Forges Galaxy relationship

Lepidico 13 October 2017 Update
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Lepidico

Forges Galaxy relationship

Funds for L-Max study raised

Metals & mining

13 October 2017

Price

A$0.015

Market cap

A$32m

A$1.2844/US$

Net cash (A$m) at end June 2017

3.3

Shares in issue

2,139.5m

Free float

66.68%

Code

LPD

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

16.7

7.7

(20.1)

Rel (local)

15.5

5.0

(24.3)

52-week high/low

A$0.02

A$0.01

Business description

Lepidico provides exposure to a portfolio of lithium assets via its wholly owned properties, JVs and IP in Australia, Canada and Europe. Uniquely, it has successfully produced lithium carbonate from non-traditional hard rock lithium bearing minerals using its registered L-Max® (hereafter L-Max) process. technology.

Next events

Alvarrões resource estimate

Mid/late Oct 2017

Separation Rapids resource estimate

Late Oct 2017

Feasibility study process design

End 2017

Feasibility study report

Q218

Analysts

Charles Gibson

+44 (0)20 3077 5724

Lepidico is a research client of Edison Investment Research Limited

On 10 October, Lepidico (LPD) announced that Galaxy Resources had agreed to subscribe for a 12% strategic shareholding in Lepidico via a private placement of 291.8m shares at a price of A$0.01/share to raise A$2.9m. At the same time, LPD is also offering existing shareholders the opportunity to invest alongside Galaxy on the same financial terms, via a 1-for-6 partially underwritten renounceable entitlement offer (effectively a rights issue) at A$0.01/share to raise up to an additional c A$4m. Total gross proceeds of up to A$7.0m will be used to fund LPD’s Phase 1 L-Max full feasibility study through to final investment decision as well as advancing Lepidico’s resource development and exploration activities.

Year end

Total revenues (A$m)

PBT*
(A$m)

Cash from operations (CFO) (A$m)

Net (debt)/
cash (A$m)

Capex

(A$m)

06/16

0.1

(2.3)

(1.0)

0.7

(0.1)

06/17

0.1

(5.4)

(3.6)

3.3

(0.9)

06/18e

0.0

(3.4)

(5.7)

14.0

(23.6)

06/19e

0.0

(5.4)

(1.6)

(10.8)

(23.2)

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Partnering with a global lithium major

Galaxy (GXY) is an international lithium company, listed in Australia, with a market capitalisation of A$1,271m. It owns and operates the James Bay lithium pegmatite project in Quebec and the Mt Cattlin mine at Ravensthorpe in Western Australia, which is currently producing a spodumene and tantalum concentrate. It is also advancing plans to develop the Sal de Vida lithium and potash brine project in the lithium triangle in Argentina (whence 60% of global lithium production is currently sourced). As such, it has been described as the biggest of the non-Big 3 lithium producers. Given its existing contacts and relationships, Galaxy will assist Lepidico with future business and growth opportunities, including evaluating potential synergies with its Mt Cattlin mine and James Bay projects, as well as accessing additional mica feedstock sources for processing via L-Max. In addition to its initial investment, Galaxy has stated that it intends to take up all of its rights in the Entitlement Offer. It will also nominate a representative to LPD’s board.

Valuation: Rises 10% to 2.15c per share

We estimate that execution of the L-Max Phase 1 PFS according to the operational parameters contained therein will result in free cash flow to Lepidico of A$26.8m pa once steady-state production has been achieved. Lepidico’s share price jumped to A$0.015 in the immediate aftermath of its Galaxy announcement. Assuming a total of US$30m (A$38.5m) of equity financing at the prevailing share price (ie a balance of A$31.5m to go), this implies an updated valuation for Lepidico of A$0.0215/share currently (up from A$0. 0.0196/share previously). This rises to A$0.0315 in FY22 (vs A$0.0287 previously), based solely on discounting our estimate of (maximum potential) future dividends to shareholders derived from the Phase 1 plant at a rate of 10% pa (fully diluted), ie no value is yet ascribed to the development of the Phase 2 plant or other development options (see our initiation note, Masterful metallurgy, published on 4 July 2017).

