Piedmont Lithium shares: 150% upside or big short opportunity?

Piedmont Lithium Inc (ASX: PLL) shares have dropped by 4.5% since Blue Orca commenced its short-sell attack last week.

Piedmont Lithium shares opened at 84 cents this morning, up 1.2% on yesterday's closing price.

One broker says the ASX lithium share offers a 150% upside and will outperform over the next year.

Let's take a look at what's happening.

Why are Piedmont Lithium shares being shorted?

Piedmont shares went into a trading halt last Wednesday after Blue Orca released its short report.

Blue Orca alleges that Piedmont's joint venture (JV) partner in Ghana, Atlantic Lithium Ltd (ASX: A11), will lose its mining licences. Consequently, it will be unable to supply Piedmont's facility in Tennessee.

As my colleague James reported last week, Blue Orca alleges that Atlantic Lithium attained its licenses by making secret payments and promises of payment to the immediate family of a Ghana politician.

This is why Blue Orca has shorted Piedmont Lithium shares. It explained:

We are short Piedmont because without Atlantic's Ghana supply, Piedmont and any promise of near-term revenue from its much-hyped Tennessee facility are dead on arrival.

Without Ghana, industry experts and even a former Piedmont senior executive have confirmed that Piedmont is unlikely to find a source of replacement spodumene.

How did Piedmont respond?

Piedmont Lithium responded by saying Atlantic Lithium "outrightly refutes" Blue Orca's assertions and regardless, Piedmont could find alternative sources of spodumene for its facility if it had to do so.

Piedmont said:

Piedmont has the right to purchase 50% of Atlantic's production of spodumene concentrate from its Ghana lithium project, at market prices on a life-of-mine basis, and to earn a 50% interest in the Ghanaian projects.

Piedmont currently contemplates utilizing spodumene concentrate from this offtake agreement as partial feed for its proposed Tennessee Lithium hydroxide plant.

However, if for any reason Piedmont does not exercise its right to this offtake supply, the Company is confident that alternative sources of spodumene concentrate would be available to feed the Tennessee facility, as current and future spodumene producers seek to feed the growing U.S. electric vehicle market and qualify for the benefits available under the Inflation Reduction Act of 2022.

What's this about a 60% upside?

According to reporting in The Australian, Macquarie has commenced coverage of Piedmont Lithium shares. The broker has placed an outperform rating on the stock and a 12-month price target of $2.10.

This follows other news from Piedmont Lithium last week.

The company and another JV partner, Sayona Mining Ltd (ASX: SYA), announced that their North American Lithium Project has achieved first spodumene production.

Why is Macquarie backing Piedmont Lithium shares for growth?

Macquarie said:

Achieving first spodumene production at NAL is an important milestone, with improving the quality of the spodumene now a key focus for the project.

Piedmont Lithium and Sayona Mining are targeting Q3 2023 for the commencement of sales.

Macquarie notes Piedmont Lithium's offtake agreement with NAL entitles it to 50% of spodumene production with a price cap of US$900 per tonne.

Piedmont plans to sell this product to Tesla Inc (NASDAQ: TSLA) and LG Chem Ltd (KRX: 051910) at spot prices over the next three years.

Broker Goldman Sachs forecasts spot prices for spodumene to fall to US$4,330 per tonne this year.

It expects a rapid descent to US$800 per tonne in 2024 and 2025 due to increasing supply.

Piedmont Lithium shares hit a new 52-week high of $1.09 in mid-February.