LI: Visibility for End-Market Demand

STEVEN GOLD, Clarus Securities Inc. (09/30/2010)
"This morning, LG Chem announced that it has signed an agreement to supply lithium batteries to French automaker Renault for use in its upcoming electric vehicles. LG says this deal will be its biggest in the battery business, which sources have estimated to be worth $1.8 billion over five years.

Strategically, this deal is positive for Lithium One as LG Chem, via its involvement in a consortium led by KORES (Korean Resource Corp.), is part of an agreement that will see Lithium One supply 30% of its production to the consortium from its Sal de Vida operation in Argentina. . .the announcement from LG helps clarify and further solidify the supply chain by giving visibility to an end market amidst an emerging competitive supply environment at the lithium-mine side. The KORES/LG consortium has an option to increase its supply from Lithium One to 50% at market prices. Moreover, KORES has agreed to fund 30% of the Sal de Vida development costs and will provide a completion guarantee while securing the debt portion of Lithium One's 70% share of project development costs.

We view this LG/Renault deal positively as it provides visibility into the end-market for lithium battery consumption in years to come. As Lithium One intends on providing battery-grade lithium to LG, we think this announcement helps to further underscore our view that investors should focus on lithium (or near-) producers that have signed development agreements and have increasing visibility and confidence in supplying end-market demand. Our recommendation on Lithium One shares is SPECULATIVE BUY and our 12-month target price remains $3. per share."

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