Growing awareness of environmental sustainability has driven demand for a global green economy. This demand is amplified by improvements in Li-Ion technology for electric vehicles (“EV”) and other energy storage infrastructure.
There is a lot of types of raw materials needed to build a green economy. We have observed that policy makers in the world’s largest economy seem to view lithium as one of the most important raw materials. Therefore, we expect lithium producing companies like Alpha Lithium Corporation (OCPK:APHLF) to take advantage of this tailwind.
APHLF owns strategic areas of the Lithium Triangle. Its proximity to the largest and longest “salar” (salty) producer in Argentina means that it is able to benefit from the infrastructures that already exist for the extraction of lithium.
APHLF is a Canada-based lithium exploration company. The company has 6 subsidiaries:
- L2 Cobalt Inc.
- 1146915 BC Ltd.
- Alpha Minerals,
- Alpha One Lithium B.V.
- MOCO Holdings Corp.
- Alpha Lithium Argentina SA
The intercompany relationships of the various subsidiaries can be deduced from this organizational chart:
Development of the green economy led by lithium
The Biden administration issued a ‘100 Day Review under Executive Order 14017’ report which outlines steps to strengthen America’s critical supply chains, the greater economy in the world. We can use this report to understand the most important raw materials needed for the development of green economy. If we deduce from visual capitalist, the raw materials needed to build a green economy include copper, silicon, aluminum, lithium, cobalt, rare earths and silver. For each of the raw materials mentioned, I checked the number of times they are found in the report, and here are the results:
- Copper – 28
- Silicon – 93
- Aluminum – 0
- Rare Earths – 14
- Silver – 2.
We can see that there is much more emphasis on the raw material lithium, as it was mentioned the most times (315).
Indeed, the main drivers of lithium in the green economy are the demand for energy storage and electric vehicles. Although these clean energy solutions are not new, their demand has increased in recent years due to the falling costs of Li-ion batteries. This observation was also explicitly mentioned in the decree review report:
“The cost per kilowatt-hour ((kWh)) of lithium-ion batteries has fallen by more than 80% over the past decade, and this falling cost has made these batteries very attractive to new and growing markets, including electric vehicle (EV). Demand from the electric vehicle and stationary storage markets is expected to increase the size of the lithium battery market by another factor of five to ten by 2030.”
When the supply of lithium does not increase in parallel with the demand for Li-ion battery products, naturally the price will increase with the demand.
Companies that provide lithium supply to the clean energy market stand to benefit greatly from this tailwind.
Alpha Lithium’s Competitive Advantage
Lithium is most often extracted from salt brines located in the lithium triangle. “Salar” refers to “salt dish” in Spanish. The company owns 100% of the Salar de Tolillar, which is “one of the last undeveloped salars in the province of Salta, Argentina”. This provides its mining business with very large scale production.
“Salar del Hombre Muerto” is another salt dish in Argentina and is considered as one of the “world’s most important sources of lithium”. As stated on the company websiteit recently acquired 985 hectares of properties from this saline, which has further increased its production scale considerably:
“With this latest acquisition, Alpha has become one of the largest lithium developers in the Salar de Hombre Muerto in the province of Salta, second only to Korean giant POSCO, which is expected to have a commercial plant producing in Hombre Muerto in 2023.”
Not only does “Salar del Hombre Muerto” contribute to the company’s production scale, but its lithium deposits are also of the “highest quality”, as reported by the company:
“Hombre Muerto is the highest quality and oldest salar in Argentina and it benefits from a large amount of infrastructure developed to support the 25 years of production history of Livent Corporation.”
APHLF’s mining projects are 10 km from Livent Corp, the largest and longest producing salar in Argentina. This allows it to benefit from the infrastructure already built for Livent Corp.
Financial comparison and peer review
We will compare the company’s financials with Livent Corporation (LTHM) and Allkem Limited (OTCPK:OROCF) using figures found on Seeking Alpha.
From this comparison, we can observe that:
- Although APHLF is the smallest player by market capitalization,
- If we evaluate the company using the P/E ratio, APHLF is the cheapest stock in the comparison list.
- As for the net income, it is currently not profitable. LTMN is the most profitable.
- Although still not profitable, APHLF also has no debts. Overall, the company still maintains a “net cash” financial position. This is a positive contrast to the profitable peer of LTMN, which is in a “net debt” position.
- It has the most favorable current ratio, which suggests it has significantly more assets compared to its peers. This could result in higher upper and lower lines being generated in the long term.
In my opinion, the company presents the profile of a small player which has the advantage of being more agile in financial management compared to its larger peers.
It was mentioned earlier on one of the company’s websites that “up to 504 mg/L identified from limited prior testing on
This implies that there are still 90% of unexplored areas, which poses a risk that a large part of the unexplored mining areas may not contain as much lithium concentration as expected.
This risk is relatively low as it has also been mentioned that “Recent studies have shown that the region is underlain by an extensive magma chamber at 4-8 km depth (de Silva, 1989).” According to this article:
“Lithium deposits are mainly found in old dormant volcanic systems, especially in what are called supervolcanoes or, more scientifically, large caldera systems.”
In my opinion, the existence of a magma chamber increases the likelihood of lithium being deposited through volcanic ash.
Conclusion and key points
APHLF is a relatively small lithium mining company that is strategically located in one of the largest lithium salt deposits in the world. It has a positive cash balance. Looking at the current ratio, it is also asset rich. All in all, it is in a very good position to benefit from the favorable wind of the increase in global lithium demand.
By P/B ratio, it appears to be undervalued and unknown to most investors. This presents an opportunity for early investors to be richly rewarded if APHLF becomes a major long-term player.