Developing to the (L-)Max

Lepidico 29 May 2020 Update
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Lepidico

Developing to the (L-)Max

Feasibility study results

Metals & mining

29 May 2020

Price

A$0.007

Market cap

A$36m

A$1.5040/US$

Net debt (A$m) at end December 2019*

1.8

*Includes Desert Lion Energy convertible

Shares in issue

5,185.7m

Free float

68%

Code

LPD

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.3

(19.0)

(71.1)

Rel (local)

3.2

(11.5)

(68.0)

52-week high/low

A$0.03

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 construction start

September 2021

Chemical plant construction start

December 2021

Chemical plant construction completion

December 2022

Analyst

Charles Gibson

+44 (0)20 3077 5724

Lepidico is a research client of Edison Investment Research Limited

On 28 May, Lepidico (LPD) announced the results of its Association of the Advancement of Cost Engineering (AACE) class three (definitive) feasibility study (DFS) on its integrated Karibib mining/chemical plant project to produce 4,900tpa of battery grade lithium hydroxide (monohydrate) plus high value, Group 1 metal by-products over 14 years. At a lithium hydroxide price of US$13,669/t (cf US$10,350–11,200/t currently), the DFS calculated a project NPV8 of US$221m, or A$340m (A$0.066/share) and an IRR of 31% after initial capex of US$139m (including a 13.6% contingency). C1 cash costs were estimated to a ±15% level of accuracy at US$1,656/t lithium carbonate equivalent (LCE) and all-in sustaining costs at US$3,221/t LCE – putting it near the bottom of the known LiOH cost curve. A comprehensive review of the DFS is now planned, which will be reported on in due course.

Year end

Total revenues

(A$m)

PBT
(A$m)

Cash from operations (A$m)

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

Capex
(A$m)

6/18

0.2

(7.2)

(3.0)

4.9

(3.1)

6/19

0.0

(5.1)

(3.5)

10.4

(6.3)

6/20e

0.0

(8.4)

(15.1)

56.5

(7.4)

6/21e

0.0

(3.0)

(2.7)

(66.1)

(119.9)

Note: PBT is normalised, excluding amortisation of acquired intangibles and exceptional items. *Includes Desert Lion Energy convertible.

Immediate 2.5x upside

The DFS’s calculated NPV8 of 6.6c/share may be directly compared to the non-diluting price of future equity funding calculated in our last report (Valuation update pending feasibility study, 6 April 2020) of 9.99c/share, albeit our estimate was based on estimated numbers for a project that had been materially re-scoped (eg the acquisition of Desert Lion Energy in July 2019 and the integration of Karibib into Lepidico’s L-Max project development plans). Nevertheless, in our report, Gold stars and black holes, published in January 2019, we calculated a mean EV for companies with projects at the bankable feasibility study/DFS stage of development of 30.9% of project NPV (ranging up to 133.5%). This alone would imply a valuation for Lepidico of 2.0c/share (ranging up to 8.8c/share) plus cash (we estimate A$4.9m, or 0.09c/share as at end-May) cf LPD’s current share price of 0.8c/share.

Valuation: longer-term 5.6x upside

The Karibib project is already fully permitted under a granted mining licence and its development has been materially de-risked by Lepidico’s earlier running of a pilot plant campaign to test L-Max and LOH-Max in continuous production. Within this context, LPD is currently investigating funding and offtake options for its project prior to making a final investment decision in May 2021. Based on the advice of specialist debt advisors, it is aiming for a debt:equity ratio in the range 60–70:40–30. Assuming 40% equity funding would require the company to raise c A$86m, which could be achieved by issuing 4,277m shares at 2.0c/share, such that the resulting company valuation of A$426m (A$86m plus A$340m NPV8 project valuation) would equate to 4.5c per (fully diluted) share (or 5.2c if equity is raised as 2.9cps as previously). Note that this valuation does not attribute any value to Lepidico from a Phase 2 Plant or any other development options (such as gold).

Exhibit 1: Financial summary

Accounts: IFRS, year end June, A$000s

 

 

2015

2016

2017

2018

2019

2020e

2021e

Total revenues

 

 

9

116

127

171

2

0

0

Cost of sales

 

 

0

0

0

0

0

0

0

Gross profit

 

 

9

116

127

171

2

0

0

SG&A (expenses)

 

 

(455)

(617)

(912)

(5,284)

(4,006)

(7,001)

(3,146)

Other income/(expense)

 

 

0

0

0

0

0

0

0

Exceptionals and adjustments

Exceptionals

 

(16)

(415)

(878)

(2,171)

(1,150)

(1,331)

0

Depreciation and amortisation

 

 

(5)

(6)

