Five (more) things every investor should know about lithium and Lepidico

Metals & Mining

Five (more) things every investor should know about lithium and Lepidico

There is little sign that the expected lithium gap – the difference between demand for the lithium-ion battery raw material and its available supply – is closing. And, having signed a seven-year offtake agreement, Edison client Lepidico has significantly reduced its risk profile, increasing analyst Lord Ashbourne’s latest valuation by 16.5% to at least 6.64c.

There is little sign that the expected lithium gap – the difference between demand for the lithium-ion battery raw material and its available supply – is closing. And, having signed a seven-year offtake agreement, Edison client Lepidico has significantly reduced its risk profile, increasing analyst Lord Ashbourne’s latest valuation by 16.5% to at least 6.64c.

Given the business continues to gain momentum, here are five (more) things investors need to know about Lepidico. If you have not read our original seven things (or want to refresh your memory), you can find it here. When you are ready for a deep dive, take a look at our latest note.

#1 Lithium’s long-term price is on the up
While lithium has had a relatively poor pandemic relative to other metals in terms of price performance, the speed of its catch up has been striking. The price has doubled since August. Barring the extraordinary, there is near-universal consensus the market will remain in deficit for the rest of the decade.

We have raised our long-term price expectation for lithium hydroxide by 19.3%, to a still relatively conservative US$18,000/t.

#2 Risks continue to be mitigated
Lepidico’s Phase 1 plant project has been materially de-risked by an earlier pilot campaign. The decision to convert this facility into a demonstration plant will further reduce operating and scale-up risk. Process improvements are reducing the risk further, alongside the company’s green environmental credentials, which boast low carbon dioxide emissions.

#3 Low-cost funding discussions are advancing
Behre Dolbear Australia has completed its technical, environmental and social due diligence on Lepidico’s operations. These reports were commissioned by the US International Development Finance Corporation, which is considering providing debt finance to the Phase 1 project, because as well as lithium it will produce three minerals on the US government’s critical list.

#4 Operations are also progressing
Lepidico’s mine in Namibia and its chemical plant in Abu Dhabi now have all the permits needed to start construction. Having secured a binding offtake agreement with metal trader Traxys for all its lithium hydroxide over seven years (or 35,000t), Lepidico’s Phase 1 development and funding workstreams should retain their momentum for completion in the quarter ending in September.

#5 Valuation: up to 8.41c
After Lepidico secured the Traxys contract in December 2021, we valued the business at 5.70c/share. This has now risen by 16.5% to 6.64c plus a potential risk-adjusted 0.73–1.77c (fully diluted) for a conceptual 20,000tpa lithium carbonate equivalent Phase 2 plant. And there could be more upside still. Lord Ashbourne’s valuation does not wrap in any of the other revenue streams the management team is developing, which includes royalties from technology licences.

For a deeper dive, read our full collection of analysis, which can be found on the company profile page.

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