jroballo Investment Thesis Shares of Atlas Lithium (NASDAQ:ATLX) have had a pretty big drawdown, dropping from $30 to $10 which is around two thirds of its market value over the past year. I believe the stock has entered a potential buy zone and believe investors should keep this name on their watch list. The company expects to initiate production later this year, “with first commissioning and production of lithium concentrate expected in Q4 2024”. So, the story has steadily progressed and now that the stock is selling at a discount, I think a potential buy zone has opened up below $10 per share. Company Overview Atlas Lithium is a “mineral exploration and development company with lithium projects and multiple lithium exploration properties” according to its annual report. Their “focus is the development from exploration to active mining of our hard-rock lithium project located in the state of Minas Gerais in Brazil”, where their current operations are focused on Brazil’s Lithium Valley. The company is still pre-revenue at the time of this writing but will soon see money start to come in. They mention in their annual report, We are building a modular plant targeted at producing 150,000 tons of lithium concentrate per annum (“tpa”) in what we describe as Phase I. We plan on adding additional modules to the plant with the intent of doubling its production capacity to 300,000 tpa in Phase II. Investors need not wait much longer, as they can expect the 150,000 tons of lithium concentrate in Phase I to begin in Q4 of 2024. Revenues will likely begin to show in the full year of 2025, while the stock has lost a lot of ground despite this coming positive news. With substantial ownership of mineral rights, the company seems to be focused on being an industry leader, with a focus on operations in Brazil. These minerals include “nickel, copper, rare earths, graphite, and titanium”. Management indicates the growth in EVs to be a major opportunity for their company, as they are fueling the nuts and bolts necessary for batteries in electric vehicles. By Phase II, the company expects to reach 300,000 tons of lithium concentrate by mid-2025. So, investors can see the roadmap playing out and can expect a substantial increase in revenues in 2025. All in all, I believe the company is well suited to meet growing EV demand and has a clear roadmap to becoming a major producer of lithium. The company is funded by two lithium chemical companies that give Atlas credibility and reputation about their production capabilities and meeting market demand. Its indirect relationship with Tesla (TSLA) and BYD (OTCPK:BYDDF) through these two partners gives me optimism that their lithium will flow through the supply chain and end up inside one of the two arguably best EV manufacturers in the industry right now, in my view. In conclusion, I expect the company to rise from obscurity as its production begins to ramp up later this year. DMS Processing Technology Is Advantageous I believe Atlas will be a high-quality and low-cost producer because of its DMS Technology, or dense media separation. Upon looking into this tech, StockHead suggests, The ability for a miner to process its lithium via DMS is an important one for investors, as it simplifies the permitting process and does not require floatation reagents and chemicals – minimizing operations risk and lowering production costs. Not only does it lower production costs and mitigate risk, but it is environmentally friendly. Processing the lithium with DMS does not require chemical treatments and is highly efficient in separating and extracting lithium. According to one research paper, using DMS can make the most use out of lithium concentrate, On a spodumene sample that was tested, it was possible to reject 55% of the mass to tailings while recovering over 90% of the lithium. The company has hired a key employee that will likely push this technology further, as Brian Talbot has an impressive track record with “extensive experience in DMS (dense media separation) plant development and operation, having worked at major lithium companies where he built a strong track record of operational performance”. This new addition to the team makes me believe that the company’s focus on dense media separation in its lithium processing and will operate as a highly efficient, low-cost operator in the lithium production space. With extensive mineral rights, growing demand, and doubling its exploration portfolio recently, I expect Atlas Lithium to be a strong player in its industry with low operating costs as its competitive advantage. Renewable Energy Depends on Lithium A recent press release caught my eye that suggests that the mining sector should be prepared for a “1500% surge in lithium demand by 2050”. While most of this demand does obviously come from the surge in demand and production of electric vehicles, investors may be surprised to see that lithium is also used in many other industrial, consumer, and even renewable energy