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Riding the lithium wave

Lithium Power International 21 March 2022 Initiation
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Lithium Power International

Riding the lithium wave

Initiation of coverage

Metals and mining

21 March 2022

Price

A$0.68

Market cap

A$237m

A$1.38/US$

Net cash (A$m) at December 2021

15.4

Shares in issue

348.8m

Free float

100%

Code

LPI

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.1

70.4

142.1

Rel (local)

12.1

71.6

124.0

52-week high/low

A$0.83

A$0.17

Business description

Lithium Power International’s main asset is its 51.6% interest in the Maricunga lithium brine project in Chile. Subject to securing a funding package, the first stage of the project is expected to produce 15.2ktpa of high-grade lithium carbonate starting from 2026. LPI also owns a number of early-stage exploration lithium projects in Western Australia.

Next events

Fastmarkets – Lithium Supply & Markets conference 2022

27–29 June

Analyst

Andrey Litvin

+44 (0)20 3077 5700

Lithium Power International is a research client of Edison Investment Research Limited

Lithium Power International (LPI) owns 51.6% of the advanced lithium brine project in the Maricunga Salar in Chile. Based on the 2022 updated feasibility study, the project has relatively attractive economics supported by the strong lithium market fundamentals and low opex. Lithium demand is expected to grow exponentially, driven by e-mobility, with prices likely to remain at elevated levels that will encourage new supply. We value LPI at A$1.02/share based on the 15.2ktpa carbonate operation and additional lithium resources that are currently outside of the project’s scope.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/20

0.0

(12.7)

(4.94)

0.0

N/A

N/A

06/21

0.0

(6.0)

(2.16)

0.0

N/A

N/A

06/22e

0.0

(7.6)

(1.91)

0.0

N/A

N/A

06/23e

0.0

(5.0)

(1.38)

0.0

N/A

N/A

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

Maricunga: Permitted lithium project with scalability

Since the release of a 20ktpa DFS in 2019, Maricunga’s scope has been revised in 2022 to focus on a smaller scale 15ktpa carbonate project underpinned by the mining concessions, which do not require a special operating licence (CEOL). This significantly reduces permitting and execution risks. The project’s brine resources have also been upgraded at depth to support the similar 20-year operating life. The smaller-scale 2022 DFS confirmed an attractive opex of US$3,864/t, and while the project’s capital intensity is relatively high, as it requires an additional processing step, it is expected to produce a high-quality battery grade product, which should be sought after in the structurally tight lithium market.

Lithium: In short supply

The lithium market is undergoing significant transformation on the back of explosive growth in e-mobility and energy storage. Given the shortage of development-stage lithium projects, the market is likely to remain in structural deficit at least over the next two to three years. This should support higher prices to incentivise new supply. After a period of market weakness in 2020–21 due to COVID-19, spot carbonate prices delivered to China have recently exceeded the US$50,000/t level. We conservatively model a contract carbonate price of US$23,000/t in 2022–24, falling to our long-term price assumption of US$17,000/t in 2027.

Valuation: 15ktpa project yields healthy upside

Our valuation of LPI is based on the 15.2ktpa project, and key operating and cost assumptions from the 2022 DFS. We use a discounted cash flow to equity approach that assumes equity dilution. At a 10% discount rate, our NPV yields a valuation of A$0.85/share for LPI. To this we add a value for the remaining lithium resources, which we estimate at A$0.18/share. A 10% increase in our long-term carbonate price moves our base case NPV up by c 20%. We see the key risks as an uncertain political situation and general opposition to lithium projects in Chile.

Investment summary

Company description: Advanced lithium project in Chile

LPI holds 51.6% of the advanced-stage lithium brine project in Salar de Maricunga, Chile, which is situated in the well-known ‘lithium triangle’. Based on the updated 2022 definitive feasibility study (DFS), the first stage of the Maricunga project is expected to produce 15.2ktpa of high-quality lithium carbonate over 20 years and is underpinned by the concessions formed under the old Chilean mining code and therefore do not require the CEOL. The remaining concessions (Litio 1–6) represent a significant expansion potential subject to obtaining the required permits. Despite the smaller footprint and relatively high capital intensity, the 15.2ktpa project has attractive economics supported by favourable lithium market fundamentals and low opex. It also significantly lowers the project’s execution risk due to its permitted status. Maricunga is the most advanced greenfield lithium asset in Chile, which is one of the largest lithium-producing countries. LPI signed a non-binding MOU with Mitsui in May 2021 and is looking to advance the project to final investment decision (FID) in 2022.

