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Piedmont Lithium has multiple share price drivers emerging as it works towards September scoping study

Last updated: 04:19 30 Apr 2018 BST, First published: 03:04 30 Apr 2018 BST

Picture of territory at Piedmont Lithium Project
Two US companies with a combined market capitalisation more than US$20 billion are nearby producers

Piedmont Lithium Ltd (ASX:PLL) (OTC-Nasdaq:PLLLY) holds a 100%-interest in the Piedmont Lithium Project within the world-class Carolina Tin-Spodumene Belt (TSB) of the USA.

Its territory also extends along trend to the Hallman Beam and Kings Mountain mines, historically providing most of the western world’s lithium between the 1950s and the 1990s.

The TSB is recognised as one of the largest lithium provinces in the world and is about 25 miles west of Charlotte, North Carolina.

Access to infrastructure and close to end markets

However, it isn’t just the region’s historical production that makes this region attractive for Piedmont.

Management regards it as a premier location to develop an integrated lithium business based on its favourable geology, proven metallurgy and easy access to infrastructure.

Its proximity to end markets is another attraction.

Centres for lithium and battery storage, major high-tech population centres and downstream lithium processing facilities are in relatively close proximity and easily accessible.

A rich history

The project was originally explored by Lithium Corporation of America which eventually was acquired by FMC Corporation (NYSE:FMC).

FMC is a US$10.8 billion US chemical manufacturing group with its headquarters in Philadelphia.

FMC and the US$10.6 billion US-based chemical group Albemarle Corporation (NYSE:ALB) mined the lithium-bearing spodumene pegmatites within the TSB.

They developed and continue to operate the two world-class lithium processing facilities in the region which were the first modern spodumene processing facilities in the western world.

Back to the future

Piedmont is in a unique position to leverage its position as a first mover in restarting exploration in this historic lithium producing region.

Management aims to develop a source of lithium to supply the increasing electric vehicle and battery storage markets.

Piedmont, through its 100%-owned US subsidiary, Piedmont Lithium Inc, has entered into exclusive option agreements and land acquisition agreements with local landowners.

Upon exercise, these will allow the company to purchase, or in some cases lease on a long-term basis, about 1,200 acres of surface property and the associated mineral rights.

Two-pronged strategy

Piedmont has already been successful in growing its land position, having acquired 630 acres in four separate transactions between September 2017 and March 2018.

The group’s current land package comprises 1,200 acres, and there is the potential to expand this position.

In tandem with building its acreage, Piedmont has undertaken an aggressive drilling campaign.

Drilling results provide sustained share price momentum

Piedmont’s share price more than doubled between August and November 2017 on the back of expansion of the group’s land portfolio and drilling results.

The phase II exploration program which totalled more than 12,000 metres of diamond core drilling delivered results from 93 holes and this was the basis of the exploration results.

The following chart shows three distinct share price movements, the first being between late August and early October with the company was building its lithium mineral rights portfolio.

The doubling in its share price during this period highlights the ongoing impact this could have as the company continues to build on its landholding.

The most significant sudden spike came in early November as the company’s shares soared 35% in a day under record volumes.

This was in response to the release of assay results from a further 26 drill holes of the phase II program.

They continued to confirm high-grade lithium mineralisation along the 4 kilometres of strike within the project.

The results featured impressive thicknesses and high grades including:

- 24.4 metres of cumulative thickness of mineralisation across 3 pegmatites including high-grade intercepts of 18 metres at 1.01% lithium and 2 metres at 1.28% lithium.

- 23.6 metres of cumulative thickness of mineralisation across 5 pegmatites including high-grade intercepts of 11.6 metres at 1.3% lithium and 6 metres at 1.1% lithium.

- 22.8 metres of cumulative thickness of mineralisation across 4 pegmatites including high-grade intercepts of 9.7 metres at 1.3% lithium and 5.7 metres at 1.4% lithium.

Drilling statement highlights scale and quality

The December/January upward momentum coincided with the company flagging the commencement of a 20,000-metre drill program.

However, the share price momentum would have been assisted by associated commentary regarding exploration targets.

The company said: "Based on the drilling results on the portions of the project explored to date and geological modelling of the pegmatites, an initial exploration target of between 10 to 15 million tonnes at a grade of between 1.00% and 1.25% lithium has been estimated by CSA Global."

Phillips flags imminent resource estimate

Piedmont chief executive officer Keith Phillips said: “We are extremely pleased with the scale of our initial exploration target for the project.

“This is based on the portion of our initial core land package that has been drilled to date, leaving considerable upside as we broaden our drill horizons and continue to expand our land package.

“Our next drilling program will position us to announce a maiden mineral resource in early to mid-2018, which will serve as the basis of a scoping study on the project shortly thereafter.”

The releases of both the resource estimate and the scoping study have the potential to provide substantial share price momentum.

Metrics to come under the microscope

Release of this data will allow everyone from retail and institutional investors through to brokers to fully assess the Piedmont Lithium Project.

Like-for-like comparisons will be made with other projects based on the size of the mineral resource.

The scoping study will flesh out key valuation data which will provide a good insight into the economic viability the project, as well as providing assumptions regarding mine life and production rates.

While the pre-feasibility study and feasibility study will provide more accurate information, Piedmont should be in a position where it can start discussions with offtake partners and financiers.

As these developments occur and decisions such as permitting are forthcoming, projects are substantially de-risked and these are the longer-term milestones to monitor.

What needs to be kept in mind though is that information released by the company in the next six months will provide a strong indication of the project's capacity to tick the boxes down the track.

Impact of recent legislation

There is one external aspect which could have a significant impact on the project’s progress through these various stages.

On December 20, 2017, US President Donald Trump signed an Executive Order announcing, “It shall be the policy of the Federal Government to reduce the nation’s vulnerability to disruptions in the supply of critical minerals, which constitutes a strategic vulnerability for the security and prosperity of the United States.”

Lithium is one of the 23 critical mineral resources previously identified by the US Geological Survey.

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, which will reduce the US corporate tax rate from 35% to 21%, while also allowing for accelerated depreciation of eligible capital expenditures.

In responding to these developments and their potential significance for the Piedmont project Phillips said: “Ours is one of the world’s best-located lithium projects and these two important policy initiatives will further improve our strategic positioning.

Cost and fast-tracking benefits

“Among other benefits of the US Administration’s renewed emphasis on the domestic production of critical materials, we expect a streamlining of the federal permitting process which may accelerate our transition from developer to producer.

“Furthermore, we aim to demonstrate low capital and operating costs when we complete our initial scoping study mid-year.

“We will now have the benefit of corporate tax rates that are lower than those in effect in any other major lithium producing region, which should positively impact our project’s after-tax IRRs (internal rate of return) in a material way.”

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