PLL - Piedmont Lithium Inc.: An Experienced Management To Inspire Long-Term Success

2023-12-31 08:11:00 ET

Summary

• Piedmont Lithium Inc. (PLL) has experienced a 35.27% decline in the last year, potentially due to financial losses and regulatory challenges in obtaining permits for its lithium projects.
• The company has an experienced management team with a strong background in the lithium industry, which inspires confidence in its ability to drive long-term growth.
• PLL has shown prudent capital management, with a strong balance sheet and positive net working capital, providing financial stability and flexibility.

Investment Thesis

Piedmont Lithium Inc.( PLL ) is down about 35.27% over the last year. I believe this could be a result of its financial losses as well as the regulatory challenges and delays in obtaining permits for its lithium projects, which affected its timelines and perhaps market confidence. While I appreciate these challenges’ impacts on this stock and the competitive risk the company faces, I am optimistic about the company’s long-term performance given its underlying development projects which I believe will drive long-term growth.

Besides its growth initiatives, has a very experienced management which has demonstrated its ability and vision to lead the company to success in the rapidly growing lithium market. Further, the company has a strong balance sheet and prudent capital management which I believe is critical to the company’s financial footing. However, although these aspects inspire optimism in me, the company’s growth initiatives are long-term in scope and could not pay off in the short run. As a result, I recommend patience before investing in this stock as it executes its development projects. A good entry point would be when it maintains profitability and when its price breaks above the 50-day and 100-day moving averages, as guided in the technical analysis section.

Experienced Management: Great Minds On The Deck

PLL is a company that aims to develop a world-class lithium project in North Carolina, USA, to supply the growing electric vehicle and battery storage markets. The company has an experienced management team and a CEO with a strong background in the lithium industry and the capital markets. I believe this leadership has what it takes to drive this company in achieving its objectives and tremendous growth. Below is the management team and their experiences;

First off is Keith Phillips, the CEO. He has a career spanning 30 years on Wall Street , where he managed strategic and financing transactions representing over $100 billion in aggregate value. He has worked with a wide range of mining companies , including many established global leaders, and has spent the majority of the last decade advising exploration and development-stage companies on achieving their strategic goals, with a particular emphasis on achieving relevance in US capital markets. He has also led mining investment banking teams for several well-known firms, including J.P. Morgan and Dahlman Rose.

Keith has demonstrated his experience in PLL in several ways. For example, he has led the company in its strategic vision and execution, including securing a binding agreement with Tesla to supply spodumene concrete. Another example is overseeing the development of integrated project, which consists of a mine, concentrator, and chemical plant, and overseeing it through various stages of feasibility studies, test work, and permitting.

Secondly is the COO, Patrick Brindle. He has over 20 years of senior management and engineering experience, including multi-year expatriate assignments. He has completed engineering, procurement, and construction [EPC] projects in countries ranging from the United States to Canada, among other regions. He joined the company as Vice President of Project Management in January 2018 and has been in charge of developing the proposed Carolina Lithium project which aims to produce 60,000 tons per year of lithium hydroxide.

Besides the Carolina project, he has also demonstrated his experience in overseeing the strategic investment in Sayona mining in Quebec and Atlantic Lithium in Ghana, which are both pursuing accelerated development schedules to capitalize on the lithium market.

Another top leader of interest is Bruce Czachor, the CLO. His background includes about 35 years in capital markets, bank financing, corporate governance, mergers and acquisitions, joint ventures, licensing agreements, and commercial transactions. He started as a part-time Vice President and General Counsel at Piedmont Lithium in December 2017 and has been the Executive Vice President, Chief Legal Officer, and Secretary since August 2021.

During his Tenure, PLL has successfully undertaken some major projects which I believe he has been the legal mind behind them. For example, the binding agreement between PLL and Tesla which I mentioned earlier is one of the major projects undertaken while he was serving in the company. I believe he played a key role in facilitating the discussions finalizing the terms of the agreement and ensuring it complies with the applicable laws and regulations. I also believe he helped in obtaining the necessary approvals from its shareholders and the Australian Securities Exchange [ASX] for the agreement.

Additionally, highly skilled professionals from a variety of fields, including mining, finance, engineering, marketing, and law, make up PLL’s Board of Directors . Among them is the Chairman of the Board, Jeff Armstrong, who previously held the positions of CEO and CFO of North Inlet Advisors, a FINRA-regulated organization that offers investment banking services to middle-market businesses; Christina Alvord, a Director, who previously held the position of President of Vulcan Materials Company's Central Division, the largest producer of construction aggregates in the country.

