Ioneer Lithium Stock Shoots Up On News Of A $700 Million Loan Commitment For A New Plant In Nevada

Key takeaways

• Ioneer secured a $700 million loan commitment from the U.S Department of Energy.
• The company still has to get final approval before mining can begin.
• Ford and Toyota have made short-term deals to have access to the lithium mined.

News of Ioneer Lithium reaching a $700 million loan commitment for a new plant in Nevada sent its stock price soaring. However, the excitement quickly faded as investors realized there was still a long way before it was operational. Here are the agreement’s details and how it impacts the electric vehicle space, as well as investors in clean tech.

Details of the agreement

On Jan. 13, 2022, Ioneer received conditional approval for a $700 million loan from the U.S. Department of Energy (DOE) to construct a lithium mining project at Rhyolite Ridge in Nevada. The Loans Program Office (LPO) of the DOE is offering the loan to help secure the domestic production of lithium batteries for electric vehicles and other uses. The Biden-Harris administration is seeking to boost the mining and processing of the materials needed to create a stable, U.S.-based supply chain for lithium-ion batteries.

The demand for lithium is projected to surpass current global production by the year 2030. The U.S. government is seeking to get ahead of this issue by improving access to and refining lithium for commercial use. The Rhyolite Ridge deposit is one of two large lithium deposits in the world and will become the second lithium mine in the U.S. The LPO seeks to create an environmentally and socially responsible U.S. supply chain for lithium production.

To date, the loan has not been fully approved for issuance. The loan is subject to multiple conditions, including receiving all permits and observing all environmental laws and regulations. Ioneer has already invested significant amounts in protecting a nearby endangered plant and is working with the Bureau of Land Management to avoid direct impacts on local ecosystems and area residents.

Auto manufacturers are making deals with Ioneer

Ford and Toyota have entered into offtake agreements with Ioneer and battery manufacturer Prime Planet Energy & Solutions, a joint venture between Toyota and Panasonic. While these are the first two automakers to strike deals, they’re unlikely to be the last if the efforts to extract lithium from the location are successful. Ford and Toyota are seeking to secure short-term lithium supplies for battery production until better extraction methods are developed.

Lithium is not in short supply, nor is the planet in danger of running out of lithium. The U.S. Geological Survey estimates the current reserves of lithium to be around 21 million tonnes and will be able to supply the conversion from gasoline engines to the battery by 2050. Battery recycling is also highly effective in returning lithium to a reusable state without losing strength.

At issue is the current state of lithium mining. The processes used to extract lithium from rock or brines are energy and water intensive. New techniques, such as using geothermal energy, are less impactful but are in their early stages. Lithium prices will likely become volatile until these issues are worked out. Automakers are looking to get ahead of the pricing issue by entering into short-term contracts with mining companies, so they have access to the materials needed to produce electric vehicles.

How the Inflation Reduction Act is helping to source Lithium

Part of the Inflation Reduction Act is to take the battery supply chain from overseas and bring it to the U.S. The overarching goal is to reduce reliance on certain supply chains for vital components in producing EV batteries. Multiple major corporations, including Berkshire Hathaway, GM, MP Materials, Controlled Thermal Resources, Tesla and more, have all committed to the creation, operation and purchasing of lithium and other metals needed for the production of EV batteries.

The Inflation Reduction Act has created a public-private partnership to help the U.S. economy through quality employment options and a stable supply chain that is resistant to disruptions.

Does this deal make Ioneer stock a buy?

Ioneer stock reached a high point of $19.60 on the day news was released regarding the conditional approval of the loan. However, the gains were quickly given up, and the stock closed at $13.90 almost a week later. The stock has the potential for a short-term buy-and-sell strategy, provided the LPO approves the loan. It may also be a good stock for a long-term hold, as Ioneer will be mining one of the largest lithium deposits in the U.S. for at least 20 years. The likelihood of volatile lithium prices in the future can also help boost the stock price, making it a good buy for investors who engage in buying and selling strategies for short- and long-term gains.

For investors looking for a less volatile way of investing in this sector, consider the Clean Tech Kit from Q.ai. This kit invests in multiple stocks based on market trends. It uses the power of artificial intelligence to identify these trends early to maximize shareholder return.

The bottom line

The announcement is a big deal for Ioneer, but there is still a lot of red tape that needs to be navigated before mining can begin. Thanks to the Inflation Reduction Act, more mines will likely come up for approval as the U.S. attempts to create a stable supply chain for EV materials here at home.

Because of the long-term nature of sourcing a mine and getting federal approval, investors are best served to take a less risky approach and invest in an exchange-traded fund that provides exposure to many companies in various parts of the supply chain.

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