, which has increased debt leverage and operational complexity.

The AGM notice outlined proposed Long-Term Incentive (LTI) targets for 2026–2028, re-positioned to be more quantitatively driven and balanced.

Equity-based awards now account for more of the total: return on capital employed (ROCE) and relative total shareholder return (TSR) awards have each increased from 25% to one-third, while the scorecard incentive is reduced from 50% to one-third.

These adjustments lower the maximum payout from 250% to 233% of target and place greater emphasis on the two equity awards. Relative TSR will now be measured against the S&P500, providing a broader, more objective benchmark aligned with market performance rather than a narrow peer group.

Jarden notes a recovery in the US repair and replacement market, along with the housing cycle to a smaller degree, should allow LTI targets to be met without significant “stretch”, reflecting James Hardie’s strong historical standalone performance.

The board has also proposed a 26% increase in the non-executive director fee pool, raising the maximum to over US$4.8m (around AU$7.25m), with base director fees rising to US$270k or AU$400k. If approved, this would make James Hardie’s board one of the most expensive in Jarden’s coverage universe.

Despite governance considerations and a high net debt to EBITDA ratio of 3.4x, Jarden believes the underlying quality of James Hardie and Azek, combined with an expected recovery in the US housing construction sector supported by anticipated rate cuts, justifies the stock at current levels.

Overweight rating is retained with a $38 target price.

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