Convertible bond acquired with DLI fully retired

Lepidico 8 December 2020 Update
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Lepidico

Convertible bond acquired with DLI fully retired

Cornish Lithium collaboration

Metals & mining

8 December 2020

Price

A$0.009

Market cap

A$47m

A$1.3511/US$

Net debt* (A$m) at end-June 2020

0.4

*Includes Desert Lion Energy convertible

Shares in issue (post rights issue)**

5,185.7m

**Includes 230m shares (effectively) in Treasury

Free float

78%

Code

LPD

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

28.6

20.0

(43.0)

Rel (local)

19.0

6.5

(43.8)

52-week high/low

A$0.02

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

Final investment decision

May 2021

Karibib site works commence

September 2021

Chemical plant commissioning

February 2023

Project fully operational

June 2023

Analyst

Charles Gibson

+44 (0)20 3077 5724

Lepidico is a research client of Edison Investment Research Limited

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
(A$m)

Cash from operations (A$m)

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

Capex
(A$m)

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.


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 £49,500 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 2020 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 £49,500 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 2020 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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