applications. So, I think this surge in lithium demand is reasonable and expect it to be a major tailwind for Atlas Lithium. I believe lithium may be the new oil, as it will likely power our globe in terms of many applications that we use. Specifically, our transition to a more greener earth with renewable energy very much depends on lithium, as it makes the batteries that can store energy made by solar panels and wind turbines. Therefore, investors can see that overall demand for lithium is likely going to be massive and companies such as Atlas Lithium are rushing to increase production capacity to meet this upcoming demand. Investor Presentation Management seems confident that all production capacity will be utilized as they say they want to begin phase II of their production by mid-2025, reaching 300,000 tpa of lithium concentrate. What this signals to me is that supply is still catching up to demand because it takes a while for mines and facilities to be built, so this lag can create potential shortages in the interim. Some reports indicate a potential shortage in 2025, as demand outplaces supply. I believe this creates potential opportunities for lithium miners as a sector, due to the lagging supply trying to catch up to soaring demand. Valuation – $13+ Fair Value Valuing this company can be very tricky because there is no past record to rely on. So, I will be going off of management’s production guidelines of 150,000 tons per year according to their Phase I projections. Eventually, this should double to 300,000 by 2025, but for now, I will play conservative and only rely on Phase I for my valuation. Assuming the company makes 150,000 tons of spodumene concentrate at $1,000 per ton, the revenues should come in at least $150 million annually. I’m using the current spot price to get to around $1,000 per ton, but this price can be subject to change due to supply-demand dynamics in the market. My $150 million annual sales matches roughly with Seeking Alpha revenue estimates, with projected sales reaching $195 million for the fiscal year ended December 2025. Apply a sector median multiple of 1.3x to the $150 million in annual sales gets me around $200 million in market cap. Divide by shares outstanding of 15 million gets me $13.33 per share fair value. This simple back of the envelope demonstrates that just Phase I production alone is probably worth $13 per share, and Phase II will likely add even more value on top of this figure. Another clue to signal some undervaluation is that the two partners, Chengxin and Yahua have committed an “aggregate of US$50 million to Atlas Lithium with US$10 million as equity at $29.77 per share”. With the stock approaching $10, this seems like a huge discount to what knowledgeable stakeholders were willing to invest in. Anyway an investor slices it, the stock is becoming remarkably cheap at current levels and should find a bottom somewhere soon. With these growing demand tailwinds, a vast exploration portfolio in Brazil, and strong relationships with leading EV manufacturer suppliers, the stock should eventually be recognized as holding good value as their revenue numbers begin to show soon. Risks Lithium is subject to oversupply and shortages due to the cyclical nature of autos, supply and demand fluctuations, and the lag which takes supply a while to catch up to demand. Thus, it’s possible that price fluctuations can negatively impact how much revenue Atlas Lithium can make because lithium prices can affect the price of lithium concentrate. With operation mostly in Brazil, currency fluctuations can go against investors if the dollar strengthens against the Brazilian real. Investors should note that being in emerging markets have a risk of their own, such as inflation, geopolitical risk, and different kinds of regulations. Because the company requires outside funding at the moment, future issuances of equity may dilute investors. It may take a while for the company to get on its feet and become self-sustaining, so investors may see financing come from debt and equity issuance, which can increase risk on the balance sheet or dilute investors’ ownership. Finally, mining itself can be very dangerous and safety issues could put the company in a difficult situation if people get hurt. Mining can also be very capital intensive, so it may take even longer for the company to generate free cash flow, as maintenance expenditures eat up a lot of cash flow. Buy Atlas Lithium A bottom may be coming soon, as investors may see the opportunity to buy a soon-to-be productive lithium concentrate mining company at a bargain price. They claim to be “positioned to become one of the highest-quality, lowest-cost lithium producers in the world”, and I believe that at this price the risk/reward is favorable. Investors who like the lithium mining space should take a look at buying Atlas Lithium as it begins its production very soon.
sekar nallalu ATLX,Bargain Buyer,Cryptocurrency Atlas Lithium Stock: Nearing Potential Buy Zone (NASDAQ:ATLX)