Valuation: Smaller-scale operation yields healthy upside

Our main valuation scenario is based on the 15.2ktpa carbonate project supported by the old code concessions (OCC) and key operating and cost assumptions from the 2022 DFS. Our net present value (NPV) is based on the discounted cash flow to equity holders and reflects equity dilution at the prevailing share price. At a 10% discount rate, it yields the valuation of A$0.85/share for LPI. To this, we add the value of the remaining lithium resources represented by the Litio 1–6 concessions, which we estimate at A$0.18/share using the company’s current EV/Resource multiple and an arbitrary 25% discount to account for the permitting related risks for these concessions. Our valuation is most sensitive to changes in the lithium price and discount rate. A 10% increase in our long-term carbonate price of US$17,000/t increases our base case NPV by c 20%, while a 1pp increase in the discount rate lowers our valuation by c 10%.

Financials: Funded through to the final investment decision

At end December LPI had a cash position of A$15.4m and we estimate that it will finish FY22 with cash of A$12.9m. We believe this should be sufficient to get it through to the FID. If the development goes according to the current plan, with the construction start in 2023 and project commissioning in 2026, the joint venture (JV) will have to secure project funding in 2022. As part of the package, we assume debt will represent 60% of the overall capital cost (US$626m) and expect it to be raised at the project level. This leaves c US$250m to be raised in equity. We expect LPI to contribute its 51.6% share on a pro-rata basis, which equates to c A$181m over 2023–26. This compares to the company’s current market cap of A$237m and represents c 43% dilution.

We expect Maricunga to be highly cash generative. Based on our long-term lithium price and cost assumptions (direct cash cost of US$3,864/t), we expect the project to generate average direct EBITDA of c US$167m per annum.

Sensitivities: Political uncertainty in Chile

While lithium market fundamentals are favourable, we believe the main risk attached to the project is the uncertain political situation in Chile. Following the recent presidential elections, there appears to be significant opposition to lithium extraction, both from environmental and political points of view. Other risks include funding/dilution as well as commodity prices and lithium fundamentals.

Company description: Ahead of the lithium curve

LPI’s main asset is a 51.6% interest in the Maricunga JV (Minera Salar Blanco, or MSB), an advanced-stage lithium brine project in Chile. This is a permitted project with the updated DFS published in early 2022. Maricunga is expected to produce 15.2ktpa of high-grade lithium carbonate over 20 years. The JV’s key focus is now on securing a strategic partner and/or an offtake agreement, which should pave the way for the FID and the subsequent development of the project. LPI believes that it will be able to advance the project to the FID in 2022. With an estimated construction period of three years, the project is then expected to commence production in 2026. LPI also owns early-stage hard rock lithium exploration projects in Western Australia.

Maricunga JV overview

The project is comprised of 10 mining concessions in the northern part of Salar de Maricunga (Atacama region) in Chile. Maricunga is a mid-sized salar that forms part of the well-known ‘lithium triangle’ (Exhibit 1). The project’s mining tenements consist of the four ‘old code’ concessions (OCC), which were constituted under the 1932 Chilean Mining Law and, according to LPI, do not require a special operating licence (CEOL) to produce lithium. The other six concessions (Litio 1–6) require the CEOL. The first stage of the project (15.2ktpa) is underpinned by the OCC, while the potential expansion can be supported by Litio 1–6, subject to obtaining the required permits (CEOL, CCheN, environmental).

Exhibit 1: Maricunga location

Source: LPI

The Maricunga project is the most advanced exploration and development asset in the salar, which at present does not host any producing operations. Other adjacent mining concessions in the salar are held by Sociedad Química y Minera (SQM), one of the world largest producers of lithium compounds, and Codelco, a large government-owned copper miner. LPI holds 51.6% in the JV that controls the project, with the remainder owned by Bearing Lithium (c 17%) and local partner Minera Salar Blanco (c 31%).

