Standard Lithium Stock Remains Outperform on Favorable Royalty Resolution in Arkansas
On Thursday, BMO Capital Markets made an adjustment to its financial forecast for Standard Lithium Ltd. (SLI:CN) (NYSE: SLI), increasing the price target to Cdn$3.25 from the previous Cdn$3.00, while still endorsing an Outperform rating for the stock. This revision comes in light of upcoming regulatory proceedings concerning lithium extraction in Arkansas.
The Arkansas Oil and Gas Commission (AOGC) is set to review an application from lithium companies, including Standard Lithium, on November 4, 2024, which may impact the royalty rates for lithium extraction in the region. Companies involved are proposing a 1.82% royalty rate, while landowners are pushing for a more substantial 12.5%. BMO Capital Markets has pointed out that the higher rate could affect the financial feasibility of lithium projects based on their analysis.
According to a BMO Capital analyst, their forecasts assume a 2.5% royalty rate, consistent with other regions. The analyst anticipates that the AOGC might seek a compromise that promotes the growth of the lithium industry in Arkansas, given the contrasting recommendations from the industry and landowners.
The decision by the AOGC on the royalty rate is crucial for Standard Lithium and its contemporaries, having direct effects on their project economics and potential cash flows in the area.
In other recent developments, Standard Lithium has been chosen for award negotiations potentially up to US$225 million by the US Department of Energy. This development is considered significant by BMO Capital, as it is tied to Standard Lithium’s South West Arkansas (SWA) project, currently undergoing a feasibility study and front-end engineering design. The project’s goal is to augment its lithium carbonate equivalent production capacity from an initial 30ktpa to a heightened 45ktpa, to be executed in two phases.
BMO Capital has subsequently updated its outlook on Standard Lithium, increasing the price target to Cdn$3.00 from the previous Cdn$2.50, maintaining an Outperform rating on the stock. The financial institution’s revised projections take into account the larger-scale project and updated funding assumptions.
This potential funding from the US Department of Energy is contingent upon final negotiations. If achieved, it will signify a major step forward for Standard Lithium in its quest to expand lithium production capacity in Arkansas, a critical location for addressing the rising demand for lithium, a fundamental component in battery technology and renewable energy sectors.
Standard Lithium’s financial perspective paints a mixed picture, as highlighted by recent data. The company’s market capitalization is marked at $377.86 million, illustrating its present status in the lithium market. Despite the intricate royalty rate discussions in Arkansas, SLI has exhibited remarkable short-term market performance, with a 37.91% price return in the last month and a notable 86.73% return over the past six months.
These robust returns resonate with two key insights: SLI has shown a “Strong return over the last month” and a “Large price uptick over the last six months.” Such positive signals indicate investor confidence in the company’s potential, possibly in anticipation of favorable regulatory decisions.
Nevertheless, it’s worth considering that SLI faces challenges from “weak gross profit margins,” highlighted by another insight. This complements the company’s negative gross profit of -$7.89 million over the last year, emphasizing the significance of the forthcoming AOGC decision on royalty rates for the company’s future profitability.
For investors seeking detailed analysis, a deeper insight into Standard Lithium’s financial health and market position can provide valuable information.
