Canaccord Genuity came out with a bold $15.00 price target for the Vulcan Energy Resources Ltd (ASX: VUL) share price on Tuesday.
Vulcan shares have surged some 3,000% from a mere 20 cents to $7.20 in the past 12-months. However, this new speculative target price suggests another near-100% upside.
Why the Vulcan share price could go higher
Canaccord views Vulcan's Zero Carbon Lithium project as an "untapped lithium resource class which will be needed to meet expected lithium demand over the long term".
The project takes an innovative approach by extracting hot brines to generate renewable, geothermal power. It then uses direct lithium extraction (DLE) to produce battery quality lithium hydroxide.
The broker has also observed that Vulcan's project possesses the largest lithium resource in Europe with more than 100 years in resource at nameplate capacity. Additionally, the note has called the DLE technology a "potential game-changer in the lithium world". While DLE technology isn't something new, it isn't widely deployed in the industry either.
Canaccord highlights a number of benefits of leverage DLE technology. This includes the commercialisation of lower-grade deposits, a reduced environmental footprint, improved product quality, and lower costs.
Latest announcement details
On Monday, Vulcan announced that its German pilot plant for DLE is now operational. Vulcan managing director, Dr. Francis Wedin commented:
Getting our Pilot Plant up and running on live geothermal brine is a significant milestone for Vulcan. This has already started producing crucial data needed for de-risking the lithium extraction process.
Vulcan is able to differentiate itself from traditional lithium hard rock and brine producers such as Galaxy Resources Ltd (ASX: GXY) and Orocobre Ltd (ASX: ORE). The main difference is that Vulcan produces clean lithium with no CO2 emissions. Canaccord believes that this will translate to a price premium for Vulcan's product. This could also play favourably into proposed policies in the EU to impose tariffs on high CO2 products.
Finally, the broker sheds light on the rapidly developing European lithium market, which has over 700GWh of battery manufacturing capacity. This will be built by 2030. The broker calculates that European original equipment manufacturers (OEMs) need to lift electric vehicle penetration rates to 19% in 2021. This will also need to increase to 40% in 2025 and 67% by 2030 to meet emission standards and avoid significant fines. Furthermore, these targets place Vulcan in a favourable position, especially with its planned zero-carbon lithium production.
While Vulcan is still in its early days, Canaccord is bullish on its shares with a $15.00 target price. The Vulcan share price is climbing higher today, up 6.16% to $7.41 at the time of writing.
