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Big swings and small roundabouts

Lepidico 16 February 2022 Update
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Lepidico

Big swings and small roundabouts

Refining forecasts

Metals & mining

16 February 2022

Price

A$0.034

Market cap

A$209m

A$1.3936/US$

Net cash (A$m) at end-June 2021

14.7

Shares in issue, including 96m shares (effectively) held in treasury

6,152.1m

Free float

78%

Code

LPD

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(25.0)

(32.7)

32.0

Rel (local)

(22.7)

(29.9)

26.0

52-week high/low

A$0.05

A$0.01

Business description

Via its Karibib project in Namibia and unique IP, Lepidico is a vertically integrated lithium development business that has produced both lithium carbonate and lithium hydroxide from non-traditional hard rock lithium-bearing minerals using its registered L-Max and LOH-Max processes.

Next events

Independent consultant’s report

Imminent

Debt finance package

Q322

Commencement of mining

Q1 CY23

Chemical plant commissioning

H2 CY23

Analyst

Lord Ashbourne
(formerly Charles Gibson)

+44 (0)20 3077 5724

Lepidico is a research client of Edison Investment Research Limited

While lithium had a relatively poor coronavirus in terms of its price performance relative to other metals, the speed of its catch-up post-crisis has been striking. The price has doubled since August and there is near-universal consensus that the market will remain in deficit (barring the extraordinary) for the remainder of the decade. This note updates our valuation and forecasts for Lepidico to reflect a 19.3% increase in our long-term lithium hydroxide price assumption to a still relatively conservative US$18,000/t, which more than offsets the effects of some of the delays (eg slow assay turnaround times) that the company is experiencing.

Year end

Total revenues (A$m)

PBT
(A$m)

Cash from
operations (A$m)

Net cash/(debt)*
(A$m)

Capex
(A$m)

06/20

0.0

(10.8)

(4.7)

(0.4)

(7.5)

06/21

4.1

(0.3)

1.0

14.7

(0.6)

06/22e

0.0

(3.8)

(3.3)

11.6

(56.6)

06/23e

0.0

(3.8)

(3.3)

(138.7)

(146.1)

Note: *Historical numbers include Desert Lion Energy convertible.

Ongoing focus on risk mitigation

Lepidico’s Phase 1 Plant project has been materially de-risked by its running of an earlier pilot plant campaign, and the decision to now convert this facility to a demonstration plant will further reduce operating and scale-up risk from 467:1 to 219:1. This will complement the company’s already green environmental credentials, which boast low carbon dioxide emissions and a process flow sheet that involves neither pyrometallurgical processes nor pressure vessels.

Funding discussions advancing

In its role as independent consultant to the US International Development Finance Corporation (DFC), Behre Dolbear Australia (BDA) is in the process of completing the final draft of its environmental and social review report, which is key for securing debt funding. The DFC nevertheless has sufficient confidence in the proceedings to date to appoint legal counsel in order to expedite the process.

Valuation: Up 16% to 7.37–8.41cps including Phase 2

Both Lepidico’s Karibib mine in Namibia and its chemical plant in Abu Dhabi are now fully permitted to construct. Having raised initial equity, it is now committing to Phase 1 development activities to keep the project on a fast track, in parallel with its ongoing funding workstreams (now that binding lithium offtake has been secured) and continual improvements in environmental and social performance. In our last note on the company (Binding offtake signed with Traxys, published on 17 December 2021), we valued Lepidico at 5.70c/share and this has now risen by 16.5% to 6.64c plus a potential risk-adjusted 0.73–1.77 cents (fully diluted) for a conceptual 20,000tpa LCE Phase 2 plant to take the total aggregate conceptual valuation to 7.37–8.41 cents per share. Note that this valuation still does not attribute any value to Lepidico from either the supply of concentrate from third-party sources or any other development options (eg third-party technology licensing).

