• LITH intends to return the majority of the net proceeds from the sale to shareholders via a special dividend. We believe the shares could experience an uptick when the deal is completed.
  • As previously announced, LITH is spinning out its gold-silver-copper projects into a new publicly listed entity: Kairos Gold. Shareholders will be distributed shares of Kairos. 
  • Following the completion of the above transactions, LITH will shift its focus to the remaining 11 early-stage lithium projects in Chile and Argentina. The company has identified two high-priority projects for exploration this year.
  • Lithium prices have dropped 22% YoY to US$10,300/tonne, down from record highs exceeding US$78,000/tonne in 2022. This decline is attributed to a persistent supply surplus, and slower growth in global electric vehicle (EV) sales. We believe that current lithium prices are nearing the break-even point for most large-scale development projects, raising concerns about their economic viability. We believe prices need to be at least US$15,000/tonne to incentivize developers and financiers to advance projects. 
  • Upcoming catalysts include the closing of the Arizaro and Kairos Gold transactions.

 

Price Performance (1-year) 

 

  YTD 12M
LITH -9% 35%
HLIT (ETF) 7% -28%
TSXV 0% 11%

Asset sale, spin-off, and focus shift to other promising lithium projects in Chile and Argentina

LITH’s portfolio consists of an 80% interest in the Arizaro project (29,245 hectares), along with 11 early-stage lithium properties covering 106,136 hectares in Chile. Additionally, the company owns four properties in Chile, totaling 22,433 hectares, which are prospective for gold, silver, and copper.

Following the Arizaro sale, and the spin-off of its gold-silver-copper projects to Kairos Gold, LITH will shift its focus to its remaining 11 early-stage lithium properties. Of these, ERAMET (LSE: ERA/MCAP: $2.3B), a European miner with operations in over 15 countries, has optioned four. LITH will prioritize the following two projects initially:

  • Coipasa property, Chile – LITH controls a significant portion of the Coipasa basin; management plans to apply for an exploration and development permit. Preliminary near-surface brine sampling, and geophysical/EM surveys, have returned promising values 
  • Block 4 on Arizaro, Argentina – This 8,445-hectare package is located 20 km north of the Arizaro project, which is currently up for sale.

 

Arizaro Project, Argentina

Subsequent to the last resource estimate estimate in April 2024, 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

Source: Company

Incorporating the results of this hole in the resource estimate will likely increase both tonnage and grades 

4Mt+ of LCE in resources. According to the PFS, construction is set to begin in 2026, with commercial production expected to start in 2028

The 2024 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 early stages.

 

The PFS was based solely on reserves, representing 12% of resources. AT-NPV8% of US$1.4B, using the five-year average LCE price of US$21k/t vs the current spot price of US$10k/t

 

Financials & Valuation

Healthy balance sheet

Source: FRC/Company

*LITH is obligated to pay $2.7M in cash, and issue 19M shares, to the previous owners of the Arizaro project.

In-the-money options can bring in $1.61M. LITH is trading at $59/t LCE (previously $43/t) vs the sector average of $73/t (previously $66/t)

Given that the offer price for Arizaro is consistent with our fair value estimate, we are maintaining our fair value estimate of $1.28/share

 

We are reiterating our BUY rating, and fair value estimate of $1.28/share.  LITH has secured an attractive deal for its Arizaro project, confirming our valuation. The upcoming special dividend, and the spin-off of Kairos Gold, will unlock considerable value for investors. With the current MCAP significantly lower than the offer price, we believe the shares could move up once the deal is finalized.

 

Risks

Maintaining our risk rating of 5 (Highly Speculative)

We believe the company is exposed to the following key risks (not exhaustive):

  • Volatility in lithium prices
  • Development 
  • Permitting
  • Access to capital and share dilution