Piedmont Share Price in Freefall as BFS Fails to Impress Investors (ASX:PLL)

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The share price of Piedmont Lithium Inc [ASX:PLL] is tumbling today.

Despite releasing a comprehensive update on its Carolina Lithium Project in the US, Piedmont shares are trading 4.15% lower at time of writing. A worrying sign for both shareholders and management as the market has reacted so negatively to this update.

Let’s take a closer look at the details to get a glimpse at what may have gone wrong…

Promising potential with a lot of unanswered questions

First and foremost, this bankable feasibility study (BFS) released today is actually pretty damn good.

A forecast of US$459 million in steady EBITDA annually for the first decade is great. As is the estimated total net present value (after tax) on the entire project of US$2.04 billion.

So this stands to be a very productive mine when it comes online.

It will, however, cost US$988 million to get the project up and running. A sizeable sum to be sure. The good news, though, is that with their production estimates and a steady lithium price, Piedmont will be able to pay it all back in three and a half years.

For a project that is anticipated to have a total lifespan of three decades, that’s not too bad at all.

Which again, begs the question, what is the reason behind the stock sell-off?

Well, if we had to guess, it is more than likely due to the uncertainty surrounding licenses and permits.

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Earlier in the year, the local county members were threatening to block approval for the project on the grounds of a lack of information. Apparently, Piedmont had failed to provide adequate details on the potential environmental impacts of the mine.

Ever since this halt to progress, Piedmont has been scrambling to meet with local stakeholders. As a result, debate over whether the project will proceed or not is still ongoing.

So while the economics of the mine are certainly a positive, it will mean nothing to investors if management can’t even get it approved. A fact that will almost certainly haunt this stock until the matter is finally resolved.

As for when that may happen, no one knows. And that uncertainty is going to make shareholders very nervous…

Today’s update has tried to ease some of those fears, though:

Several meetings have been held with the permitting agency as well as the public and comments received related to the permit application. It is reasonable to believe the mining permit will be issued in accordance with the mining schedule. A permit for Gaston County zoning has not yet been applied for; however, several meetings have been held with the county staff, county commissioners, and the public. Changes to the Gaston County Zoning Ordinance related to mining were approved by the commissioners on September 21, 2021, and have been incorporated into the mine design. It is reasonable to believe the zoning permit will be issued when applied for.

Pursuant to the changes in the Gaston County Zoning Ordinance related to mining, optimizations were carried out to the limits of the mine permit boundary and will require the purchase of an additional 10 parcels of land. The estimated cost of these tracts has been included into the CAPEX costs for the mining section, and it is reasonable to believe these tracts will be procured.

What’s next for Piedmont?

Looking ahead, the only thing that really matters is the outcome of these consultations.

Piedmont needs to win over these county members in order to get approval. Then, and only then, should they start focusing on securing the funding and construction of the actual mine.

That’s likely why investors may have dismissed today’s update. Some good news that doesn’t really mean all that much until the more pressing matter is resolved.

But this is part of the risk of investing in resource stocks. Particularly those on the smaller side, and any that are pre-production.

Don’t let that put you off taking a punt on small-caps, though. The reality is that this often-overlooked end of the market has a lot of potential to offer investors who go looking for it. In fact, if you’d like to learn more about how to use small-caps to your advantage, check out our latest tips here.

It’s a great resource for seasoned investors and first-time traders alike.

Because at the end of the day, being in the market is still your best bet to grow your wealth.


Ryan Clarkson-Ledward,
For Money Morning

PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here

About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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