Small roundabouts – project details

Timing

Since our last note in December 2021, it has become clear that Lepidico has experienced, and is experiencing, ongoing delays, in particular in engineering works and the matter of assay turnaround times. These are not unique to Lepidico. As a result of the COVID-19 pandemic, one laboratory in Perth closed, while others have been working on either reduced hours or with a reduced workforce. As a consequence, the metallurgical testing industry’s capacity to process samples sent in for assay has reduced by approximately 30%.

Process flowsheet refinements

Filters

In Lepidico’s definitive feasibility study on its integrated Karibib mining and concentrating and Abu Dhabi chemical plant – led by consultants Lycopodium – certain assumptions were made regarding the cost and operating performance of the major mechanical equipment within the chemical plant. One of these related to the cost and performance of the filters to be used in the plant. However, whereas cheaper filters with an adequate performance had been assumed for the purposes of Lycopodium’s DFS, subsequent more detailed work has established that so-called ‘plate & frame’ filters contribute to a notably superior performance of the plant and a better recovery of end-product chemicals. Substitution with plate and frame filters will have some impact on overall capital expenditure offset by improved efficiency. The water requirement in the plant has increased as a result, which will also necessitate an increase in crystalliser capacity. We have conservatively allowed an additional US$10m in capex for this refinement to the flowsheet versus Lycopodium’s US$96.2m DFS chemical plant capex estimate, which was conducted to an accuracy of ±15% in May 2020. At the same time, however, we note that the need for the associated design alterations is likely to delay the front-end engineering and design (FEED) workstream until mid-CY22.

In the meantime, Lepidico has commissioned a lithium hydroxide monohydrate trial at its demonstration plant, which will continue until early March. The results of the trial are important to the design and specification of the back end of the plant and, whereas previously the official results might have been expected to have been known later the same month, the requirement for prudence has caused management to plan around the possibility that the results will not be available until April-May.

Surge capacity

An additional, likely refinement to Lepidico’s chemical plant design will be the installation of surge capacity at several stages within the flowsheet to allow for much greater plant operability and up-time. In particular, this will allow discrete maintenance to be performed on one section of the plant, while the remainder of the plant stays in production, rather than being required to shut the plant in order to perform maintenance on one specific section. In practice, this refinement will require the inclusion of storage tanks into the plant’s design. Once again however, we do not expect this to have a material effect on capex, although it will nevertheless represent a modest addition relative to the US$96.2m estimated in May 2020 (see our note, Valuation update post-feasibility study, published on 20 July 2020).

Big swings – the lithium price

The prices of both lithium carbonate and lithium hydroxide have increased sharply since our last note on Lepidico, as the market has been squeezed upwards having previously been in the doldrums notably longer than almost all other metals, owing to its much greater exposure to the EV sector. Thus, whereas the prices of other base metals recovered from approximately March 2020 onwards, the price of lithium carbonate continued to decline until late October and barely recovered to finish close to its low for the year (rather than high, as for most other metals). As a consequence, exploration and mine development was severely curtailed in the period 2018–20, with the result that the long-term thesis in support of lithium remains, to all intents and purposes, unchanged (ie EV demand to account for nearly half of all cars sold by 2030, battery power to increase 13x relative to today and lithium demand to sextuple from 2019 to 2030), but after two years of ‘lost’ time and investment in the interim. As a degree of normality has returned to the world economy in 2021, therefore, there has been a period of restocking of lithium chemicals and concentrates – especially in China – superimposed onto a background of previously depleted inventories throughout the supply chain, causing lithium prices to bounce sharply. Moreover, this trend has accelerated into the New Year, as evidenced in the graph below of benchmark prices in North and South America.

Exhibit 1: Lithium hydroxide and lithium carbonate prices, January 2013 to present (US$/t)

Source: Bloomberg

Quarterly contract pricing increases (negotiated in the September to November period) have similarly been observed for 2022, and spot prices in China have recently exceeded US$50,000/t.

