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Price Performance (1-year)
*See important disclosures at the bottom of this report rating and risk definitions. All figures in C$ unless otherwise specified.
Relative to the 2023 PEA, the 2024 PFS showed superior economics, primarily driven by the incorporation of the Argentine government's tax breaks and other incentives for mining projects. The study also incorporated optimizations in project design, leading to operational efficiencies, and lower water requirement. Additionally, the PFS confirmed the effectiveness of Direct Lithium Extraction (DLE) technology in extracting lithium chloride, which is subsequently purified and converted into high-quality LCE. We note that while DLE technologies have shown significant potential in laboratory and pilot-scale tests, large-scale commercialization is still in its early stages.
The PFS returned superior economics. AT-NPV8% increased 26% to US$1.4B, while AT-IRR increased slightly, using the five-year average LCE price of US$21k/t vs the current spot price of US$12k/t
Cash costs increased 8% to US$6k/t, while CAPEX increased 28% to US$1.1B, driven by sector-wide inflation and modifications in project design
As with all large projects, NPV and IRR estimates are highly sensitive to LCE prices.
NPV increased despite higher cost estimates, primarily due to the incorporation of the Argentinian government's new tax incentives.
Since we had already factored in lower taxes in our April 2024 report, our NPV estimate (presented later in the report) decreased as we raised cost estimates to align with the PFS
According to the PFS, construction is set to begin in 2026, with commercial production expected to start in 2028. Upgraded resources by converting 20% of M&I resources to reserves
The PFS was based solely on reserves, representing 12% of resources. Subsequent to the April 2024 resource estimate, LIT completed another hole (ARGENTO-06), which returned an average grade of 656 mg/L, significantly higher than the current resource average of 323 mg/L
Incorporating the results of this hole in the resource estimate will likely increase both tonnage and grades
Strong balance sheet. In-the-money options can bring in $1.26M
LITH is trading at $43/t (previously $67/t) vs the sector average of $66/t (previously $83/t)
By applying $66/t to LITH’s resources, we arrived at a revised comparables valuation of $0.77/share (previously $0.96/share).
Our DCF valuation decreased from $1.75 to $1.50/share, as we adjusted our CAPEX and OPEX estimates to align with the PFS
Using a sum-of-parts model, we arrived at a revised fair value estimate of $1.28/share (previously $1.57/share)
Valuation decreased due to higher OPEX/CAPEX estimates, and lower sector valuations
We are reiterating our BUY rating, and adjusting our fair value estimate from $1.57 to $1.28/share. Despite higher cost estimates, we believe the company's M&A prospects have greatly improved due to the PFS further derisking the project, and confirming the effectiveness of DLE technology for lithium extraction.
We believe the company is exposed to the following key risks (not exhaustive):
