Key Takeaways

• Albemarle shares soared after the U.S. government approved a new lithium mining project in Nevada.
  

• The approval marked a step forward for U.S. ambitions to boost domestic lithium production and reduce reliance on China for the key EV battery component.

• The U.S. Treasury Department also announced that it would broaden the scope of certain tax credits that previously excluded mining activities.

Shares of Albemarle (ALB), the world's largest lithium producer, surged 5% on Monday, earning the top performance in the S&P 500. The gains followed the U.S. government's approval late last week of a large new lithium mine in Nevada—the first lithium mining project to be greenlighted under the Biden administration.

Albemarle stock rose even though it was another lithium producer—Australia's Ioneer (IONR)—that obtained the go-ahead for the project. Ioneer announced Thursday that it received a federal permit for its Rhyolite Ridge lithium-boron mine. Ioneer's American depositary receipts (ADRs) were up more than 7% on Monday.

The project approval represents a step forward for U.S. ambitions to undercut China in the supply chain for minerals that are essential for manufacturing electric vehicle (EV) batteries. The second-largest economy is currently home to more than two-thirds of global lithium refining capacity.

Tax Credit Encourages Mining in US

In addition to approving Ioneer's Nevada project, the U.S. government announced additional measures designed to incentivize domestic lithium production.

The Treasury Department said Thursday that a 10% production tax credit for U.S.-made products would be extended to include raw materials and extraction costs—provided miners process at least some of the material. The initial proposed rules for the credit, instated under the Inflation Reduction Act of 2022, excluded raw materials. In other words, the draft rules provided benefits for processing lithium into batteries, but lithium miners were previously ineligible for the credit.

Analysts said the extension of the tax benefits to lithium mining activities is a key move in advancing a domestic supply chain for EV batteries and removing the reliance on China.

Implications for Albemarle

Albemarle's Silver Peak project in Nevada is currently the only lithium mine operating in the U.S. In addition to the newly approved Rhyolite Ridge mine, another project is in development in the state's Thacker Pass—spearheaded by Lithium Americas (LAC) and backed by General Motors (GM).

The increased investments and tax credits bode well for U.S.-based lithium mining and industry behemoth Albemarle. However, soft lithium prices and uncertain EV demand have pressured Albemarle shares in 2024. After Monday's gains, the stock remains down around 32% year-to-date.

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