(6)

(6)

(8)

(163)

(163)

Reported EBIT

 

 

(467)

(923)

(1,670)

(7,290)

(5,162)

(8,496)

(3,309)

Finance income/(expense)

 

 

(18)

(5)

128

70

57

52

283

Other income/(expense)

 

 

(559)

(448)

(3,815)

0

0

0

0

Exceptionals and adjustments

Exceptionals

 

0

(888)

0

0

0

0

0

Reported PBT

 

 

(1,044)

(2,263)

(5,357)

(7,220)

(5,105)

(8,444)

(3,027)

Income tax expense (includes exceptionals)

 

 

0

0

0

0

0

0

0

Reported net income

 

 

(1,044)

(2,263)

(5,357)

(7,220)

(5,105)

(8,444)

(3,027)

Basic average number of shares (m)

 

 

178

465

1,802

2,624

3,272

5,630

6,888

Basic EPS (c)

 

 

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

 

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

Property, plant and equipment

 

 

9

4

8

27

18,487

24,907

144,597

Goodwill

 

 

0

0

0

0

0

0

0

Intangible assets

 

 

0

16,204

16,698

19,027

22,925

22,925

22,925

Other non-current assets

 

 

1,485

715

1,620

730

9,001

8,181

8,181

Total non-current assets

 

 

1,494

16,922

18,326

19,783

50,414

56,013

175,704

Cash and equivalents

 

 

53

650

3,307

4,860

13,660

59,802

59,802

Inventories

 

 

0

0

0

0

0

0

0

Trade and other receivables

 

 

4

3,886

706

712

1,869

0

0

Other current assets

 

 

0

0

0

0

0

0

0

Total current assets

 

 

57

4,537

4,013

5,572

15,529

59,802

59,802

Non-current loans and borrowings

 

 

0

0

0

0

3,276

3,276

125,876

Other non-current liabilities

 

 

0

0

0

0

0

0

0

Total non-current liabilities

 

 

0

0

0

0

3,276

3,276

125,876

Trade and other payables

 

 

105

614

1,663

804

10,940

142

259

Current loans and borrowings

 

 

115

0

0

0

0

0

0

Other current liabilities

 

 

40

33

46

51

86

86

86

Total current liabilities

 

 

260

647

1,709

856

11,026

227

344

Equity attributable to company

 

 

1,292

20,812

20,630

24,500

53,252

113,922

110,895

Non-controlling interest

 

 

0

0

0

0

(1,610)

(1,610)

(1,610)

 

 

 

 

 

 

 

 

 

 

Cash-flow statement

 

 

Profit for the year

 

 

(1,044)

(2,263)

(5,357)

(7,220)

(5,105)

(8,444)

(3,027)

Taxation expenses

 

 

0

0

0

0

0

0

0

Depreciation and amortisation

 

 

5

6

6

6

8

163

163

Share based payments

 

 

450

40

1,736

2,138

520

511

0

Other adjustments

 

 

(451)

1,036

(162)

2,066

664

1,641

0

Movements in working capital

 

 

(10)

132

133

(28)

410

(8,930)

117

Interest paid / received

 

 

0

0

0

0

0

0

0

Income taxes paid

 

 

0

0

0

0

0

0

0

Cash from operations (CFO)

 

 

(1,050)

(1,049)

(3,644)

(3,038)

(3,504)

(15,059)

(2,747)

Capex

 

 

(9)

(63)

(861)

(3,057)

(6,251)

(7,403)

(119,854)

Acquisitions & disposals net

 

 

0

32

122

110

0

0

0

Other investing activities

 

 

(563)

(80)

0

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(572)

(111)

(739)

(2,947)

(6,251)

(7,403)

(119,854)

Net proceeds from issue of shares

 

 

1,505

1,872

7,040

7,555

18,462

68,603

0

Movements in debt

 

 

100

(115)

0

0

0

0

122,600

Other financing activities

 

 

0

0

0

0

0

0

0

Cash from financing activities (CFF)

 

 

1,605

1,757

7,040

7,555

18,462

68,603

122,600

Increase/(decrease) in cash and equivalents

 

 

(18)

597

2,657

1,570

8,707

46,142

0

Currency translation differences and other

 

 

0

0

0

(17)

93

0

0

Cash and equivalents at end of period

 

 

53

650

3,307

4,860

13,660

59,802

59,802

Net (debt)/cash

 

 

(61)

650

3,307

4,860

10,385

56,526

(66,074)

Movement in net (debt)/cash over period

 

 

(61)

711

2,657

1,553

5,525

46,142

(122,600)

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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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

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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.

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.

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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

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New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

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

1,185 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

1,185 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

1,185 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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