Our previous price assumption for lithium hydroxide (Lepidico’s principal product) had been based on an assumed long-term lithium carbonate price of US$12,000/t and a 25.8% price premium of the former over the latter, driven by the statistically significant relationship between that premium and the latter’s price since February 2016. However, as the following graph makes clear, this correlation now appears to be in the process of either breaking down or shifting to a ‘new paradigm’.

Exhibit 2: Lithium carbonate price (US$/t) versus lithium hydroxide price premium (%)

Source: Edison Investment Research

One justification for the apparent shift in the observed relationship between the lithium carbonate price and the lithium hydroxide price premium is that, historically, the bulk of lithium was produced from South American brines, which are typically processed into lithium carbonate. This could then be further processed into lithium hydroxide, albeit at a cost which was recouped in the form of the lithium hydroxide price premium. Hence, lithium hydroxide almost invariably traded at a premium to lithium carbonate to reflect the cost of conversion. At present, however, the majority of new lithium capacity is in the form of hard rock mining to produce spodumene concentrate and thence to lithium hydroxide without the need for a lithium carbonate intermediate product. Hence, in future, unlike the past, there will be no (or, at least, a reduced) expectation of a causal relationship between the price of lithium carbonate and the price of lithium hydroxide. That being the case, and in recognition of the current squeeze in the market, the continuation of the secular trend towards increased lithium demand and the two-year period of ‘lost’ investment between 2018 and 2020, we have now revised our short- and long-term forecasts for lithium carbonate and lithium hydroxide prices to those shown below.

Exhibit 3: Lithium price forecasts (US$/t)

2022

2023

2024

2025

2026

2027 onwards

Previous

Lithium hydroxide (US$/t)

15,091

15,091

15,091

15,091

15,091

15,091

Lithium carbonate (US$/t)

12,000

12,000

12,000

12,000

12,000

12,000

Hydroxide price premium (%)

25.8

25.8

25.8

25.8

25.8

25.8

Current

Lithium hydroxide (US$/t)

25,000

25,000

25,000

22,000

20,000

18,000

Lithium carbonate (US$/t)

24,000

24,000

24,000

21,000

19,000

17,000

Hydroxide price premium (%)

4.2

4.2

4.2

4.8

5.3

5.9

Increase (%)

Lithium hydroxide

+65.7

+65.7

+65.7

+45.8

+32.5

+19.3

Lithium carbonate

+100.0

+100.0

+100.0

+75.0

+58.3

+41.7

Source: Edison Investment Research

While the near-term increase in our price forecasts for lithium hydroxide may appear large in percentage terms, they should be considered in the following context:

At least one well-known metals trader believes that the price of lithium hydroxide could tighten to US$100,000/t over the course of the next two years and that it will then settle back to US$30–40,000/t until 2030, with US$17,000/t representing only the low point of prices over the course of the next cycle.

As recently as 2022, well-known consultants, Roskill, forecast average contract battery-grade carbonate prices of US$23,609/t (in constant 2021 US dollars) over the 2021–36 period and US$24,683/t for domestic China spot prices over the same time period.

Notwithstanding the above divergence of views, a broad consensus that the lithium market will be in deficit for the remainder of the current decade and that prices may exhibit volatility, but should in general be supported by increases in the global cost curve of existing producers sustaining prices at higher levels for longer.

Piedmont recently calculated its reserves (typically with a requirement to be ‘conservative’ in accordance with the strictures of S-K 1300 and JORC Code reporting) based on a fixed price of US$18,000/t for battery-quality lithium hydroxide.

Note that, within this context, Lepidico, which had calculated its reserves previously based on a price of less than US$13,000/t, is expected to re-calculate them again mid-year at a yet to be determined (but likely higher) price.

Valuation

In the light of the ‘big swings’ and ‘small roundabouts’ discussed previously, we have made the following adjustments to our financial model of Lepidico:

Whereas previously, we had assumed that Lepidico would make its first shipment of product in early CY23, we now assume that it will occur in early CY24. This will have the effect of shifting first revenue from FY23 to FY24.

