As lithium apes a software-like demand curve

Lepidico: Aiming at the sweet spot of supply

With Edison Research client and integrated lithium producer-refiner Lepidico aiming to be live in 2024, it is set to hit the pricing sweet spot of the market’s longer-than-anticipated supply chasm.

Here are five (updated) things investors need to know about the lithium sector and Lepidico. When you are ready for a deeper dive, take a look at the latest Edison Research’s note.

#1: Lithium is a seller’s market
Tech businesses are rarely as reliant on the physical limitations of mining companies as the EV industry is right now. With spot prices for battery grade lithium reaching $70,000/t, the market’s biggest uncertainty is whether its structural supply deficit can be solved earlier than the 2030s. 

The reason? EVs are experiencing an exponential growth curve, more usually associated with software and tech hardware. And this is challenging mineral suppliers to expand at similar unprecedented rates. More than 3,000 GWh of Li-ion batteries are slated for 2027 because EV sales are expected to breach 20 million units in the same year.

Just where will all the required lithium come from? That is unclear, especially as there are barriers to the industry’s mid-term scalability. Large lithium extraction projects take five or more years to onstream, upstream mines even longer. Meanwhile, ESG concerns are making mining permits more difficult to obtain.

#2: Investments still need to be carefully considered
Early stage lithium businesses are a potential route to investor profit. Given the market is discounting their shares by the amount of perceived risk that they’ll fail to deliver, at least on time and to the required quality, picking and holding the right stock is important.

Yet caution is to be urged; the risks are real. Some startups have unproven extraction technologies whilst even established miners are finding that, in this new age of ESG, permitting conditions are tightening. Also consider that in an increasingly inflationary environment, development projects need financial fireproofing and ready access to capital. Finally, those startups with longer timeframes may not hit the sweet spot of the market’s supply chasm. Supply may take a long time to come on stream but exceptionally high prices are likely to induce new investment.

#3: Lepidico’s go-live is slated for 2024
Now two years away from launch, Lepidico has passed many milestones. A business in development for nearly a decade, its pilot proved the patented technology capable and economic – even if lithium prices slumped back to previous levels.

Meanwhile, Lepidico’s Phase 1 project – with its relatively low capital requirements – is fully permitted. Having focused on proving its ESG credentials by supporting local communities and publishing plans to drive carbon emissions to levels consistent with the best in the industry, Lepdico is licensed for operation at both the extraction point in Namibia and at the refinement plant in Abu Dhabi. 

A seven-year offtake agreement with Traxys, a leading lithium intermediary, is also signed and ready to go. 

#4: Progress continues to be made
Lepidico says its Phase 1 development and funding workstreams are expected to complete in the quarter ending in September. The US International Development Finance Corporation (DFC) is also close to concluding its due diligence into providing debt finance to the project. The DFC’s goal is to secure three minerals on the US Government’s critical list, including caesium and rubidium, as well as lithium.

#5: Options available for expansion
Lepdico’s proprietary L-Max and LOH-Max processing technologies extract lithium from lepidolite, a far less contested mineral supply than traditional methods, and can deliver lithium in hydroxide or carbonate form, according to customer needs. A Phase 2 project in Namibia is being planned, whilst the business will also be able to process the output of other mines.

A third route to revenue is licensing its proprietary tech to partners – potentially opening Lepidico to more of the market’s growth. One of these deals has already been successfully completed.

Given Lepidico’s reduced risk profile – and other factors which can be explored in Edison Research’s latest update – leading sector analyst Lord Ashbourne currently values Lepidico at 6.64c. This, it should be noted, excludes the upside from a phase 2 plant or other revenue expansion opportunities.

Thank you for reading. For a deeper dive, read Edison Research’s full collection of analysis, which can be found on the company profile page.

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