Big returns could be on offer from the ASX lithium stock in this article.
That's the view of analysts at Bell Potter, which are recommending the lithium developer to investors with a high tolerance for risk.
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Which ASX lithium stock?
The lithium stock in question is Patriot Battery Metals Inc. (ASX: PMT), which is the owner of Corvette Property in Canada.
Bell Potter notes that Volkswagen Group has just agreed to invest C$69 million to acquire a 9.9% stake in the lithium developer. This was undertaken at C$4.42 per share, which is the equivalent to A$0.49 per share. This represents a significant premium to the prevailing share price of 38.5 cents.
In addition, the auto giant's battery manufacturing subsidiary, PowerCo, has committed to a binding offtake agreement for the supply of 100,000 tonnes per annum of 5.5% Li2O spodumene concentrate.
According to the note, the broker was pleased with the news and feels it provides a funding runway through to 2026. It said:
At 30 September 2024, PMT had cash of C$70m, up to half of which relates to the May 2024 C$75m flow-through offering and therefore must be spent before the end of 2025. DFS and key permitting applications are due for submission in the September 2025 quarter enabling exploration activity and cash burn to moderate.
The VW placement should therefore provide PMT a funding runway into 2026. VW's commitment provides strong validation of the Project and the hard-rock lithium supplyside more broadly. It also highlights VW's commitment to the North American EV market and to establishing a western-facing battery materials supply chain.
Big return potential
In response to the news, the broker has retained its speculative buy rating on the ASX lithium stock with a trimmed price target of 70 cents (from 75 cents).
Based on its current share price of 38.5 cents, this implies potential upside of approximately 95% over the next 12 months.
Commenting on its bullish recommendation, Bell Potter said:
The Shaakichiuwaanaan Project is highly strategic in terms of scale, jurisdiction and access to North American lithium-ion battery supply chains. PMT is funded to take the Project to full feasibility by the end of 2025. While permitting risks may be an impediment to PMT's near-term corporate appeal, we expect value re-rating as the Project is de-risked through permitting and as the Group's MRE continues to expand. PMT is an asset development company with prospective operations and cash flows. Our Speculative risk rating recognises this higher level of risk and volatility of returns.
