Livent Pops 15% On Lithium Joint Venture, Tesla Contract Extension

Shares of Livent Corp. jumped 15% on Friday after the lithium producer announced a deal to buy Canada’s ailing Nemaska Lithium and secured a supply agreement extension with Tesla.

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According to the terms of the transaction, Livent (LTHM) will acquire the business and certain assets of Québec-based Nemaska as part of a joint venture with The Pallinghurst Group. Both companies will equally hold a 50% equity ownership in Québec Lithium Partners, which was created earlier this year after Nemaska filed for bankruptcy proceedings. The remaining 50% will be owned by state-owned Investissement Québec.

Furthermore, Livent said that it has extended its multi-year lithium hydroxide supply agreement with Tesla (TSLA) through 2021, which includes a commitment for higher volumes than in 2020. The company also continues to discuss the terms for a long-term supply partnership with the electric vehicle maker beyond 2021, it said.

“We continue to see evidence that demand for lithium compounds will accelerate in 2021 and beyond, with growing support for electrification from OEMs, governments and consumers, despite significant disruptions in 2020,” said Livent CEO Paul Graves. “Livent continues to focus on strengthening its competitive position so we can support our customers with their future needs. Our ongoing partnership with Tesla and our agreement to invest in Nemaska are examples of this.”

“The major priorities we are seeing from our customers – the shift to lithium hydroxide and the growing importance of localized, sustainable supply chains – are core advantages for Livent that will continue to position us as an industry leader for years to come,” Graves commented.

Livent said that it expects significant electric vehicle demand growth. “However, sustained lithium pricing weakness has forced many developers and producers to defer or cancel new projects and expansions, creating a potential shortage of battery qualified lithium materials in the coming years,” the company said.

With Livent shares up already a whopping 60% this year, the majority of analysts are sidelined on LTHM with a Hold consensus. Looking ahead, the $10.30 average price target implies 25% downside potential over the coming 12 months.

Following the news, Raymond James analyst Pavel Molchanov reiterated a Buy rating on the stock with a $14 price target (2.6% upside potential), saying that lithium is vital for electric vehicle batteries, making it a derivative for electric mobility. Molchanov expects global lithium demand growth to average 12-16% per year.

“Livent is taking a 25% equity stake in Nemaska Lithium, a pre-revenue project in Quebec,” the analyst wrote in a note to investors. “Like many “junior” players, Nemaska had a troubled history and ended in bankruptcy, hence Livent is coming in at an opportune time.” (See LTHM stock analysis on TipRanks)

“While very different geologically from Livent’s legacy Argentinean assets – this is spodumene rather than brine – the project has favorable environmental attributes, including hydro,” he summed up.