The lithium industry has been having a difficult time of late with heavy declines being recorded across the board.
This has been driven by weakness in spot lithium prices due to concerns over an oversupply of the battery making ingredient.
While this is disappointing for shareholders, it could be a buying opportunity for the rest of us according to analysts at Bell Potter.
This morning, it has initiated coverage on one ASX lithium stock and sees potential for big returns over the next 12 months.
Image source: Getty Images
Which ASX lithium stock?
The stock in question is Vulcan Energy Resources Ltd (ASX: VUL).
It notes that Vulcan's 100% owned Lionheart Project is a geothermal lithium brine into lithium hydroxide and co-product energy supply development.
Bell Potter highlights that the initial 30-year project targets 24ktpa Lithium Hydroxide Monohydrate production and 95MW renewable energy generation, ramping up from 2027. And if all goes to plan, Lionheart will be the first project to supply European-sourced lithium into the continent's lithium-ion battery and electric vehicle (EV) supply chain.
Big returns
According to the note, the broker has initiated coverage on the ASX lithium stock with a speculative buy rating and $6.10 price target.
Based on its current share price of $4.09, this implies potential upside of almost 50% for investors over the next 12 months.
Though, it is worth highlighting that the broker sees it as a speculative play. As a result, it may not be suitable for investors with an average risk tolerance.
Why is it bullish?
Bell Potter is bullish on lithium and believes that the price of the battery making ingredient will rebound in the coming years as the market rebalances.
Based on this, the broker believes that the ASX lithium stock could generate significant earnings before interest, tax, depreciation, and amortisation (EBITDA) in the future. It explains:
Lionheart's location, development-ready stage and novel technology position VUL to benefit as lithium markets rebalance over the medium term. On our lithium price outlook (long term LHM US$20,000/t), average annual EBITDA is €290m (real). Our Lionheart NPV and the project's potential for subsequent staged expansions support our Valuation of $6.10/sh. VUL is an asset development company with only forecast cash flow; our Speculative risk rating recognises this high level of risk and potential share price volatility.
All in all, this could make it worth a look if you have a high tolerance for risk and want exposure to the lithium industry.
