Noram Lithium: A Deep Value Opportunity in the Lithium Space (TSXV:NRM)(OTC:NRVTF)
Lithium, a cornerstone for modern rechargeable batteries, is propelling a global market surge fueled by the escalating demand for electric vehicles (EVs) and renewable energy storage. Lithium is a non-ferrous metal known as “white gold”. It is one of the key components in EV batteries, alongside nickel and cobalt, but rising demand for EV’s is straining global lithium supplies.
About 2 billion EVs need to be on the road by 2050 for the world to hit net zero, but sales stood at just 6.6 million last year, and some carmakers are already selling out of EVs.
As automakers across the globe continue to switch to manufacturing EV’s, these companies are actively looking to vertically integrate their supply chains and secure reliable sources of lithium.
$189 Billion Revenue Automaker Just Bet $90 Million that Argentina Lithium (LIT.V) will Become a Producer
On October 5, 2023 Argentina Lithium (TSXV: LIT) (FSE: OAY3) (OTC: PNXLF) announced that it closed a deal with $189 billion revenue automaker, Stellantis (NYSE:STLA). As part of the deal, Stellantis will strategically invest USD $90 million into Argentina Lithium.
STLA one of the world's largest automakers, has a sprawling global footprint, with operations in Europe, North America, the Middle East, Africa, South America, China and India. The market cap is $59 billion. Stellantis is known for its major brands such as Abarth, Alfa Romeo, Chrysler, Citroën, Dodge, DS Automobiles, Fiat, Jeep®, Lancia, Maserati, Opel, Peugeot, RAM, Vauxhall, Free2Move and Leasys.
For Stellantis, there is only one winning position from its $90 million investment: if Argentina Lithium becomes a producer.
Since the $90M investment gives Argentina Lithium the funding needed to advance their project to production, which in turn, will provide Stellantis with a reliable source of lithium for its growing need to manufacture EV’s, the investment itself drastically increases their odds of winning. It is a match made in heaven.
After the announcement of the deal, Argentina Lithium’s share price skyrocketed over 175%.
As more automakers continue to switch their product lines to EV’s, more of these deals are going to be made.
Another example of this is GM’s investment into Lithium Americas, which owns the Thacker Pass project, the largest lithium deposit in North America. GM has agreed to invest $650 million into Lithium Americas in exchange for exclusive access to Thacker Pass’s future production, which is expected to approach 80,000 metric tons of lithium per year by 2030.
There was also Ford’s supply agreement with Albemarle announced back in May as well as Mercedes Benz’s supply deal with Rock Tech Lithium.
All of these deals underscore the increasing importance of lithium in the transition to electric mobility and the growing significance of such partnerships as the auto industry continues its EV transformation.
After seeing these investments, I began researching lithium development companies to see which ones exhibit strong qualities that automakers will be looking for… and that is how I discovered Noram Lithium (TSXV:NRM) - a deep value lithium development company that is ripe for a strategic investment from an automaker or even a possible takeover from a major lithium player.
Introducing Noram Lithium (TSXV:NRM | OTC:NRVTF)
While conducting my research on lithium developers, the most important aspects I searched for were size, grade, and location. Noram Lithium is a company that stood out right away as it exceeded my expectations in all of these areas. The company is also HEAVILY UNDERVALUED compared to its peers.
Prime Location in Nevada
Noram Lithium’s Zeus Project is located in Nevada’s Clayton Valley. Nevada is ranked as the #1 jurisdiction in the world for investment based on the Fraser Institute’s Investment Attractiveness Index. The permitting process in Nevada is extremely straightforward, sometimes taking less than 2 months, which allows companies to move quickly along the path to production.
The Zeus Project is adjacent to Albemarle’s Silver Peak mine, which is the only active lithium mine in the U.S. More importantly, it’s in the immediate vicinity of established infrastructure including power and paved road access.
Impressive Size
Zeus is the fourth largest lithium deposit in North America by resource size. The total resource estimate contains 5.17 million metric tons of measured and indicated LCE and 1.09 million metric tons of inferred LCE, which is enough to sustain a mine life of more than than 100 years.