We have adopted the updated lithium hydroxide price forecasts presented in Exhibit 3.

We have assumed an additional US$10m in capex (plus contingency) and an associated increase in future equity funding from US$14.0m/A$19.6m (net) to US$41.8m/A$58.3m (gross) over the course of the next 12 months at the prevailing share price of 3.4c (cf 3.7c previously).

We have updated our forex rate from A$1.3878/US$ to A$1.3936/US$.

All other assumptions and forecasts remain unchanged.

Project

Lepidico’s DFS (see our note, Developing to the (L-)Max, published on 29 May 2020) calculated a project NPV8 for the integrated Karibib mining and chemical plant operation of US$221m, or A$310m (5.0c/share on a pre-funding basis and 3.9c/share on a post-FY22 equity funding basis) at the current foreign exchange rate of A$1.3936/US$.

In our report Gold stars and black holes, published in January 2019, we calculated a mean enterprise value for companies with projects at the DFS stage of development of 30.9% of project net present value (NPV), ranging up to 133.5%. This alone would imply a pre-funding valuation for Lepidico of 1.5c/share, ranging up to 6.7c/share.

Company

Our valuation of Lepidico varies from our value of the integrated Karibib mining and chemical plant project in that it takes into account Lepidico’s 80% interest in the Namibian mine (but 100% of the Abu Dhabi chemical plant), which will give rise to both a tax-paying position in Namibia and a minority interest in the profits generated from mining operations. It also assumes ongoing corporate costs in the order of A$3.1m per year.

In our last note on the company, we calculated a value for Lepidico’s shares of 5.43c plus 0.27c for the value of an envisaged loan to the minority shareholders in the upstream Namibian operation to give a total valuation for the company of 5.70c/share. In the wake of the changes discussed above, our (discounted) valuation of Lepidico’s future (maximum potential) dividend stream to shareholders has now increased by 18.0%, from 5.43c to 6.41c/share in FY21, rising to a peak of 8.98c/share on the cusp of the company’s first material dividend in FY26, as shown in the graph below:

Exhibit 4: Edison estimate of future Lepidico EPS and (maximum potential) DPS

Source: Edison Investment Research

To this valuation of 6.41c/share should then be added the value of Lepidico’s envisaged future loan to the minority shareholders in the Namibian mining and concentrating operation, which we estimate at 0.23c/share (fully diluted), to result in a total value for Lepidico’s shares of 6.64c/share (cf 5.70c/share previously), based solely on its Phase 1 project. A ‘bridge’ chart, showing the transition in valuation from 5.70c/share to 6.64/share by component is provided below.

Exhibit 5: Lepidico valuation bridge, December 2021 to February 2022

Source: Edison Investment Research

To this valuation of 6.64c/share may then be added an (updated) potential risk-adjusted 0.73–1.77c/share (fully diluted) for a conceptual 20,000tpa LCE Phase 2 plant (see pages 4-6 of our note, Phase 2 coming into view, published on 18 June 2021, updated for a long-term lithium hydroxide price of US$18,000/t), to take the total aggregate conceptual valuation to 7.37–8.41 cents per share.

Sensitivities

Two of the principal risks to which our valuation of Lepidico is exposed are: 1) the long-term price of lithium hydroxide; and 2) the price at which it raises future equity. The effects of variations in the long-term price of lithium hydroxide from the one currently assumed (US$18,000/t) are shown in the table below:

Exhibit 6: Lepidico valuation sensitivity to the long-term price of lithium hydroxide (US$/t)

Lithium hydroxide price (US$/t)

18,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Lepidico valuation (Australian cents per share)

6.64

7.20

8.58

9.97

11.35

12.74

14.13

15.51

Change cf ‘base case’ (%)

u/c

+8.4

+29.2

+50.2

+70.9

+91.9

+112.8

+133.6

Source: Edison Investment Research

At the same time, our financial model assumes that Lepidico will raise US$41.8m/A$58.3m (gross) in FY22 at a share price of 3.4c to achieve a future (project) maximum net debt:equity ratio of 70:30 and a (company) maximum net debt:equity ratio of 54:46. Exhibit 7 demonstrates the sensitivity of our valuation to variations in this assumption, as follows:

Exhibit 7: Lepidico valuation sensitivity to future equity funding price (Australian cents per share)

Equity funding price

2.90

3.40

3.70

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.48

Lepidico valuation

6.42

6.64

6.76

6.86

7.00

7.11

7.21

7.29

7.37

7.43

7.48

Source: Edison Investment Research

Note that Lepidico may choose to source all (or a portion) of this future equity funding requirement from a strategic partner after debt funding has already been secured. In this eventuality, it is possible/likely that a higher price than that currently prevailing could be supported.

Ongoing initiatives – realising Phase 2

Lepidico has recommenced exploration drilling again within its 68km2 prospecting mining licence area, with a view to increasing its resource to a size that is sufficient to support a Phase 2 plant. Initial focus will be on Helikon 2-5 and other lithium pegmatites that have yet to be drill tested.

The current resource at Helikon 2-5 amounts to 2.2Mt at an average grade of 0.41% lithium oxide, distributed between the various Helikon deposits as follows:

Exhibit 8: Mineral resource estimate, Helikon 2-5 (January 2020)

Deposit

Category

Cut-off grade
(% Li
2O)

kt

Grade
(% Li
2O)

Contained
Li
2O

Contained LCE

Helikon 2

Inferred

0.20

216.0

0.56

1,210

2,991

Helikon 3

Inferred

0.20

295.0

0.48

1,416

3,501

Helikon 4

Inferred

0.20

1,510.0

0.38

5,738

14,189

Helikon 5

Inferred

0.20

179.0

0.31

555

1,372

Total

Inferred

0.20

2,200.0

0.41

8,919

22,054

Source: Lepidico, Edison Investment Research. Note: LCE = lithium carbonate equivalent.

At 0.41% lithium oxide, the average grade of Helikon 2-5 compares well with the average resource grade of Rubicon 1 and Helikon 1 combined of 0.43% and the average reserve grade of Rubicon 1 and Helikon 1 combined of 0.46%.

Management’s initial target is to increase the combined resource at Helikon 2-5 from 2.2Mt to 6.0Mt, which it believes would be sufficient to support a Phase 2 plant of approximately the same size as its Phase 1 plant of c 5,000tpa, which could be located in either Namibia, Europe or North America (note that this compares with the aggregate tonnage of 9.0Mt at Rubicon 1 and Helikon 1 currently dedicated to supporting the Phase 1 plant). Beyond this, management believes that a 10–12Mt resource inventory would support a c 10,000tpa Phase 2 plant. However, the ostensible goal of the programme is to delineate a resource of 25Mt, which management estimates could support a full 20,000tpa Phase 2 plant.

Exhibit 9: Financial summary

Accounts: IFRS, Yr end: June, AUD: Thousands

 

 

2018A

2019A

2020A

2021A

2022E

2023E

Total revenues

 

 

171

2

47

4,137

0

0

Cost of sales

 

 

0

0

0

0

0

0

Gross profit

 

 

171

2

47

4,137

0

0

SG&A (expenses)

 

 

(5,284)

(4,006)

(4,904)

(3,398)

(3,146)

(3,146)

Other income/(expense)

 

 

0

0

0

0

0

0

Exceptionals and adjustments

Exceptionals

 

(2,171)

(1,150)

(2,740)

(338)

0

0

Depreciation and amortisation

 

 

(6)

(8)

(1,208)

(713)

(713)

(713)

Reported EBIT

 

 

(7,290)

(5,162)

(8,805)

(311)

(3,859)

(3,859)

Finance income/(expense)

 

 

70

57

17

0

74

58

Other income/(expense)

 

 

0

0

0

0

0

0

Exceptionals and adjustments

Exceptionals

 

0

0

(2,026)