2022 updated feasibility study: Smaller scale, lower risks

In January 2019, LPI published a DFS on the Maricunga project. It followed the release of a preliminary economic assessment (PEA) in early 2017 and was based on the 2018 compliant mineral resource estimate. Subsequently, the company released an updated DFS on the project in January 2022. The 2019 DFS was supported by the project’s combined lithium resources from all mining concessions (OCC and Litio 1–6). It envisaged production of 20ktpa of lithium carbonate (Li2CO3) over 22 years (year 1 to 11 from the OCC and then from Litio 1–6). The updated January 2022 study is based on the resources underpinned by OCC only and assumes production of 15.2ktpa of lithium carbonate over the 20-year life. While the reduced footprint (1,125ha for OCC vs 2,563ha for all tenements) results in a smaller scale and somewhat weaker project economics, it significantly lowers licensing and execution risks. The Litio 1–6 concessions provide extension or expansion potential, should the JV succeed in obtaining the required permits.

Lithium production: Brine evaporation versus hard rock mining

By way of background, lithium is typically produced via two main routes: saltwater brines evaporation and hard rock mining. The latter production process is broadly similar to a traditional mineral resource extraction whereby lithium bearing pegmatitic minerals, such as spodumene, petalite or lepidolite, are mined and processed into concentrate (eg SC6, or spodumene concentrate, containing 6% lithium dioxide), which is then converted into lithium carbonate or hydroxide (LiOH). In contrast, the saltwater brine is processed by water evaporation under sunlight. For that purpose, the brine, which contains lithium chloride (LiCl) as well as a variety of salts in the form of sulphites and chlorides of sodium, potassium, magnesium, boron, etc, is pumped into shallow ponds. After 12–18 months the concentration of salts and LiCl in the brine increases, salts are harvested from the ponds, while lithium is further processed into carbonate.

Exhibit 2: Lithium extraction and processing (based on Albemarle operations)

Source: Albemarle

Due to the specific production routes and chemical/mineral composition, lithium from pegmatite is typically processed into hydroxide, while brines produce carbonate. In mineral processing, spodumene concentrate obtained from mining and subsequent beneficiation of ore is calcinated to convert α-spodumene into the beta phase; β-spodumene then reacts with calcium oxide to form lithium aluminate, which following leaching reacts with calcium hydroxide to form lithium hydroxide. In the schematic brine processing, sodium carbonate is added to the concentrated brine solution after the evaporation and salt removal stage, where it reacts with lithium chloride to form lithium carbonate, which can then be filtered out from the solution.

Both carbonate and hydroxide are key raw materials used in production of positive electrodes in lithium-ion batteries and can be further processed into metallic lithium. In general, hard rock mining is more energy and capital intensive and characterised by higher operating costs compared to brine processing (which is however more water intensive but overall simpler). At the same time, it is more scalable (it is not uncommon to see an integrated 40–60kpa of LCE spodumene project compared to a 15–25ktpa brine operation) and historically produced higher value-added product. However, with the recent increase in the use of lithium iron phosphate (LFP) batteries in China, carbonate now trades on par with hydroxide.

Maricunga production process: A three-stage approach

With the exception of the salt removal plant, Maricunga’s production process is similar to other saltwater salars. It is comprised of three main stages:

Solar evaporation ponds. This is the initial stage that takes advantage of the natural water evaporation effect and solar radiation to concentrate the brine. Evaporation ponds operate in sequence and use the brine’s natural saturation property through water evaporation and salt precipitation. When the brine reaches its saturation point it is transported to the next pond while salt is removed (harvested).

Salt removal plant. Concentrated brine from the evaporation ponds is fed into the salt removal plant to continue brine purification and lithium concentration by means of a series of evaporation and crystallisation steps. During this stage, calcium, boron and magnesium are removed from the brine. The salt removal plant generates more concentrated brine feed to the lithium carbonate plant, improving processing efficiency and producing higher-quality material. Importantly, it allows control of the chemical composition and stability of the feed flow to the carbonate plant and therefor maintains the quality of the product.

Lithium carbonate plant. This is a chemical plant that receives concentrated brine from the salt removal plant. The lithium-rich brine still contains some concentration of impurities that need to be removed through mixing with specific reagents and ion exchange. Following the elimination of contaminants, the contaminant-free brine enters the carbonation stage where it is placed in contact with soda ash to produce lithium carbonate.