Given this context, Piedmont Lithium's management group and CEO have proven they are capable of advancing the company's goal of becoming a premier producer of lithium hydroxide. They have established a strategic alliance with one of the top producers of electric vehicles worldwide, Tesla, to supply the concentrate of spodumene from the Carolina Lithium project. Additionally, they have finished the integrated project's definitive feasibility study , which demonstrates strong economics and a minimal environmental impact. To broaden and diversify their lithium resource base, they also committed to acquire a 50% share in Atlantic Lithium, which owns the Goulamina lithium project in Mali, Africa, and a controlling interest in Sayona Mining, which owns the Authier and Tansim lithium projects in Quebec, Canada.

In conclusion, the management team and the CEO have the experience, expertise, and vision to lead the company to success in the rapidly growing lithium market. They are well-positioned to capitalize on the opportunities and overcome the challenges that lie ahead based on their experiences. For these reasons, I am confident that this management will lead this company to strong long-term growth especially when the underway projects are fully operational.

Balance Sheet And Prudent Capital Management

Prudent capital management entails managing a company's financial resources in such a way that it maximizes its value, minimizes its risks, and ensures its long-term viability. PLL has shown prudent capital management in several ways, including:

• Raising $94.95 million in cash and cash equivalents.
• Having a net debt of zero and a positive net working capital of $79.3 million TTM.
• Investing in its core projects, such as the Carolina Lithium and Tennessee Lithium projects, as well as its partnerships with Sayona Mining and Atlantic Lithium, to increase its lithium hydroxide production capacity and diversify its geographic exposure.
• Securing long-term off-take agreements with Tesla, Inc. and Sayona Mining, which provide revenue visibility and price stability.

With its prudent capital management, PLL has what I can term a strong balance sheet. The company has a total debt of $1.72 million and a total equity of $348.1 million, translating to a debt-to-equity ratio of almost zero. This underscores the company’s solid financial position and how safe it is from debt risks. Further, a debt-to-asset ratio of 0.43%, underscores PL’s safety from debt burden. Interestingly, the company’s liquidity position is very reassuring with a current ratio of 2.85 and a cash balance of $94.95 which can cover its total debt 55.2x. In a nutshell, PLL has a strong balance sheet which guarantees the company a lot of financial flexibility and frees it from the yolk of debt burden. To sum up, the company’s solid solvency status is its impressive Altman Z score of 12.45.

Headwinds

While I am optimistic about the ongoing projects of this company, which are overseen by a highly experienced management team, I am concerned about the challenges in its business environment. First off is the price challenge. The global lithium price has been steadily declining , which concerns me because it will translate into low revenues for PLL at a time when profitability is a major concern for them.

Given the bleak outlook for lithium prices for 2024, I am concerned about the company's financial performance in 2024. This headwind adds to the competitive challenge which the company faces from other suppliers which could further hurt its financial prospects.

Technical Analysis

Technical analysis is a method of assessing a stock's performance and trends using historical price movements, patterns, and indicators. Here's a quick technical breakdown of PLL based on a few indicators.

Trend: PLL is currently in a downward trend as it has been making lower lows since Feb 2023. The stock is below above its 50-day, 100-day, and 200-day moving averages, which are all sloping an indicator of a bearish trend.

Momentum: PLL is currently showing strong momentum, as it has been trading in a wide range between $23.15 and $76.78 for the past 52 weeks. The stock's Relative Strength Index [RSI] is at 33.31, which is close to the oversold territory of 30. The stock moving average convergence divergence [MACD] is at -0.097 which is negative, a sign of a bearish trend.

The RSI is near the oversold territory where a reversal is possible. Also, the MACD is showing a bullish crossover with its signal line, indicating a decrease in the bearish momentum and a potential reversal.

In conclusion, this stock is in a strong bearish momentum which is cooling as indicated by the bullish crossover of the MACD and its signal line. Further, the stock faces a potential reversal given that it is trading at the oversold region as indicated by the RSI. This implies that the stock could reverse and exhibit a bullish trajectory.

Conclusion

Based on my analysis, PLL has very promising development projects being implemented by very experienced management, which inspires optimism in me. However, most of the projects are long-term in scope and will actualize by 2025 which calls for patience before they pay off. With this background in mind and given the company’s weak profitability, I recommend patience before investing here. The technical analysis shows that this stock is in a strong bearish trend which further informs why I recommend patience before buying. A good entry point would be when the stock crosses above its moving averages, an indicator of a bullish trajectory which could be confirmed by the MACD crossing the zero mark and turning positive. With the current management, I am optimistic about this company’s longterm performance but in the near term, I recommend patience.

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