Georgia (Lake) on my mind

Rock Tech Lithium 12 June 2020 Update
Download PDF

Rock Tech Lithium

Georgia (Lake) on my mind

Mining prospects

Metals & mining

12 June 2020

Price

C$0.59

Market cap

C$23m

C$1.3549/US$

Net cash (C$m) at end-March 2020

1.8

Shares in issue (thousands)

38,805

Free float

81%

Code

RCK

Primary exchange

TSX-V

Secondary exchange

Frankfurt

Share price performance

%

1m

3m

12m

Abs

9.3

-20.3

7.3

Rel (local)

9.6

-24.4

15.8

52-week high/low

C$0.85

C$0.37

Business description

Rock Tech Lithium (RCK) is a lithium exploration and development company. Its flagship asset is the 100%-owned Georgia Lake hard-rock lithium pegmatite project in Ontario, Canada, which is currently at the PEA stage of development.

Next events

Q220 results

August 2020

Q320 results

November 2020

Q420/FY20 results

March 2021

Q121 results

May/June 2021

Analyst

Charles Gibson

+44 (0)20 3077 5724

Rock Tech Lithium is a research client of Edison Investment Research Limited

Rock Tech Lithium’s (RCK) strategy is to leverage its novel proprietary processes, robust European network and PEA-stage Georgia Lake lithium project to become a fully integrated, low-cost and sustainable supplier of lithium chemicals. To this end, the company is pursuing a ‘dual location’ strategy, producing technical-grade products in Canada that will become cost-effective feedstock for battery-grade lithium hydroxide production in Germany to serve the burgeoning European electric vehicle market.

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

0.0

(1.2)

(5.8)

0.0

N/A

N/A

12/17

0.0

(3.3)

(11.8)

0.0

N/A

N/A

12/18

0.0

(3.4)

(10.1)

0.0

N/A

N/A

12/19

0.0

(1.0)

(3.0)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding exceptional items.

Georgia Lake standalone PEA

In October 2018, RCK announced the results of a preliminary economic assessment (PEA) at Georgia Lake. Compiled by international mining consultants, DMT, the study envisaged producing 1.1Mt of 6.2% Li2O chemical-grade spodumene concentrate over 11 years at a rate of 96,000tpa for an initial capital cost of C$65.3m to generate annual steady-state EBITDA of C$64.2m, a pre-tax IRR of 62.2%, a post-tax NPV8 of C$210m (equivalent to C$5.41/share) and a 3.5-year payback.

Six gigafactories in development in Germany

At least six battery gigafactories are at various stages of development in Germany, including plants commissioned by industry leaders such as Tesla, Volkswagen and Opel. Within this context, RCK’s advisory board, composed of leaders from business, politics and academia, is a competitive advantage for its downstream ambitions. In time, it is envisaged that RCK’s production facilities will become a hub for the conversion of lithium feedstock sourced from all over the world (eg Australia and Brazil).

Recent cash raising bolsters cash position

RCK had net cash of C$1.7m at 31 December 2019, since which time it has raised a further C$1.6m, such that it had net cash of C$1.8m at end March 2020 cf a cash burn rate of C$2.2m pa in FY18 and C$1.3m pa in FY19.

Valuation: Trading at 10.0% of NPV8

RCK’s current enterprise value of C$21.1m equates to 10.0% of its Georgia Lake PEA NPV8 of C$210m. It also equates to US$43.60 per resource tonne of lithium carbonate equivalent (LCE), which is at a small discount to a sector average of US$53.84/t LCE for non-Western Australian spodumene explorers, as calculated in our report, Gold stars and black holes, published in January 2019.

Strategic thinking

RCK’s strategy is to leverage its novel proprietary processes, robust European network and PEA-stage Georgia Lake lithium project in Canada to become a fully integrated, low-cost and reliable supplier of lithium chemicals to the European electric vehicle market.

Current (conventional) processing

Currently, the majority of lithium produced from hard rock sources is derived from the mineral spodumene (LiAlSi2O6), the lithium content of which is approximately 3.7%. Conventional processing of spodumene involves froth flotation and/or gravity separation to generate a concentrate of c 6% lithium content followed by either roasting and acid leaching (typically) or carbonate leaching (less typically) to form lithium sulphate, from which either lithium carbonate or lithium hydroxide may then be synthesised. The price differential between the concentrate and the final products is material:

Exhibit 1: Lithium carbonate and hydroxide prices vs spodumene concentrate price

Product

Price
(US$/t)

Multiple of concentrate price
(x)

Spodumene concentrate

430

1

Lithium carbonate

7,350

17

Lithium hydroxide

10,750

25

Source: Benchmark Minerals, Fastmarkets, Rock Tech Lithium, Edison Investment Research

Alternative RCK processing

In contrast to the conventional process flow route, RCK’s concept is to use its Georgia Lake project in Ontario, in the first instance, to provide technical-grade feedstock for its battery-grade lithium hydroxide production plant in Germany. The immediate advantages of such a ‘dual location’ strategy are the availability of subsidies in Germany for such value-added manufacturing, and the materially reduced transportation costs and emissions engendered by completing significant raw material upgrading close to the mine site. Conceptually, lithium sulphate would then be transported to a refinery in Western Europe for onward processing in Germany.

In simple terms, one tonne of 5% spodumene concentrate contains 23.3kg of lithium metal, which is sufficient to produce 183.3kg of pure, intermediate lithium sulphate, which can itself then be converted into 123.2kg of pure lithium carbonate with a market value of US$906 (at the prices in Exhibit 1) or 139.8kg of pure lithium hydroxide monohydrate with a market value of US$1,503 (assuming no processing losses). On this basis, using lithium sulphate as an intermediate feedstock for the industry is feasible (note: on a profit & loss, rather than a return on capital, basis) as long as purchase and processing costs, combined, do not exceed US$2,597 per tonne of lithium sulphate for supply to lithium carbonate producers or US$5,854/t for supply to lithium hydroxide monohydrate producers.