Exhibit 1: Financial summary

Accounts: IFRS, Year-end: June, A$000s

 

 

2015

2016

2017

2018e

2019e

Profit & Loss

Total revenues

 

 

9

116

127

0

0

Cost of sales

 

 

0

0

0

0

0

Gross profit

 

 

9

116

127

0

0

SG&A (expenses)

 

 

(455)

(617)

(912)

(912)

(912)

Other income/(expense)

 

 

0

0

0

0

0

Exceptionals and adjustments

 

(16)

(415)

(878)

0

0

Depreciation and amortisation

 

(5)

(6)

(6)

(1,702)

(3,812)

Reported EBIT

 

(467)

(923)

(1,670)

(2,614)

(4,724)

Finance income/(expense)

 

(18)

(5)

128

17

70

Other income/(expense)

 

(559)

(448)

(3,815)

(783)

(783)

Exceptionals and adjustments

 

0

(888)

0

0

0

Reported PBT

 

 

(1,044)

(2,263)

(5,357)

(3,381)

(5,437)

Income tax expense (includes exceptionals)

 

 

0

0

0

0

0

Reported net income

 

 

(1,044)

(2,263)

(5,357)

(3,381)

(5,437)

Basic average number of shares, m

 

 

178

465

1,802

3,372

4,708

Basic EPS (A$)

 

 

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

 

 

 

 

 

 

 

 

Balance sheet

 

 

Property, plant and equipment

 

 

9

4

8

18,654

38,051

Goodwill

 

 

0

0

0

0

0

Intangible assets

 

 

0

16,204

16,698

19,909

19,909

Other non-current assets

 

 

1,485

715

1,620

4,831

4,831

Total non-current assets

 

 

1,494

16,922

18,326

43,394

62,791

Cash and equivalents

 

 

53

650

3,307

13,986

13,986

Inventories

 

 

0

0

0

0

0

Trade and other receivables

 

 

4

3,886

706

0

0

Other current assets

 

 

0

0

0

0

0

Total current assets

 

 

57

4,537

4,013

13,986

13,986

Non-current loans and borrowings

 

 

0

0

0

0

24,835

Other non-current liabilities

 

 

0

0

0

0

0

Total non-current liabilities

 

 

0

0

0

0

24,835

Trade and other payables

 

 

105

614

1,663

139

139

Current loans and borrowings

 

 

115

0

0

0

0

Other current liabilities

 

 

40

33

46

46

46

Total current liabilities

 

 

260

647

1,709

185

185

Equity attributable to company

 

 

1,292

20,812

20,630

57,195

51,757

Non-controlling interest

 

 

0

0

0

0

0

 

 

 

 

 

 

 

 

Cash flow statement

 

 

Profit for the year

 

 

(1,044)

(2,263)

(5,357)

(3,381)

(5,437)

Taxation expenses

 

 

0

0

0

0

0

Depreciation and amortisation

 

 

5

6

6

1,702

3,812

Share based payments

 

 

450

40

1,736

0

0

Other adjustments

 

 

(451)

1,036

(162)

(3,211)

0

Movements in working capital

 

 

(10)

132

133

(818)

0

Interest paid / received

 

 

0

0

0

0

0

Income taxes paid

 

 

0

0

0

0

0

Cash from operations (CFO)

 

 

(1,050)

(1,049)

(3,644)

(5,708)

(1,626)

Capex

 

 

(9)

(63)

(861)

(23,559)

(23,209)

Acquisitions & disposals net

 

 

0

32

122

0

0

Other investing activities

 

 

(563)

(80)

0

0

0

Cash used in investing activities (CFIA)

 

 

(572)

(111)

(739)

(23,559)

(23,209)

Net proceeds from issue of shares

 

 

1,505

1,872

7,040

*39,946

0

Movements in debt

 

 

100

(115)

0

0

24,835

Other financing activities

 

 

0

0

0

0

0

Cash from financing activities (CFF)

 

 

1,605

1,757

7,040

39,946

24,835

Increase/(decrease) in cash and equivalents

 

 

(18)

597

2,657

10,679

0

Currency translation differences and other

 

 

0

0

0

0

0

Cash and equivalents at end of period

 

 

53

650

3,307

13,986

13,986

Net (debt) cash

 

 

(61)

650

3,307

13,986

(10,849)

Movement in net (debt) cash over period

 

 

(61)

711

2,657

10,679

(24,835)

Source: Company sources, Edison Investment Research. Note: *Assumes additional A$31.5m equity raise in FY18 to fund L-Max Phase 1 capex.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Lepidico and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors.
This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Lepidico and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors.
This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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