Binding offtake signed with Traxys

Lepidico 17 December 2021 Update
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Lepidico

Binding offtake signed with Traxys

Offtake agreement signed

Metals & mining

17 December 2021

Price

A$0.04

Market cap

A$249m

A$1.3878/US$

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

14.7

Shares in issue*

6,221.2m

*Includes 96m shares (effectively) in treasury

Free float

78%

Code

LPD

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(14.9)

42.9

300.0

Rel (local)

(13.5)

45.5

263.2

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 engineer’s technical report

Imminent

Debt finance package

Q322

Commencement of mining

Q3 CY22

Chemical plant commissioning

February 2023

Analyst

Lord Ashbourne
(formerly Charles Gibson)

+44 (0)20 3077 5724

Lepidico is a research client of Edison Investment Research Limited

On 16 December, Lepidico announced a binding offtake agreement with world-renowned metal trader Traxys for 100% of its lithium hydroxide production for seven years (or 35,000t of LiOH) from its Phase 1 project. The agreement accommodates Lepidico’s marketing strategy of supplying both battery supply chain and industrial market customers in that it also allows the company to agree the sale of lithium chemicals to independent third parties, with Traxys administering any such sales by means of a back-to-back contract. It also contemplates a US supply nexus to support the debt funding envisaged under Lepidico’s formal mandate with the US International Development Finance Corporation (DFC).

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

(27.3)

(31.6)

(46.2)

(50.5)

06/23e

171.8

103.9

90.4

(91.2)

(135.4)

Note: *Historical numbers include Desert Lion Energy convertible. FY22 forecasts updated for FX and equity raised; we have introduced FY23 estimates.

Flexible sales agreement

Under the terms of the agreement, Traxys will act as principal and provide sales and marketing, logistics and trade finance services to Lepidico for a period of seven years (with an option to extend) at industry standard commission rates. It also includes Traxys acting as agent for Lepidico’s caesium sulphate output, with scope to expand to other co- and by-products by mutual agreement.

Valuation: Up to 5.70c/share; potentially 8.48c/share

Lepidico’s Phase 1 Plant project has been materially de-risked by its running of an earlier pilot plant campaign. Both its 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 (Phase 2 coming into view, published on 18 June 2021), we valued Lepidico at 4.96c/share and this has now risen by 14.9% (plus with greater confidence now that offtake negotiations have concluded) to 5.70c plus a potential risk-adjusted 0.64–1.53 cents (post-FY22 equity funding) for a conceptual 20,000tpa LCE Phase 2 plant. The largest components of the increase in this case were the advancement of the project by one year into FY22 (+0.46c), forex (+0.24c) and the increase in Lepidico’s share price to 3.7c (+0.11c), thereby reducing future dilution. Our long-term lithium price assumptions are unchanged (US$15,091/t for lithium hydroxide and US$12,000/t for lithium carbonate). However, both the lithium carbonate and lithium hydroxide prices have been rising strongly since their troughs in Q420 and, at a recent LiOH price of US$19,500/t, for example, our valuation rises by a further 48.8%, to 8.48c/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).

Exhibit 1: Financial summary

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

 

 

2018

2019

2020

2021

2022e

2023e

Total revenues

 

 

171

2

47

4,137

0

171,816

Cost of sales

 

 

0

0

0

0

(23,499)

(54,648)

Gross profit

 

 

171

2

47

4,137

(23,499)

117,168

SG&A (expenses)

 

 

(5,284)

(4,006)

(4,904)

(3,398)

(3,146)

(3,146)

Exceptionals and adjustments

Exceptionals

 

(2,171)

(1,150)

(2,740)

(338)

0

0

Depreciation and amortisation

 

 

(6)

(8)

(1,208)

(713)

(713)

(5,944)

Reported EBIT

 

 

(7,290)

(5,162)

(8,805)

(311)

(27,358)

108,078

Finance income/(expense)

 

 

70

57

17

0

74

(4,224)

Exceptionals and adjustments

Exceptionals

 

0

0

(2,026)

0

0

0

Reported PBT

 

 

(7,220)

(5,105)

(10,814)

(311)

(27,284)

103,854

Income tax expense (includes exceptionals)

 

 

0

0

696

593

0

0

Reported net income

 

 

(7,220)

(5,105)

(10,118)

283

(27,284)

103,854

Basic average number of shares, m

 

 

2,624

3,272

4,568

5,218

6,448

6,745

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

51,439

180,897

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

120,129

249,586

Cash and equivalents

 

 

4,860

13,660

4,793

14,738

14,738

14,738

Inventories

 

 

0

0

0

0

0

14,318

Trade and other receivables

 

 

712

1,869

1,767

244

7,183

14,122

Total current assets

 

 

5,572

15,529

6,560

14,982

21,921

43,178

Non-current loans and borrowings

 

 

0

3,276

5,215

0

60,944

105,914

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

70,227

115,197

Trade and other payables

 

 

804

10,940

565

968

2,859

4,750

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

2,999

4,890

Equity attributable to company

 

 

24,500

53,252

52,404

68,314

62,187

167,206

Non-controlling interest

 

 

0

(1,610)

6,785

6,636

6,636

5,471

 

 

 

 

 

 

 

 

 

Cashflow statement

 

 

Profit for the year

 

 

(7,220)

(5,105)

(10,118)

283

(27,284)

103,854

Taxation expenses

 

 

0

0

(696)

(593)

0

0

Depreciation and amortisation

 

 

6

8

1,208

713

713

5,944

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

(5,048)

(19,366)

Income taxes paid

 

 

0

0

696

593

0

0

Cash from operations (CFO)

 

 

(3,038)

(3,504)

(4,676)

1,037

(31,619)

90,432

Capex

 

 

(3,057)

(6,251)

(7,452)

(550)

(50,483)

(135,401)

Acquisitions & disposals net

 

 

110

0

416

0

0

0

Cash used in investing activities (CFIA)

 

 

(2,947)

(6,251)

(7,036)

(550)

(50,483)

(135,401)

Net proceeds from issue of shares

 

 

7,555

18,462

3,523

14,707

21,158

0

Movements in debt

 

 

0

0

0

(5,176)

60,944

44,970

Cash from financing activities (CFF)

 

 

7,555

18,462

3,523

9,531

82,102

44,970

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

(46,206)

(91,176)

Movement in net (debt) cash over period

 

 

1,553

5,525

(10,807)

15,160

(60,944)

(44,970)

Source: company sources, Edison Investment Research


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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.

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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 2021 Edison Investment Research Limited (Edison).

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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

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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.

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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

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Level 4, Office 1205

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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 2021 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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