Snow Lake Resources (NASDAQ: LITM) rises on Friday after taking an important step towards building a national supply chain for the North American electric vehicle market.
The company has signed a non-binding memorandum of understanding with LG Energy Solution to further build this supply chain, with both parties to work together to explore the potential construction of Canada’s first lithium hydroxide processing plants in CentrePort, Winnipeg, Manitoba.
Under the terms of the memorandum of understanding, Snow Lake Lithium will supply lithium to LGES over a 10-year period once production begins in 2025.
What does Snow Lake Resources do?
Snow Lake Resources is a natural resource exploration company engaged in the exploration and development of mineral resources in Canada, primarily lithium mineral resources.
It holds an interest in the 55,318-acre Thompson Brothers Lithium property located in Manitoba.
Snow Lake says its goal is to operate a fully renewable and sustainable lithium mine that can provide a fully traceable, carbon-neutral, and safe product for the electric vehicle and battery market in North America.
The company was incorporated in 2018 and is based in Winnipeg, Canada.
The Thompson Brothers Lithium Property
This is the site that Snow Lake Resources hopes will one day host the world’s first all-electric lithium mine. Indeed, its operations should be powered by renewable hydroelectric energy.
According to Snow Lake, the mine is expected to produce 160,000 tonnes of 6% lithium spodumene per year over a 10-year period, which is enough to power 5 million electric vehicles.
Additionally, the project has nearby access to the U.S. rail network via the Arctic Gateway Railroad, which Snow Lake says reduces transportation to the North American auto industry from thousands of miles to a few hundred by train.
However, the mine is not expected to begin production until 2025, with an engineering assessment and drilling program underway at the site over the next few months as Snow Lake continues to investigate a 55,000 acre site which it does not ‘has explored only 1% currently. .
How do Snow Lake resources make money?
The company has yet to generate revenue as its sole asset, the Thompson Brothers property, is still under exploration and development. However, once the project is operational, which is currently planned for 2025, Snow Lake aims to earn substantial revenues from the sale of lithium hydroxide to the growing electric vehicle and battery storage markets in the United States. and abroad.
Finances of LITM shares
The company said it had more than $24.1 million in cash left at the start of 2022 and had posted a net loss of $1.9 million in the previous six months. The company has acknowledged that additional funds will be needed before it begins to generate significant revenue.
The company’s IPO took place in November 2021, with the company listing 3.2 million shares at a price of $7.50. The company’s share price soared nearly 150% on its first day of trading as the company’s business plan got investors excited.
Things have slowed down a bit since then, however, with LITM stock trading at $2.30 at the time of writing, having fallen over 60% in the year to date.
It’s perhaps worth noting that the company’s management battled a group of “worried shareholders” who were seeking to oust the Snow Lake board. The group said in a July press release that it was seeking to address “the dramatic decline and staggering loss of shareholder value under the current board.”
The group has notably sought greater independence from the company’s board of directors, raising fears that it does not have sufficient autonomy from CEO Philip Gross.
The post continued:
“In light of the company’s dire circumstances and continued deterioration, ineffective management and recent board actions, urgent action is not only warranted, but necessary.
“Affected shareholders have taken steps to prevent further destruction of shareholder value and allow shareholders of the company to determine its future direction by calling the special meeting to be held on August 10, 2022.”
However, Snow Lake was successful in having the shareholders’ meeting declared null and void in court in late July, with a shareholders’ meeting called by the board for December 15 being the valid event instead.
Growth potential of LITM shares
The company’s unique selling point to investors and customers is that it seeks to become an environmentally friendly lithium miner.
The company aims to be powered entirely by renewable energy and says its hard rock lithium is a less environmentally impactful method of obtaining the resource than the brine production method used by many competitors.
The company clearly thinks this will appeal strongly to potential customers, noting that EV makers like Volvo, Honda (NYSE:HMC), Toyota (NYSE:TM), General Motors (NYSE:GM) and Ford (NYSE:F) are turning to sustainably sourced materials.
While this sustainability angle is the company’s USP, the underlying trend it hopes to tap into is clearly accelerating demand for lithium. Lithium carbonate prices have roughly tripled in the past 12 months as the popularity of electric vehicles continues to grow.
While 2.5 million electric vehicles were sold worldwide in 2020, analysis by Deloitte indicates that sales could exceed 30 million per year by 2030.
LITM Investment Risks
There are a number of important risks to consider before investing in Snow Lake Resources:
Snow Lake does not expect to begin generating revenue until the fourth quarter of 2024, at the earliest. The company might run out of money before that.
The company’s project is still a long way from a producing lithium mine. Its progress may be delayed by unexpected obstacles and its operations may not be as successful as expected due to factors such as lower than expected mineral resources.
Snow Lake will likely need additional funds to implement its business plan. The company may not raise the necessary funds or the shareholders may see their holdings diluted.
The degree of risk inherent in the mining sector is high. These include, but are not limited to, environmental hazards, industrial accidents, equipment failures, import/customs delays, metallurgical and other processing issues, and regulatory changes.
Is LITM stock a good investment?
Snow Lake Resources looks like an example of a company perfectly suited to the green transition, with its renewable energy credentials adding to its efforts to produce a resource so essential to the green transition.
However, the company’s issues with shareholders are concerning and could end up posing a significant risk to the company’s ability to continue operations if it spirals out of control. Another concern is that the company remains at least two years away from commercial production and that costs are likely to increase in the meantime.
From this distance, the company’s plans look solid and exciting, but its internal difficulties and rising costs could derail the plan. Mining is an inherently risky business, especially miners who are not yet at the production stage.
As such, investors should carefully consider their risk attitude before supporting LITM shares.