Exhibit 3: Maricunga production process

Source: LPI

Updated reserves and resources: Estimates increased at depth

The 2022 DFS is based on the OCC mining concessions covering an area of 1,125ha, versus the 2,563ha area for the combined OCC and Litio 1–6 concessions considered in the 2019 study. Despite the smaller footprint, the project’s OCC lithium resources were significantly upgraded in the 2022 study by considering brines to a depth of 400m versus 200m in the earlier study. The project is now estimated to have a measured and indicated (M&I) resource of 358kt of contained lithium (1.9mt of lithium carbonate equivalent (LCE)) compared to 389kt of lithium (2.1mt of LCE) in the 2019 study. The project’s proven and probable reserves for OCC were upgraded to 479kt of LCE compared to 346kt of LCE before. These reserves are sufficient to sustain a 15.2ktpa LCE operation for an estimated 20-year project life. The average lithium concentration in the updated P&P reserve is 976mg/l versus 1,115mg/l for the earlier combined OCC and Litio 1–6 P&P reserve estimate, while the brine’s chemical composition is also broadly similar.

Exhibit 4: Lithium and potassium resources based on the OCC concessions (2022 DFS)

 

Measured

Indicated

M+I

 

Li

K

Li

K

Li

K

Area, km2

4.5

6.76

11.25

Brine volume, km3

0.162

0.216

0.378

Mean grade, g/m3

87

641

111

794

99

708

Concentration, mg/l

968

7,125

939

6,746

953

6,933

Resources, tonnes

154,500

1,140,000

203,500

1,460,000

358,000

2,600,000

Source: LPI

Exhibit 5: Brine mining reserve based on the OCC concessions (2022 DFS)

Category

Year

Brine volume,
m m
3

Average Li concentration, mg/l

Contained Li, tonnes

Contained LCE, tonnes

Proven

1–7

19

1,024

14,000

75,000

Probable

1–8

13

1,024

19,000

102,000

Probable

8–20

60

950

57,000

302,000

Total

1–20

92

976

90,000

479,000

Total after assumed 65% recovery

58,000

311,000

Source: LPI

In the 2018 resource statement, Litio 1–6 had M&I resources of 184kt of lithium (979kt of LCE) defined to a depth of 200m. This resource and its extension potential to below the 200m depth level should be viewed in addition to the recently upgraded OCC estimates. The project also has significant potassium resources, which can be processed into potassium chloride (KCL). While this is currently outside of the project scope (and therefore has no value contribution), KCL production can be considered in the future and can potentially reduce operating cost as a by-product.

Exhibit 6: Schematic representation of the OCC and Litio 1–6 resources

Source: LPI

Brine quality and impurities

When it comes to the quality of the brine, lithium concentration is not the only parameter to consider. It is important to look at impurities that could have a significant detrimental effect on brine processing. For Maricunga, the main deleterious elements are magnesium (Mg), sulphate (SO4) and calcium (Ca). Its brine is characterised by a relatively high lithium concentration and low potassium content, which is favourable for processing. At the same time, the project has a high proportion of calcium in its brines. Looking at the specific values, Maricunga’s Mg/Li ratio of 6.5x is similar to Atacama, Chile’s largest and only producing salar, while its sulphate to lithium ratio of only 0.64x is the lowest among the main exploration and producing salars in Latin America (Exhibit 7). The project’s Ca/Li ratio of 12x significantly exceeds the levels reported in other salars.

The relatively high concentration of calcium and magnesium, which lowers the brine activity, as well as the levels of solar radiation at the salar are the main reasons for the introduction of an additional processing step in the form of a salt removal plant. It reduces the target concentration rate during the evaporation stage to only c 0.9% and therefore addresses the risk of the brine not reaching the required concentration of 3–4% lithium in the ponds. As a result, the salt removal plant considerably shortens the processing time. It also allows water to be recovered during processing, which is crucial as high water use during brine processing in general represents a major environmental concern, and reduces the consumption of reagents.

