Plenty of upside potential: Plug Power, Standard Lithium, Defense Metals

Defense Metals: CAD 517 million enterprise value and CAD 60 million market capitalization

"China has basically weaponized rare earths, which has always been a fear, but I am hoping this will get governments to put more money into the sector, Craig Taylor, CEO of Defense Metals, said in an interview with kitco.com. Defense Metals is developing the Wicheeda rare earths project in the Canadian state of British Columbia. Excitingly for shareholders, last year's preliminary economic valuation showed an after-tax net present value of CAD 517 million and an after-tax internal rate of return of 18%. Defense Metals is currently valued at approximately CAD 60 million on the stock market.

A preliminary feasibility study is underway, and a pilot plant is expected to be completed this year. After converting the project into a mine, Defense Metals could achieve a 10% market share of global rare earth metals production. "We should be ready in the first quarter of 2024, and then we will be one of the few rare earths projects in North America and globally that has reached the pre-feasibility stage and then the feasibility stage," Taylor continued in the interview with kitco.com.

Standard Lithium: Strong drill results, strong price target

Standard Lithium has again reported strong drill results - this time at the project in the US state of Arkansas. One sample assayed 581 mg/L lithium, which the Company understands represents the "highest confirmed grade" in Arkansas brines. The lithium grade is as high as at the Texas project. There, the Company reported a sample grading 634 mg/L lithium as part of a resource expansion.

Standard COO Andy Robinson: "We continue to be pleasantly surprised by the lithium grades measured at our Arkansas and Texas projects." Further, the Company announced that the preliminary economic assessment (PEA) for the Arkansas project, using a conservative assessment of lithium brine grades across the project area, resulted in an after-tax net present value of USD 1.97 billion (using an 8% discount rate).

The lithium brine resource of the Arkansas Project, last updated in 2021 to reflect the potential unitary production area, contains a total of 1,195,000 tonnes of lithium carbonate equivalent in the inferred category. Mining an average of 30,000 tonnes of battery-grade lithium hydroxide monohydrate per year would provide a 20-year mine life. Lanxess has secured a stake in the Arkansas Project, enabling the German company to acquire up to 49% of the project company once the final feasibility study is available.

Analysts at Eight Capital are very positive about the development at Standard Lithium. They say the study results are positive, and a positive definitive feasibility study is foreseeable. Even if Lanxess does not participate, they say there are enough potential partners. For the analysts, the Standard Lithium share is a "buy". The price target is USD 12. Currently, the stock is trading at around USD 4.40.

Plug Power: Target price USD 22 or USD 14?

Analysts also see significant upside potential for Plug Power. Northland Capital Markets considers a price for the share of the hydrogen pureplay of 22 USD possible and recommends it as "Outperform ". Currently, Plug's stock is trading below USD 12. Analysts are confident that Plug will get a handle on cash flow generation and loss reduction. Therefore, they say reaching break-even by the end of 2023 is realistic. It should then be possible to generate positive cash flow in the coming year.

JPMorgan is somewhat more cautious about the share price potential. Although their analysts rate the Plug Power share as "Overweight" in the context of a clean-tech study, the price target of USD 14 is significantly more conservative. They say political support under the Inflation Reduction Act (IRA) of the US continues to provide a tailwind. However, the exact support measures are not yet foreseeable. It will likely take until the fall for clarity on this matter.

The energy transition is creating additional demand for rare earths. This increasing demand is being exploited increasingly by the current main producer and makes companies like Defense Metals intriguing. When looking at the preliminary economic assessment, the current valuation seems anything but high. In the lithium sector, Standard Lithium appears to have overcome price weakness. For Plug Power, uncertainty remains as to whether the Company will finally get its losses under control.