Although the company has only drilled 82 holes (4,942), they have been able to establish what is one of the largest resources in North America because the mineralization is sitting so close to the surface, with basically no overburden whatsoever. This is not a complicated, underground deposit.
A Clear Path to Production
While there are many new entrants in the lithium space, there are few that already have a sizeable defined resource and have demonstrated economic viability through an economic study (PEA, PFS, or FS).
Noram Lithium’s most recent PEA (December 2021) shows the project having an after-tax net present value, discounted at 8%, of USD$1.299 billion with an internal rate of return (IRR) of 31%. These are incredible numbers. In most cases, companies will trade at a value around 15-30% of their NPV and that number increases as the project gets de-risked. Noram Lithium is trading at around 2% of its NPV, which is unheard of. This is way too cheap, and I don’t expect it to stay this way for long.
Not only does Noram Lithium have a strong PEA for the Zeus Project already, but the company plans to release a Pre-Feasibility Study on the project within the next year or so which will bring it another step closer to production.
The path to production is clearly outlined for Noram Lithium which is something that many auto manufacturers and major lithium companies will take into consideration when looking for assets to acquire or invest into.
Highly Experienced Management Team
For junior mining companies, the quality of the management team is an unquantifiable metric easily one of the most important. If the management team has had success in the past, they are more likely to repeat that success in the future than an inexperienced management team - and the team at Noram Lithium is no stranger to success.
Sandy MacDougall, Noram Lithium's founder, initially served as Zeus project's CEO during its discovery and exploration phases. He later transitioned to the role of Executive Chairman and assembled a proficient team of mine builders, further advancing the project.
The current CEO, Greg McCunn, brings his extensive 30-year mining career to lead project development at Noram Lithium Corp. His track record includes guiding multiple junior mining companies from exploration to operational stages.
Adding to the team's expertise, Glenn Barr serves as Vice President of Project Development at Noram, with 25 years of experience, including his recent role as VP Project Development for Twin Metals.
This robust project development experience is critical as Noram Lithium progresses towards a definitive decision on the Zeus project's mine construction.
Heavily Undervalued Compared to Peers
Noram Lithium is easily the most undervalued lithium developer in Nevada, by far.
Referring to the table below, we can see that on a (Market Cap / Tonnes of LCE) multiple basis, the company is being valued at just $6.25 per tonne, while Century Lithium and American Lithium are being valued at $14.70/tonne and $34.34/tonne, respectively.
Now, if we take the (Market Cap / tonnes LCE) multiple of Noram’s closest peer, Century Lithium ($14.70/tonne), and apply it to Noram Lithium’s 6.2 million tonne resource, then we can derive a $92M valuation for Noram Lithium, or $1.04 per share.
If we do the same calculation for another one of Noram’s peers, American Lithium ($34.34/tonne), then we can derive a $215M valuation for Noram Lithium, or $2.42 per share.
No matter how you slice it, Noram Lithium is HEAVILY UNDERVALUED compared to its peers. I don’t see any reason why Noram should be this undervalued, as the Zeus deposit is on par with its peers in terms of both size and grade. I expect this value gap to close as the Zeus project becomes further de-risked.
THE BOTTOM LINE
In conclusion, the global surge in demand for lithium, driven by the growing need for electric vehicles and renewable energy storage, has led to a scramble among automakers to secure a reliable source of this crucial component for their EV batteries. Recent strategic investments and supply agreements, such as the deal between Argentina Lithium and Stellantis, GM's partnership with Lithium Americas, and Ford's agreement with Albemarle, emphasize the pivotal role that lithium plays in the transition to electric mobility.
Among the lithium developers, Noram Lithium (TSXV:NRM) stands out as a compelling deep value opportunity, boasting prime location, impressive resource size, a clear path to production, and an experienced management team. Moreover, the company is significantly undervalued compared to its peers, making it an attractive target for a strategic investment or potential takeover by major automakers or lithium players. As the EV industry continues its rapid transformation, Noram Lithium's prospects are indeed bright, and it may not be long before it garners the attention it deserves from industry giants seeking to secure their lithium supply chains.
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