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Why Piedmont Lithium's Tesla News Sparked a 15% Pop This Morning

By Rich Smith – Oct 14, 2020 at 12:00PM

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Positive press pushed up the price of the lithium mining company.

What happened

Piedmont Lithium (PLL) shares rushed out of the gate Wednesday morning, rising as much as 15% before settling down to a still-respectable 6.7% gain as of 11:55 a.m. EDT.

The stock appears to be responding to a pair of positive articles posted on SeekingAlpha Tuesday afternoon and evening, both of which cited Piedmont's prospective supply deal with Tesla (TSLA) as a reason to own the stock.

Arrow angles up on a green stock chart

Image source: Getty Images.

So what

In the article published Tuesday afternoon, "Lisbon Stock Picks" noted that Piedmont is a lithium mining company possessing "projects in Hallman Beam and Kings Mountain in North Carolina." Although the company currently has no revenues (the analyst gently describes it as "pre-feasibility"), Lisbon Stock Picks urges investors to look ahead to a future in which the company might generate $100 million per year in lithium sales, and enjoy a market valuation of as much as $700 million -- versus the $430 million Piedmont fetches today.

Separately, writer "Simple Investment Ideas" argued that Piedmont's location in the U.S. makes it "ideally" located to supply lithium to Tesla, as well as to General Motors and Ford as they ramp up their production of electric vehicles. Simple Investment Ideas posited a $1.1 billion "net present value" for the stock.

Now what

It's not all rainbows and unicorns for Piedmont, however. Simple Investment Ideas, for instance, admitted that "lithium continues to be a tough business" plagued by "low lithium prices" and noted that the company has multiple larger competitors.

In Lisbon Stock Picks' write-up, they noted that Piedmont's putative lithium reserves are presently "not proved," but only "indicated and inferred." Moreover, even if the metal is where Piedmont thinks it is, lithium prices are known to swing widely -- the company's pre-feasibility study forecast prices in a range of $400 per ton to $700 per ton.

Piedmont's profits would obviously be much better with prices at the top of that range than at the bottom -- but for now, at least, investors seem willing to overlook that risk in the face of positive sentiment about the stock.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Stocks Mentioned

Piedmont Lithium Limited Stock Quote
Piedmont Lithium Limited
PLL
Tesla Stock Quote
Tesla
TSLA
$194.70 (%)

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