Palisade Research - Wed, Feb 28, 2018

1 of Our Favorite Stocks for the Electric Vehicle Revolution Just Got Better

image of a boy lying on a turtle swimming in blue water

Hey Guys,

My analysts and I have been researching the Battery Metals sector for a while now.

And long-time readers know that we're very bullish on them.

Especially when you see headlines like this. . .

"Apple in Talks to Buy Cobalt Directly from Miners" - Bloomberg

It's not hard to see why we're excited.

But there is one in particular that we've spent a lot of time looking into.

And it's been soaring over the last three years. . .

I'm talking about lithium.

line chart of the global lithium price per tonne since February 2013

The price has been quietly rising since summer 2015.

Why?

Because lithium is critical to everyday devices like smartphones and tablets - anything with a battery - which have all growing demand.

But the big driver is the Electric Vehicle Revolution - also known as EV's. Lithium batteries are what fuel most of these electric cars.

And they're taking over the road faster than many analysts imagined. . .

line chart of Electric Car Stock (BEV and PHEV) 2005 to 2016

For instance, there has been 35% growth per year in EV's between 2011 and 2016 (the data for 2017 isn't out yet).

This is impressive growth.

But things are just starting . .

There is something in forecasting called a 'Base Case, Stress Case, and Upside Case'.

  • Base Case is the average expected scenario

  • Stress Case is the worst scenario

  • and the Upside Case is the best scenario

In 2016 there were only 2 million EV's on the roads - and it keeps growing at the average 35%, that means by 2020 there will be 6.65 million on the road.

This is the Base Case.

Now let's assume EV sales miss the Base Case expectations and only double from 2 million to 4 million EV's by 2020 - the Stress Case.

That's still a lot of growth for a worst scenario.

But here's the Upside Case. . .

Let's be conservative and say that they're only 1 billion cars on the roads today.

If just 1% of new cars sold to those drivers are electric by 2020 - that would be 10,000,000 EV's. . .

That's a 500% increase from 2016.

The bottom line is that in all three cases, growth in EV's is significant.

We have seen countries like India and China make headlines saying that Electric Vehicles are the future. They are pushing their consumers to these cleaner vehicles.

When you have both the worlds fastest and largest growing car markets saying that's what they want - that's a big deal.

So, what do you do about it?

I have a roundabout way to profit from the EV Revolution. . .

Rather than buying stocks or bonds of car makers like Tesla - invest in lithium mining and exploration companies. . .

And after our team searching for months through the small group of lithium stocks available - there is one company that really excites us. . .

LSC Lithium Corp (CVE:LSC, OTCMKTS:LSSCF, FRA:8LS)

Here are some highlights:

  • They have a large and high-quality land package located in the 'Lithium Triangle' part of Argentina - the world's top lithium area

  • Multiple projects with high grade lithium reserves - and they keep finding more

  • Five Development Projects that are being drilled

  • Strong Management and Insiders

  • Clean Balance sheet with $16.5 Cash & Cash Equivalents.

  • Attractive Valuation - Comprehensive Research Report gave them a $2.50 Target Price

  • Significantly cheaper relative to their peers

The company just issued a Maiden Mineral Resource Statement for two of their properties:

1. ) The Pozuelos lithium project includes 1.3 million tonnes of lithium carbonate equivalent (LCE) in the M&I mineral resource category and 312,942 tonnes in the inferred mineral resource category;

2. ) The Rio Grande lithium project includes a total of 2.19 million tonnes of lithium carbonate equivalent in the inferred mineral resource category

And even with these great resource statements - the market ignored it.

Crazy, right?

That's why bold investors like you and I can get better deals - we pay close attention to these opportunities.

Just look at the valuations of LSC Lithium relative to their peers. . .

bar chart of 7 Lithium Triangle listed companies Enterprise Value / Tonnes of Lithium Equivalent

Study that last column, you can see that on an 'Enterprise Value per Tonne of Lithium Carbonate Equivalent' ($EV/t LCE) basis, LSC is very undervalued.

They are trading at $44/t LCE compared to the peer average of $142/t LCE - a 69% discount. . .

Putting this into perspective - for LSC to trade at the peer average, the share price will triple from $1.29 to $3.80.

That's a 200% upside.

If that doesn't convince you of the opportunity here - then this will.

There was a recent acquisition intent for Lithium X Energy Corp. and it was at $2.61 per share. Using the same metric above, this translates into $240/t LCE.

That's a 445% premium compared to what LSC's lithium resources are going for. . .

Here are other things LSC has that Lithium X doesn't:

  • LSC has almost double the lithium in the ground that Lithium X does

  • Has much less share dilution

  • Both their properties are in the same country

  • Market Cap is 1/3 cheaper

After seeing all this it's clear that LSC is the cheapest compared with their peers.

That's why LSC Lithium is an asymmetric opportunity - low risk with high reward.

The company expects three resource estimates completed during 2018 - once done, they'll have even more lithium reserves in the ground.

With their already cheap valuation and growing lithium resources, they offer investors a strong margin of safety - downside protection.

Lithium prices will continue to rise. And eventually the market will catch on to LSC's attractive valuation.

The downside's limited. And the upside potential is great.

I like it.

Palisade Global Investments Limited holds shares of LSC Lithium. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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