0

0

0

Reported PBT

 

 

(7,220)

(5,105)

(10,814)

(311)

(3,786)

(3,801)

Income tax expense (includes exceptionals)

 

 

0

0

696

593

0

0

Reported net income

 

 

(7,220)

(5,105)

(10,118)

283

(3,786)

(3,801)

Basic average number of shares, m

 

 

2,624

3,272

4,568

5,218

6,991

7,830

Basic EPS (c)

 

 

(0.0)

(0.0)

(0.0)

0.0

(0.0)

(0.0)

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

Property, plant and equipment

 

 

27

20

1,904

1,669

57,253

202,640

Intangible assets

 

 

19,027

22,925

23,870

24,631

24,631

24,631

Other non-current assets

 

 

730

27,469

42,798

44,058

44,058

44,058

Total non-current assets

 

 

19,783

50,414

68,573

70,358

125,942

271,329

Cash and equivalents

 

 

4,860

13,660

4,793

14,738

14,738

14,738

Inventories

 

 

0

0

0

0

0

0

Trade and other receivables

 

 

712

1,869

1,767

244

122

0

Other current assets

 

 

0

0

0

0

0

0

Total current assets

 

 

5,572

15,529

6,560

14,982

14,860

14,738

Non-current loans and borrowings

 

 

0

3,276

5,215

0

3,128

152,549

Other non-current liabilities

 

 

0

0

10,055

9,283

9,283

9,283

Total non-current liabilities

 

 

0

3,276

15,271

9,283

12,411

161,832

Trade and other payables

 

 

804

10,940

565

968

613

259

Current loans and borrowings

 

 

0

0

0

0

0

0

Other current liabilities

 

 

51

86

108

140

140

140

Total current liabilities

 

 

856

11,026

672

1,108

753

399

Equity attributable to company

 

 

24,500

53,252

52,404

68,314

121,002

117,201

Non-controlling interest

 

 

0

(1,610)

6,785

6,636

6,636

6,636

 

 

 

 

 

 

 

 

 

Cashflow statement

 

 

Profit for the year

 

 

(7,220)

(5,105)

(10,118)

283

(3,786)

(3,801)

Taxation expenses

 

 

0

0

(696)

(593)

0

0

Depreciation and amortisation

 

 

6

8

1,208

713

713

713

Share based payments

 

 

2,138

520

1,027

338

0

0

Other adjustments

 

 

2,066

664

4,716

(497)

0

0

Movements in working capital

 

 

(28)

410

(1,509)

201

(233)

(233)

Income taxes paid

 

 

0

0

696

593

0

0

Cash from operations (CFO)

 

 

(3,038)

(3,504)

(4,676)

1,037

(3,305)

(3,321)

Capex

 

 

(3,057)

(6,251)

(7,452)

(550)

(56,297)

(146,100)

Acquisitions & disposals net

 

 

110

0

416

0

0

0

Cash used in investing activities (CFIA)

 

 

(2,947)

(6,251)

(7,036)

(550)

(56,297)

(146,100)

Net proceeds from issue of shares

 

 

7,555

18,462

3,523

14,707

56,474

0

Movements in debt

 

 

0

0

0

(5,176)

3,128

149,421

Cash from financing activities (CFF)

 

 

7,555

18,462

3,523

9,531

59,602

149,421

Increase/(decrease) in cash and equivalents

 

 

1,570

8,707

(8,190)

10,017

0

0

Currency translation differences and other

 

 

(17)

93

(678)

(72)

0

0

Cash and equivalents at end of period

 

 

4,860

13,660

4,793

14,738

14,738

14,738

Net (debt) cash

 

 

4,860

10,385

(422)

14,738

11,610

(137,811)

Movement in net (debt) cash over period

 

 

1,553

5,525

(10,807)

15,160

(3,128)

(149,421)

Source: Company sources, Edison Investment Research


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Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Lepidico and prepared and issued by Edison, in consideration of a fee payable by Lepidico. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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