Exhibit 7: Brine chemical composition comparison for different salars (% weight)

 

Salar de Maricunga

Salar de Atacama

Hombre Muerto

Salar de Cauchari

Salar del Rincon

Salar de Uyuni

 

Chile

Chile

Argentina

Argentina

Argentina

Bolivia

Potassium (K)

0.69

1.85

0.62

0.47

0.656

0.72

Lithium (Li)

0.09

0.15

0.06

0.052

0.033

0.035

Magnesium (Mg)

0.61

0.96

0.09

0.131

0.303

0.65

Calcium (Ca)

1.12

0.03

0.05

0.034

0.059

0.046

Sulphate (SO4)

0.06

1.65

0.85

1.62

1.015

0.85

Boron (B)

0.05

0.06

0.04

0.076

0.04

0.02

Mg/Li (x)

6.5

6.4

1.4

2.5

9.2

18.6

SO4/Li (x)

0.6

11.0

13.8

31.2

30.8

24.3

Ca/Li (x)

12.0

0.2

0.9

0.7

1.8

1.3

Source: LPI, company data

Exhibit 8: Lithium content in brines comparison, mg/l

Salar de Atacama

Salar de Maricunga

Salar de Olaroz

Salar de Hombre Muerto

Salar de Cauchari

Lithium

1,840

1,122

690

740

590

Source: LPI, industry sources

The chemical composition of the brine is broadly similar for the 2022 and 2019 feasibility studies, which cover OCC only and the combined OCC and Litio 1–6 resources respectively. Of note is a slightly lower calcium content in the 2022 DFS.

Exhibit 9: 2022 and 2019 BFS average brine composition analysis

 

Li, g/l

Mg, g/l

Ca, g/l

SO4, g/l

B, g/l

Mg/Li

Ca/Li

2022 BFS

1.1

7.3

12.9

0.7

0.6

6.5

11.5

2019 BFS

1.1

7.3

13.5

0.7

0.6

6.6

12.0

Source: LPI

Opex and capex analysis

The 2022 DFS estimates the project’s total capital cost at US$626m for 15.2ktpa, including the direct cost of US$420m and US$63m in contingencies. The main capex items are the evaporation ponds (US$90m), the salt removal plant (US$110m) and general services (US$84m). We note that the cost of the carbonate plant represents less than 10% of the overall capex. The total capital expenditure for the 15.2ktpa operation of US$626m compares to the previously estimated capital cost of US$563m for the 20ktpa operation in the 2019 DFS. The main differences are the higher cost of the salt removal plant (the cost of mechanical equipment more than doubled to US$73m) and significantly higher indirect costs (no indirect cost breakdown was provided in the 2019 BFS). The 2022 DFS is one of the most recent studies for a lithium project in Latin America and therefore includes up-to-date cost estimates that reflect COVID-19 effects. The increased cost of the salt removal plant is also due to the additional test work undertaken by the company in 2021.

In terms of operating costs, the 2022 BFS estimates total opex at US$3,864/t of carbonate, which is similar to the 2019 DFS figure. The main cost components are chemicals and reagents (28% of total operating cost), and energy (30%). The project is expected to require both electrical and diesel power, with the latter used to generate steam for the salt removal plant and it represents a significant proportion of total costs. Given the high solar radiation rates at the salar there is a potential to replace diesel with solar energy. This could significantly reduce opex. We provide opex and capex breakdowns for the 2022 and 2019 studies in Exhibit 10. We note that opex excludes royalties that are discussed in the valuation section.

Exhibit 10: Maricunga’s opex and capex breakdown for 2019 and 2022 DFS

Opex breakdown, US$/t LCE

2022

2019

 

Capex breakdown, US$m

2022

2019

Chemical reactives and reagents

1,099

1,040

 

Brine extraction wells

33.2

39.4

Salt removal

266

486

 

Evaporation ponds

89.9

115.3

Energy – electrical

342

370

 

Salt removal plant

110.3

66.4

Energy – thermal

821

658

 

Lithium carbonate plant

55.8

71.6

Labour

518

458

 

General services

84.0

103.3

Transport

181

237

 

Infrastructure

45.8

60.0

Maintenance and other

491

400

 

Total direct cost

419.0

456.1

Direct cash cost

3,718

3,718

 

Indirect cost

144.8

44.8

G&A

146

123

 

Contingencies

62.6

62.6

Total cash cost

3,864

3,841

 

