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Research: Metals & Mining
On 7 December, Lepidico announced that it had established a strategic collaboration with the UK’s Cornish Lithium (CLL, a private company) according to which it has granted CLL an exclusive licence over its L-Max and LOH-Max technologies (plus 100m options) for C$4.0m. Proceeds of the deal have allowed Lepidico to retire all of its convertible bond debt (see page six of our 5 November note Enter the US government), protecting shareholders from unnecessary convertible dilution, as well as confirming a parallel path by which to commercialise its technology. The news comes less than a fortnight after Galaxy announced that it had ceased to be a substantial shareholder in Lepidico (indicating an ever-waning overhang of stock in the market) and leaves Lepidico as the obvious choice for investors looking to gain exposure to CLL in public markets. Lepidico’s shares advanced 12.5% on the news in Australia.
Lepidico |
Convertible bond acquired with DLI fully retired |
Cornish Lithium collaboration |
Metals & mining |
8 December 2020 |
Share price performance
Business description
Next events
Analyst
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On 7 December, Lepidico announced that it had established a strategic collaboration with the UK’s Cornish Lithium (CLL, a private company) according to which it has granted CLL an exclusive licence over its L-Max and LOH-Max technologies (plus 100m options) for C$4.0m. Proceeds of the deal have allowed Lepidico to retire all of its convertible bond debt (see page six of our 5 November note Enter the US government), protecting shareholders from unnecessary convertible dilution, as well as confirming a parallel path by which to commercialise its technology. The news comes less than a fortnight after Galaxy announced that it had ceased to be a substantial shareholder in Lepidico (indicating an ever-waning overhang of stock in the market) and leaves Lepidico as the obvious choice for investors looking to gain exposure to CLL in public markets. Lepidico’s shares advanced 12.5% on the news in Australia.
Year end |
Total revenues (A$m) |
PBT |
Cash from operations (A$m) |
Net cash/(debt)* |
Capex |
06/19 |
0.0 |
(5.1) |
(3.5) |
10.4 |
(6.3) |
06/20 |
0.0 |
(10.8) |
(4.7) |
(0.4) |
(7.5) |
06/21e |
0.0 |
(4.4) |
(2.8) |
36.3 |
(1.3) |
06/22e |
0.0 |
(27.0) |
(29.7) |
(39.7) |
(46.3) |
Note: *Historical numbers Include Desert Lion Energy convertible.
Win-win
CLL described L-Max and LOH-Max as the ‘best’ of the competing technologies that it had assessed, providing it with a low-carbon, environmentally friendly (low temperature, atmospheric pressure) process from which to produce lithium hydroxide from zinnwaldite and polylithionite mica ores in the large St Austell granite complex (cf energy intensive roasting and calcination). As well as complementing its geothermal ambitions, the collaboration will indirectly support the UK government’s pledge to phase out new petrol and diesel car sales by 2030. In the meanwhile, Lepidico’s involvement will both de-risk CLL’s projects technically as well as accelerating them practically (eg potentially in production in three to five years).
Valuation: 446% premium to the current share price
Lepidico’s Karibib project is already fully permitted and its development has been materially de-risked by Lepidico’s running of an earlier pilot plant campaign. Lepidico is currently investigating funding and offtake options prior to making a final investment decision in May 2021. After the entry of the US government’s DFC into the project, we estimated a valuation for Lepidico of 5.03c/share (assuming that LPD can raise equity at a price of 2.9c/share – see pages five to six of Enter the US government for more details). All other things being equal, we estimate that the CLL transaction would have increased this valuation to 5.07c. However, the simultaneous c 4% strengthening of the Australian dollar vs the US dollar has reduced this to 4.91c/share, nevertheless still a 446% premium to Lepidico’s current share price. However, we estimate that it reduces the amount of equity that Lepidico will be required to raise to fund its Phase 1 project by 6%, from A$40.4m to A$37.8m. Note that this valuation does not attribute any value to Lepidico from either a 20,000tpa Phase 2 plant or the supply of concentrate from any third-party sources or any other development options (eg third-party, technology licensing).
