Snow Lake Resources (NASDAQ: LITM) is rising on Friday after taking an important step towards building a domestic supply chain for the North American electric vehicle market.
The company has signed a non-binding Memorandum of Understanding with LG Energy Solution to pursue the creation of this supply chain, with the two parties set to collaborate on investigating the possible construction of Canada's first lithium hydroxide processing plants in CentrePort, Winnipeg, Manitoba.
Under the terms of the MOU, Snow Lake Lithium will supply LGES with lithium over a 10-year period once production starts in 2025.
What Does Snow Lake Resources Do?
Snow Lake Resources is a natural resource exploration company which engages in the exploration and development of mineral resources in Canada, primarily for lithium mineral resources.
It holds interest in the Thompson Brothers Lithium property covering an area of 55,318 acres located in Manitoba.
Snow Lake says its goal is to operate a fully renewable and sustainable lithium mine that can deliver a completely traceable, carbon neutral and zero harm product to 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 is hoping will one day host the world's first all-electric lithium mine. That’s because its operations are set to be powered by renewable hydroelectric power.
According to Snow Lake, the mine is expected to produce 160,000 tonnes of 6% lithium spodumene a year over a 10-year period, which is enough to power 5 million electric vehicles.
Additionally, the project has nearby access to the US rail network via the Arctic Gateway railway, which Snow Lake says reduces transportation to the North American automotive industry from thousands of miles to just several hundred by train.
However, the mine is not expected to commence production until 2025, with engineering evaluation and a drilling program taking place on the site over the coming months as Snow Lake continues to study a 55,000-acre site which it has explored just 1% of at present.
How Does Snow Lake Resources Make Money?
The company has not yet generated any revenues as its sole asset, the Thompson Brothers property, is still being explored and developed. However, once the project is up and running, which is currently slated to happen in 2025, Snow Lake aims to derive substantial revenues from the sale of lithium hydroxide to the growing EV and battery storage markets in the US and abroad.
LITM Stock Financials
The company reported it had more than $24.1m in cash remaining at the start of 2022 and had registered a net loss of $1.9m in the prior six-month period. The business has acknowledged that further funding will be required before it begins producing significant revenues.
The company’s IPO was in November 2021, with the business listing 3.2 million shares at a price of $7.50. The company’s share price soared by nearly 150% on its first day of trading as the company’s business plan excited investors.
Things have tailed off a little since then, though, with LITM stock’s price sitting at $2.30 at the time of writing, having fallen by more than 60% across the year to date.
Shareholder Unrest
It is perhaps worth noting that the company’s leadership has been battling a group of ‘concerned shareholders’ who sought to oust Snow Lake’s board. The group said in a press release from July that it was seeking to combat the “dramatic decline and staggering loss of shareholder value under the current board”.
The group particularly sought increased independence for the company’s board, raising concerns that it did not have enough autonomy from CEO Philip Gross.
The release continued:
“In light of the company's dire circumstances and continued deterioration, ineffective management and recent actions by the board, urgent action is not only justified, but necessary.
“The concerned shareholders have taken action to prevent the further destruction of shareholder value and enable the company's shareholders to determine its future direction by calling the special meeting to be held on August 10, 2022.”
However, Snow Lake succeeded in having the shareholder meeting declared null and void in court in late July, with a shareholder meeting called by the board for 15 December instead being the valid event.
LITM Stock Growth Potential
The company’s unique selling point to investors and customers alike is that it is seeking to become an environmentally friendly lithium miner.
The business aims to be fully powered 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 believes this will strongly appeal to potential customers, noting that EV manufacturers like Volvo, Honda (NYSE: HMC), Toyota (NYSE: TM), General Motors (NYSE: GM) and Ford (NYSE: F) are shifting focus towards sustainably source materials.
While this sustainability angle is the company’s USP, the underlying trend it is hoping to exploit is clearly the accelerating demand for lithium. Lithium carbonate prices have roughly tripled across the past 12 months as the popularity of electric vehicles continues to grow.
While 2.5 million EVs were sold worldwide in 2020, analysis from Deloitte indicates that sales could top 30 million per year by 2030.
LITM Investment Risks
There are a number of important risks to consider before throwing your weight behind Snow Lake Resources:
Snow Lake does not expect to start generating revenues until the fourth quarter of 2024, at the earliest. The business could run out of money before this.
The company’s project is still quite some distance from being a producing lithium mine. Its progress could be delayed by unexpected obstacles and its operations may not be as successful as anticipated due to factors such as lower than expected mineral resources.
Snow Lake will likely require additional funding to implement its business plan. The business may fail to raise the required funds or shareholders may see their holdings diluted.
There is a high degree of inherent risk in the mining sector. These include, but are not limited to, environmental hazards, industrial accidents, equipment failure, import/customs delays, metallurgical and other processing problems, and regulatory changes.
Is LITM Stock a Good Investment?
Snow Lake Resources looks like an example of a business perfectly suited to the green transition, with its renewable energy credentials adding to its efforts to produce a resource that is so key to the green transition.
However, the company’s trouble with shareholders is concerning and could end up posing a significant risk to the business’ ability to continue operating if it snowballs out of control. Another concern is that the business remains at least two years from commercial production and costs are likely to ramp up in the meantime.
From this distance, the business’ plans look sound and exciting, but its internal difficulties and rising costs could see the plan derailed. Mining is an intrinsically risky sector, especially miners who are not yet at the production stage.
As such, investors should carefully consider their attitude to risk before backing LITM stock.