Total capital expenditure

626.4

563.5

Source: LPI

The Maricunga’s opex is broadly in line with the similar carbonate projects in Argentina and Mexico (Exhibit 11). However, its capital intensity is higher for both the 15.2ktpa and 20ktpa operations. This is especially so for the smaller-scale project whose lower capacity and higher capex compared to the 2019 DFS negatively affects the capital intensity. At the same time, we understand it includes the actual EPC proposals from the EPC bidding process and therefore represents an up-to-date realistic estimate. For the 2019 DFS, the project’s capex and capital intensity are relatively high mainly due to the inclusion of the salt removal plant. We also note that some of the technical studies on the comparable projects exclude owners’ costs and have a deferred capex component. While we have tried to adjust the numbers, there may still be discrepancies.

Exhibit 11: Opex and capex comparison for the selected lithium projects

Company

Project

Country

Study

Date

Product

Production, LCE t

LoM, years

Opex, US$/t

Capital intensity, US$/t

LPI

Maricunga

Chile

Updated DFS

Jan-22

Carbonate

15,250

20

3,864

41,075

LPI

Maricunga

Chile

DFS

Jan-19

Carbonate

20,000

20

3,772

28,175

Neo Lithium

3Q

Argentina

FS

Nov-21

Carbonate

20,000

50

2,953

18,528

Allkem (Galaxy/Orocobre)

Sal de Vida

Argentina

BFS

Jun-18

Carbonate

25,000

40

3,144

18,960

Bacanora/Ganfeng

Sonora - Stage 1

Mexico

FS

Jan-18

Carbonate

17,500

4

4,039

24,000

Sonora - Stage 2

Mexico

 

Carbonate

35,000

15

3,893

10,857

Sonora - Stage 1&2

Mexico

 

Carbonate

31,316

19

3,924

25,546

LAC (Millennial)

Pastos Grandes

Argentina

FS

Jul-19

Carbonate

24,000

40

3,388

21,417

LAC (49%)/Ganfeng (51%)

Cauchari-Olaroz

Argentina

FS

Sep-20

Carbonate

40,000

40

3,579

14,118

Lake Resources

Kachi

Argentina

PFS

Apr-20

Carbonate

25,500

25

4,178

21,333

Liontown

Kathleen Valley

Australia

Scoping study

Nov-21

Hydroxide

86,000

23

5,864

23,256

Piedmont Lithium

Carolina

US

BFS

Dec-21

Hydroxide

30,000

11

3,657

32,933

Source: Company data

Licensing and permitting status

As mentioned above, the Maricunga project consists of the OCC and Litio 1–6 mining concessions. The OCC were formed according to the 1932 Chilean Mining Code and as such, according to the company, they do not require a special licence from the Chilean government to produce lithium. The OCC (essentially two main concessions that cover an area of 1,125ha) underpin the first stage of the Maricunga project (15.2ktpa). The 1983 exploitation concessions (Litio 1–6) do not allow exploitation of lithium without a CEOL but do permit the exploration. However, historically there has been no clear and transparent process for awarding the CEOL. Under the current legislation, without the CEOL, lithium exploitation can only be undertaken by the state, state-owned companies or under administrative concessions. We understand that the JV remains in communication with Codelco, which owns adjacent properties in the salar and holds a CEOL for the area, but these discussions have not yet yielded any results.

Exhibit 12: Maricunga JV concessions map

Source: LPI

At present, the only lithium producing salar in Chile is Salar de Atacama. Both SQM and Albemarle, the world’s largest producers of lithium compounds roughly accounting for c 20% of the market each, operate in this salar. The exploitation rights in the Atacama Salar are held by the Chilean Economic Development Agency (CORFO) and are leased to SQM and Albemarle for a limited period of time. In addition to regular lease payments and other financial conditions, both SQM and Albemarle are required to pay a certain percentage of the lithium sales price to CORFO. According to SQM, these payments are incremental and at carbonate and hydroxide prices above $10,000/t and $12,000/t they could reach 40% of the price. We discuss royalty rates and other potential payments for the project later in the report, but note here that the BFS assumes Maricunga will be subject to a standard Chilean mining tax regime. The main reason for this is that the JV owns the mining concessions for the project and will therefore not be required to make lease payments to the state.

