Neometals (ASX:NMT) deal with Rio Tinto Group (ASX:RIO) could be big if it becomes a full agreement, and would give the company strong exposure to lithium prices, according to a Friday note by Euroz Hartleys.
In June, the company, along with Mineral Resources (ASX:MIN) said their joint venture company, Reed Advanced Materials (RAM), signed an MoU with Rio to evaluate the explore the use of RAM's ELi process technology.
With Rio aiming to produce lithium over the long term, the deal could be a "huge company maker" for Neometals, as royalty-based firms typically trade at high price-to-earnings multiples, Euroz Hartleys said.
The company's returns could rise if lithium prices rebound or royalty rates increase, with the key being the ELi process lowering lithium production costs.
Euroz also believes the company's vanadium assets may gain value if interest in the commodity picks up again.
Euroz Hartleys maintained Neometals' speculative buy rating but lowered its price target to AU$0.12 from AU$0.15.
Shares of the company fell 22% in recent Friday trade, while shares of Mineral Resources rose 3%.
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