Exhibit 1: Financial summary
Accounts: IFRS; year end: June, A$000s |
|
|
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
Profit & loss |
||||||||||
Total revenues |
|
|
9 |
116 |
127 |
171 |
2 |
47 |
0 |
0 |
Cost of sales |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
(22,877) |
Gross profit |
|
|
9 |
116 |
127 |
171 |
2 |
47 |
0 |
(22,877) |
SG&A (expenses) |
|
|
(455) |
(617) |
(912) |
(5,284) |
(4,006) |
(4,904) |
(3,146) |
(3,146) |
Other income/(expense) |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Exceptionals and adjustments |
|
(16) |
(415) |
(878) |
(2,171) |
(1,150) |
(2,740) |
0 |
0 |
|
Depreciation and amortisation |
|
(5) |
(6) |
(6) |
(6) |
(8) |
(1,208) |
(1,208) |
(1,208) |
|
Reported EBIT |
|
(467) |
(923) |
(1,670) |
(7,290) |
(5,162) |
(8,805) |
(4,354) |
(27,231) |
|
Finance income/(expense) |
|
(18) |
(5) |
128 |
70 |
57 |
17 |
(39) |
181 |
|
Other income/(expense) |
|
(559) |
(448) |
(3,815) |
0 |
0 |
0 |
0 |
0 |
|
Exceptionals and adjustments |
|
0 |
(888) |
0 |
0 |
0 |
(2,026) |
0 |
0 |
|
Reported PBT |
|
|
(1,044) |
(2,263) |
(5,357) |
(7,220) |
(5,105) |
(10,814) |
(4,393) |
(27,050) |
Income tax expense (includes exceptionals) |
|
|
0 |
0 |
0 |
0 |
0 |
696 |
0 |
0 |
Reported net income |
|
|
(1,044) |
(2,263) |
(5,357) |
(7,220) |
(5,105) |
(10,118) |
(4,393) |
(27,050) |
Basic average number of shares, m |
|
|
178 |
465 |
1,802 |
2,624 |
3,272 |
4,568 |
5,575 |
6,195 |
Basic EPS (c) |
|
|
(0.0) |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
|
|
|
|
|
|
|
|
|
|
|
Balance sheet |
|
|
||||||||
Property, plant and equipment |
|
|
9 |
4 |
8 |
27 |
20 |
1,904 |
1,962 |
47,080 |
Goodwill |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Intangible assets |
|
|
0 |
16,204 |
16,698 |
19,027 |
22,925 |
23,870 |
19,870 |
19,870 |
Other non-current assets |
|
|
1,485 |
715 |
1,620 |
730 |
27,469 |
42,798 |
42,798 |
42,798 |
Total non-current assets |
|
|
1,494 |
16,922 |
18,326 |
19,783 |
50,414 |
68,573 |
64,631 |
109,748 |
Cash and equivalents |
|
|
53 |
650 |
3,307 |
4,860 |
13,660 |
4,793 |
38,502 |
38,502 |
Inventories |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Trade and other receivables |
|
|
4 |
3,886 |
706 |
712 |
1,869 |
1,767 |
1,767 |
7,437 |
Other current assets |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Total current assets |
|
|
57 |
4,537 |
4,013 |
5,572 |
15,529 |
6,560 |
40,268 |
45,939 |
Non-current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
3,276 |
5,215 |
2,205 |
78,205 |
Other non-current liabilities |
|
|
0 |
0 |
0 |
0 |
0 |
10,055 |
10,055 |
10,055 |
Total non-current liabilities |
|
|
0 |
0 |
0 |
0 |
3,276 |
15,271 |
12,261 |
88,261 |
Trade and other payables |
|
|
105 |
614 |
1,663 |
804 |
10,940 |
565 |
957 |
2,794 |
Current loans and borrowings |
|