In 2019, the JV was a awarded a key operating licence by the Chilean Nuclear Energy Commission (CChEN) to produce, market and export lithium products from Salar de Maricunga. This permit is limited to the OCC concessions and allows production of 88,885 tonnes of lithium (c 473kt of LCE) over 30 years. It therefore covers the first stage of the project.

In 2020, the project received an environmental approval (EIA, the environmental impact assessment), which considered the construction and operation of a 58ktpa KCL plant (not included in the DFS) and a 20ktpa lithium carbonate plant over a period of 20 years. The JV also secured the water supply for the project through a long-term lease agreement, which was approved by the environmental agency.

Strategic agreement with Mitsui

In May 2021 LPI announced signing a non-binding MOU with Mitsui. The agreement covers offtake and financing rights for the first stage of the project as well as the potential expansion. Subject to Mitsui agreeing to provide a certain portion of the development capital, it will have the first right for an offtake agreement at the then prevailing lithium pricing. The agreement includes the following:

Mitsui will have the right to purchase up to 15ktpa of battery-grade carbonate over 10 years, extendable for two consecutive five-year periods. The agreement might include a minimum price, discount and/or ceiling price for the initial period, if that’s a requirement stipulated by the project finance structure. Any extensions will be based on the market pricing.

Mitsui will have the right to participate directly in the funding of the project. The funding structure is expected to include equity, debt, streaming and advance payments against the offtake.

MSB and Mitsui will create a partnership to expand Mitsui’s lithium business in Chile using environmentally friendly processing technologies. In addition, MSB will use its best efforts to utilise the direct lithium extraction (DLE) technology that is currently being tested by Misui’s technology partners.

Other assets: Early-stage hard rock lithium assets in Australia

In addition to the Maricunga project in Chile, LPI owns three exploration-stage hard rock lithium projects in Australia. Two of these projects are adjacent to the currently producing Pilgangoora and Greenbushes lithium mines in Western Australia. The projects are at an early stage of their development and are pre-resources.

Lithium market and price assumptions

Lithium demand: Explosive growth driven by energy storage needs

The lithium market is undergoing a profound transformation due to the rapid increase in the use of batteries in electric vehicles (EVs) and electronics. Historically, the vast majority of lithium was consumed in industrial applications such as speciality glass and lubricants, with (rechargeable) batteries representing only a small proportion of the overall consumption. However, driven by expanding energy storage needs (both e-mobility and grid related), lithium battery demand has experienced explosive growth in recent years (EV batteries now represent c 55% of total lithium demand). Thanks to the favourable EV demand fundamentals driven by decarbonisation and climate targets, this trend is expected to continue until at least 2030.

In its latest earnings release (Q421), Albemarle provided an update on its lithium demand forecast, suggesting total global lithium consumption of 1.5mtpa LCE in 2025 and 3.2mtpa in 2030. For comparison, in September 2021, the company expected lithium demand to grow to 1.1mtpa by 2025 and 2.5mtpa by 2030. Out of this total, lithium used in EV batteries was expected to expand at five- and 10-year CAGRs of 48% and 22% from 2020. We note that lithium demand in industrial applications exhibits growth rates similar to GDP of c 2–5% pa. Albemarle’s latest lithium consumption growth assessment suggests a five-year total lithium demand CAGR of c 25% by 2025. In the same vein, in its Q321 earnings release, SQM expected global lithium demand to exceed 1mtpa in 2025. In the shorter term, based on the Resources and Energy quarterly report (REQ) published by the Australian government, lithium demand reached 0.49mt LCE in 2021 versus 0.31mt in 2020, an increase of almost 60%, and is forecast to increase to 0.72mt LCE in 2023.

These ambitious expectations are underpinned by the growing EV adoption. While EV penetration and sales estimates vary depending on the source, we note that in its 2021 global EV outlook, the International Energy Agency (IEA) expected global EV stock across all transport modes to expand from 11m vehicles in 2020 to over 145m in 2030 (a c 30% CAGR) under the stated policy (base case) scenario (STEPS). This suggests annual EV sales exceeding 25m in 2030. In a more ambitious sustainable development scenario (SDS), the IEA sees global EV stock rising to 230m vehicles in 2030. In terms of battery capacity, this means 1.6TWh under STEPS and 3.2TWh under SDS. Assuming that an average battery uses c 0.8kg/kWh of lithium (it varies slightly based on the cathode chemistry, but NCM811 and LFP batteries use roughly the same amount of lithium), the IEA’s current EV forecasts imply lithium consumption of c 1.3mt for STEPS and 2.6mt for SDS in 2030.

