10:35 AM EST, 02/01/2023 (MT Newswires) -- National Bank of Canada on Wednesday noted General Motors Company's (NYSE: GM) US$650 million equity investment in Lithium Americas (TSX and NYSE: LAC), alongside an off-take agreement to secure lithium supply, and said it sees opportunity for more deals for mining companies.
The bank said lithium markets are expected to face a supply deficit beginning from 2025 driven by accelerating demand for electric vehicles. Consensus estimates forecast about a third of all passenger vehicles sold globally by 2026 will be EVs, the bank noted. As of December 2022, about 70% of American, Japanese and European carmakers have committed to EV sales targets with some beginning as soon as 2025.
The bank said lithium demand remains robust as battery makers and automakers look to secure primary supply in a tight market, with some even considering acquiring direct stakes in primary suppliers. It said GM's deal with Lithium Americas represents the largest equity investment by an automaker in any battery raw material production. The bank also recalled Tesla Inc.'s (NASDAQ: TSLA) reportedly failed transaction to buy up to 20% of diversified miner Glencore plc to secure lithium supply.
The bank also noted that several mining-specific deals have been led by U.S.-based automakers, while Asia-based automakers such as Honda and Hyundai have primarily partnered with battery makers thus far. It said it sees opportunity for more deals for mining companies with either or all three features.
The first type of a deal could be a Memorandum of Understanding or a non-binding agreement with an automaker. It cited the example of Rio Tinto, which has an MOU in place with Ford Motors to explore an off-take deal from their Rincon project, and Compass Minerals, which also has an MOU with Ford related to a potential off-take agreement.
Another type of transaction could involve moderately or well-advanced projects in the USA and/or Canada, the bank said. Companies which screen favorably on this note include American Lithium (TSX-V: LI), Century Lithium Corp. (TSX-V: LCE), Patriot Battery Metals Inc. (TSX-V: PMET) and Frontier Lithium Inc. (TSX-V: FL), the bank said.
The third feature of a deal could involve lithium companies that show high ESG competitiveness compared to peers. Companies that screen favorably on this note include Sigma Lithium (NASDAQ and TSX-V: SGML), which is aiming to achieve net-zero targets by 2024, the bank noted.