|
115 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Other current liabilities |
|
|
40 |
33 |
46 |
51 |
86 |
108 |
108 |
108 |
Total current liabilities |
|
|
260 |
647 |
1,709 |
856 |
11,026 |
672 |
1,064 |
2,902 |
Equity attributable to company |
|
|
1,292 |
20,812 |
20,630 |
24,500 |
53,252 |
52,404 |
84,790 |
57,740 |
Non-controlling interest |
|
|
0 |
0 |
0 |
0 |
(1,610) |
6,785 |
6,785 |
6,785 |
|
|
|
|
|
|
|
|
|
|
|
Cash-flow statement |
|
|
||||||||
Profit for the year |
|
|
(1,044) |
(2,263) |
(5,357) |
(7,220) |
(5,105) |
(10,118) |
(4,393) |
(27,050) |
Taxation expenses |
|
|
0 |
0 |
0 |
0 |
0 |
(696) |
0 |
0 |
Depreciation and amortisation |
|
|
5 |
6 |
6 |
6 |
8 |
1,208 |
1,208 |
1,208 |
Share based payments |
|
|
450 |
40 |
1,736 |
2,138 |
520 |
1,027 |
0 |
0 |
Other adjustments |
|
|
(451) |
1,036 |
(162) |
2,066 |
664 |
4,716 |
0 |
0 |
Movements in working capital |
|
|
(10) |
132 |
133 |
(28) |
410 |
(1,509) |
392 |
(3,833) |
Interest paid / received |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Income taxes paid |
|
|
0 |
0 |
0 |
0 |
0 |
696 |
0 |
0 |
Cash from operations (CFO) |
|
|
(1,050) |
(1,049) |
(3,644) |
(3,038) |
(3,504) |
(4,676) |
(2,793) |
(29,675) |
Capex |
|
|
(9) |
(63) |
(861) |
(3,057) |
(6,251) |
(7,452) |
(1,267) |
(46,325) |
Acquisitions & disposals net |
|
|
0 |
32 |
122 |
110 |
0 |
416 |
4,000 |
0 |
Other investing activities |
|
|
(563) |
(80) |
0 |
0 |
0 |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(572) |
(111) |
(739) |
(2,947) |
(6,251) |
(7,036) |
2,733 |
(46,325) |
Net proceeds from issue of shares |
|
|
1,505 |
1,872 |
7,040 |
7,555 |
18,462 |
3,523 |
37,768 |
0 |
Movements in debt |
|
|
100 |
(115) |
0 |
0 |
0 |
0 |
(4,000) |
76,000 |
Other financing activities |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Cash from financing activities (CFF) |
|
|
1,605 |
1,757 |
7,040 |
7,555 |
18,462 |
3,523 |
33,768 |
76,000 |
Increase/(decrease) in cash and equivalents |
|
|
(18) |
597 |
2,657 |
1,570 |
8,707 |
(8,190) |
33,709 |
0 |
Currency translation differences and other |
|
|
0 |
0 |
0 |
(17) |
93 |
(678) |
0 |
0 |
Cash and equivalents at end of period |
|
|
53 |
650 |
3,307 |
4,860 |
13,660 |
4,793 |
38,502 |
38,502 |
Net (debt) cash |
|
|
(61) |
650 |
3,307 |
4,860 |
10,385 |
(422) |
36,297 |
(39,703) |
Movement in net (debt) cash over period |
|
|
(61) |
711 |
2,657 |
1,553 |
5,525 |
(10,807) |
36,719 |
(76,000) |
Source: Company reports and accounts, Edison Investment Research. Note: FY19 balance sheet is Lepidico’s stated balance sheet consolidated with Edison’s estimate of Desert Lion’s balance sheet as at 30 June 2019, converted into Australian dollars.
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Research: Consumer
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