If you are wanting some exposure to the lithium industry, then Vulcan Energy Resources Ltd (ASX: VUL) shares could be one way to do it.
That's the view of analysts at Bell Potter, who believe the ASX lithium stock could be undervalued at present.
What is the broker saying about this ASX lithium stock?
Bell Potter notes that it attended a site visit to Vulcan Energy's 100%-owned Phase 1 Lionheart lithium project in Germany last week.
This event covered the ASX lithium stock's operations across the rig-site, geothermal power and heat generation, Adsorption-type Direct Lithium Extraction (A-DLE) technology to produce concentrated lithium chloride, and downstream electrolysis processing to produce battery grade lithium hydroxide.
Bell Potter came away from the event feeling very positive on the company's future. It said:
The tour highlighted the high calibre of VUL's executive and senior management team and the significant technical derisking which has been undertaken to date. At the rigsite, VUL first new production well is underway, on time and on budget. The A-DLE facility is accepting brine from VUL's wells and producing 40% lithium chloride solutions, as planned. At Höchst, pilot-scale battery grade lithium hydroxide production commenced in January 2025, customers are receiving this product for validation.
Funding
There is still significant funding required in the near term. However, the broker believes this will come from debt and a strategic partner and not a capital raising. It explains:
VUL is now working to finalise debt funding for the Phase 1 project in the current quarter (with €1.4b in conditional commitments across seven commercial banks and the European Investment Bank), alongside around €100m grant funding. We expect VUL will also introduce a project-level partner to assist with the €2.2b total project funding requirement (including €1.4b capex), the sell-down process also at an advanced stage.
Time to buy
According to the note, the broker has retained its speculative buy rating on the ASX lithium stock with an improved price target of $6.25.
Based on its current share price of $4.75, this implies potential upside of 32% for investors over the next 12 months.
Commenting on its buy recommendation, Bell Potter said:
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 $6.25/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.
