The story of Sigma Lithium Corporation began in 2012 with the company’s commitment to deliver clean lithium for electrification and technological battery material. The company’s share price has declined 68.37% year-over-year due to volatile lithium prices.
As of May 2024, the price of metric tons of lithium carbonate and lithium hydroxide stood at $14,250, a decline of 81.8% and 83.2%, respectively. November 2022 had seen both compounds reach peaks of $78,200 per metric ton and $84,700 per metric ton.
In this article, we explore why SGML may be a prudent investment as it seeks to support its valuation pending a potential sale of the company. The company intends to raise its production capacity through 2024, anticipating a rebound in lithium prices.
Stable Quarter and Capacity Expansion
Sigma Lithium released its Q1 2024 financial report in May, indicating flat revenues of $37.2 million, almost at par with Q4 2023 revenues of $37.688 million. Despite the 1.29% quarter-over-quarter decline in revenues, Sigma recorded a 20.75% increase in the average reported selling price per ton of lithium.
This rise occurred despite the 18.27% quarter-over-quarter decline in the amount of concentrate sold in Q1 2024.
The company confirmed that it is in the process of commencing infrastructural builds in H2 2024 to increase its concentrate production. For instance, the “Quintuple Zero Green Lithium” project is set to rise almost 93% year-over-year to 520,000 tons per year from 270,000 tons per year.
Sigma’s board also approved the Phase 2 project expansion of the Industrial Greentech Plant by 250,000 tons per year. Apart from the $100 million planned capital expense to support this project, the company also explained that it already has the environmental license to support the work.
Sigma Lithium’s CEO Ana Cabral stated, “During 2024, Sigma has delivered on several key milestones aimed at doubling industrial capacity by 2025. We made the final investment decision to initiate construction of a second Greentech plant, and we extended operational life to 25 years at Grota do Cirilo by increasing our audited proven and probable mineral reserve by 40%. Our entire team is focused on the execution of this industrial and mineral capacity expansion, repeating the success of Phase 1 by delivering this second stage of operational growth on time and within budget.”
Sigma Lithium’s Sales Strategy
In 2023, Sigma Lithium considered selling the company but has since focused on expansion due to low lithium prices. The pullback in lithium prices was caused by the slower adoption of electric vehicles (EVs), which form the largest client base for the metal.
Despite this, decarbonization efforts and the demand for EVs are expected to grow, with sales of EVs projected to reach up to 17 million in 2024. The demand for lithium is forecasted to reach 2.5 million metric tons by 2030.
Sigma Lithium’s Greentech lithium is marketed as a green resource, enhancing the company’s attractiveness with its zero-carbon plan. The power used in the plant is “100% renewable as well as recycled water and dry-stacked tailings.”
The overall goal of SGML is to enable large-scale production of lithium, driving down the cost of production.
Valuation
SGML is trading slightly above $12 with a market cap of $1.4 billion and has lost almost 70% in the last 12 months. The company’s forward price-to-earnings ratio is 28.07 against the industry average of 16.93, indicating it is likely overvalued. However, the situation may change with an increase in lithium prices.
SGML’s cash balance is also at $108.08 million against a total debt of $204.92 million, bringing its enterprise value (EV) to about $1.50 billion. In its Q1 2024 report, the company reported “35.3% margins on pro forma EBITDA of $17.4 million and 15.8% margins on adjusted EBITDA of $5.9 million.”
The company’s forward EV/EBITDA stands at 13.47 against the industry average of 8.52.
Risk
SGML has $108.08 million in cash and a debt of $204.92 million, presenting a significant risk. The company needs substantial capital for its expansion projects and to meet its debt obligations. The value of the stock may also be suppressed if the company opts for equity financing to raise capital.
Conclusion
Sigma Lithium is a hold, given its re-valuation strategy involving the production and sale of lithium. The company plans to expand its phase 2 project for the Greentech Plant to at least 520,000 tons per annum from 250,000 tons, with a projection to hit a production level of 109 million tons by 2025.
The company’s commitment to using 100% renewable power makes it attractive in the quest for carbon-zero production units. While the sale of the company was previously considered, the current focus on expansion and the potential rebound in lithium prices suggest that holding SGML may be a prudent strategy for investors looking to benefit from future growth.
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I’m Elizabeth Monroe, a writer who brings you stories from around the world. I’m passionate about sharing important global news and amplifying the voices of those often left unheard. Through my writing, I aim to make the world feel a bit closer and more accessible.