SWOT analysis

An initial SWOT analysis of RCK’s concept is as follows:

Strengths: low production costs, materially reduced shipping cost and emissions, and more affordable subsequent processing into lithium hydroxide.

Weaknesses: a new process, which will need to undergo pilot plant and industrial-scale testing before becoming generally acceptable.

Opportunities: subsidies currently available in Germany for the development of the lithium-ion battery. If successful, the lithium hydroxide manufacturing plant in Germany could become a hub for the upgrading of additional feedstock, sourced from Europe and around the world, as well as Georgia Lake material.

Threats: competing technologies; weaker than expected demand growth.

Georgia Lake background

In 2018, RCK announced an upgraded mineral resource estimate at Georgia Lake of 13.29Mt at a grade of 1.09% lithium oxide (at a relatively conservative 0.65% cut-off grade), of which 49% was in the measured and indicated categories. Note that management believes there is at least a further 2.5–3.0Mt of lithium-bearing pegmatite mineralisation in the prospect, representing material defined in historical resource estimates, but yet to be drilled to NI 43-101 standards, plus new discoveries.

Later in the year, on 2 October, the company announced the results of a preliminary economic assessment (PEA) at Georgia Lake. Compiled by international mining consultants, DMT, the highlights of the PEA were pre-production capex of C$65.3m, annual steady-state EBITDA of C$64.2m, an 11-year mine life, a pre-tax IRR of 62.2%, a 3.5-year payback period and a post-tax NPV8 of C$210m.

The PEA envisaged producing 1.1Mt of 6.2% Li2O chemical-grade spodumene concentrate over 11 years at a rate of 96,000tpa. However, it excluded any production from additional inferred resources on other areas of the property, which could increase the mine’s life further. In the meantime, power sources and grid access are also located in the immediate vicinity of the project with a transcontinental rail station and deep-sea port less than 200km away, providing options for product delivery to end-users.

Valuation

RCK’s current enterprise value of C$21.1m equates to 10.0% of its Georgia Lake PEA NPV8 of C$210m.

It also equates to US$43.60 per resource tonne of LCE, which is at a small discount to a sector average of US$53.84/t LCE for non-Western Australian spodumene explorers, as calculated in our report, Gold stars and black holes, published in January 2019.

Financials

RCK had net cash of C$1.7m at 31 December 2019, since which time it has raised a further C$1.6m via the sale of 3.6m units of one share plus one half warrant each at a price of C$0.45/unit. This compares with a cash burn rate of C$0.18m per month in FY18 and C$0.110m in FY19.

Exhibit 2: Financial summary

C$'000s

2016

2017

2018

2019

December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

Cost of Sales

0

0

0

0

Gross Profit

0

0

0

0

EBITDA

 

 

(1,191)

(3,276)

(3,442)

(1,048)

Operating Profit (before amort. and except.)

(1,194)

(3,279)

(3,445)

(1,049)

Intangible Amortisation

0

0

0

0

Exceptionals

45

3

0

0

Other

0

0

0

0

Operating Profit

(1,149)

(3,276)

(3,445)

(1,049)

Net Interest

0

0

0

0

Profit Before Tax (norm)

 

 

(1,194)

(3,279)

(3,445)

(1,049)

Profit Before Tax (FRS 3)

 

 

(1,149)

(3,276)

(3,445)

(1,049)

Tax

0

0

0

0

Profit After Tax (norm)

(1,194)

(3,279)

(3,445)

(1,049)

Profit After Tax (FRS 3)

(1,149)

(3,276)

(3,445)

(1,049)

Average Number of Shares Outstanding (m)

20.7

27.8

34.0

35.0

EPS - normalised (c)

 

 

(5.8)

(11.8)

(10.1)

(3.0)

EPS - normalised and fully diluted (c)

 

(5.8)

(11.8)

(10.1)

(3.0)

EPS - (IFRS) (c)

 

 

(5.5)

(11.8)

(10.1)

(3.0)

Dividend per share (p)

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

2,008

2,989

3,542

3,840

Intangible Assets

1,995

2,978

3,533

3,833

Tangible Assets

14

11

9

7

Investments

0

0

0

0

Current Assets

 

 

3,242

2,959

1,299

1,731

Stocks

0

0

0

0

Debtors

150

62

72

80

Cash

3,087

2,898

1,227

1,651

Other

5

0

0

0

Current Liabilities

 

 

(306)

(344)

(292)

(243)

Creditors

(306)

(344)

(292)

(243)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

0

0

0

0

Long term borrowings

0

0

0

0

Other long-term liabilities

0

0

0

0

Net Assets

 

 

4,944

5,605

4,548

5,328

CASH FLOW

Operating Cash Flow

 

 

(689)

(1,218)

(1,703)

(1,037)

Net Interest

2

0

0

0

Tax

0

0

0

0

Capex

(461)

(854)

(477)

(287)

Acquisitions/disposals

121

7

0

0

Financing

3,972

1,876

509

1,747

Dividends

0

0

0

0

Net Cash Flow

2,944

(189)

(1,671)

424

Opening net debt/(cash)

 

 

(143)

(3,087)

(2,898)

(1,227)

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(3,087)

(2,898)

(1,227)

(1,651)

Source: Company sources, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Rock Tech Lithium and prepared and issued by Edison, in consideration of a fee payable by Rock Tech Lithium. 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

General disclaimer and copyright

This report has been commissioned by Rock Tech Lithium and prepared and issued by Edison, in consideration of a fee payable by Rock Tech Lithium. 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

Share this with friends and colleagues