Lithium supply: Australia is likely to fill the gap

Given the strong EV and battery market fundamentals, the key question is whether the new lithium supply will be able to meet rising demand. While our analysis suggests that there is no shortage of lithium projects globally, there is clearly a limited number of projects that are either in development or at the FID stage and could therefore be brought in production in the short term (a typical project development timeline from resource definition to commercial production is up to seven years and could be further extended for battery-grade lithium due to the strict quality and testing requirements). The main reason for the relatively slow supply-side response is the unprecedented speed of the EV market transformation, driven by government policies and the protracted period of low lithium prices that discouraged investments in new supply. In Exhibit 13 we provide a list of selected advanced lithium projects outside China.

Exhibit 13: Selected advanced capacity expansion plans in the lithium industry

Company

Project

Region

Type

Product

Current capacity
(LCE t)

Target capacity
(LCE t)

Expected launch

Additional expansion potential (LCE t)

SQM

Salar de Atacama

Chile

Brine

Carbonate

120,000

180,000

end 2022

Salar del Carmen

Chile

Brine

Hydroxide

21,000

30,000

end 2022

Mt Holland (50% Wesfarmers)

Australia

Hard rock

Hydroxide

-

50,000

H224

Albemarle

Salar de Atacama/La Negra III, IV

Chile

Brine

Carbonate

42,000

80,000

2022

Greenbushes (51% Tianqi Lithium)

Australia

Hard rock

Concentrate

120,000

120,000

-

Kemerton

Australia

Conversion

Hydroxide

-

50,000

2022/23

50,000

Wodgina (40% Mineral Resources)

Australia

Hard rock

Concentrate

-

35,000

Q322

70,000

Silver Peak

US

Brine

Carbonate

2,200

4,400

2025

Allkem (Orocobre/Galaxy)

Salar de Olaroz

Argentina

Brine

Carbonate

15,000

40,000

H222

Mt Cattlin

Australia

Hard rock

Concentrate

25,000

25,000

-

Naraha

Japan

Conversion

Hydroxide

-

10,000

2022

Sal de Vida

Argentina

Brine

Carbonate

-

11,000

H223

5,000

James Bay

Canada

Hard rock

Concentrate

-

-

-

40,000

Ganfeng

Cauchari-Olaroz (49% LAC)

Argentina

Brine

Carbonate

-

40,000

2022

Mt Marion (50% Mineral Resources)

Australia

Hard rock

Carbonate

60,000

60,000

-

Mariana

Argentina

Brine

Carbonate

-

-

Sonora (Bacanora)

Mexico

Clay

Carbonate

-

17,500

H223

17,500

Sal de la Puna (65% Arena Minerals)

Argentina

Brine

n/a

-

-

-

-

Livent

Fenix/Hombre Muerto

Argentina

Brine

Carbonate

20,000

40,000

2023

20,000

Pilbara Minerals

Pilgangoora

Australia

Hard rock

Concentrate

60,000

72,000

H222

POSCO

Sal de Oro

Argentina

Brine

Hydroxide

-

25,000

2024

20,000

Core Lithium

Finnis

Australia

Hard rock

Concentrate

-

22,581

2023

Total (excluding conversion capacity)

 

 

464,200

793,081

965,581

Source: Company data

Assuming no major project delays, our analysis suggests that at least some 300ktpa LCE of upstream lithium capacity (ex China) could come on stream in the next two to three years. We note that the current capacity estimate takes into account the ongoing upgrade at SQM, which is yet to be fully reflected in the market, as well as the recent increase in spodumene concentrate capacity at Albemarle’s Greenbushes. This analysis could be viewed in conjunction with production estimates in the December REQ that suggest global lithium output of 615kt LCE in 2022 (vs 485kt LCE in 2021) and 821kt in 2023. This is broadly in line with our assessment of the capacity roll out.

The main lithium producing regions are Latin America, Australia and China. Latin America is the biggest source of lithium from brines, while Australia is a major supplier of primary concentrates that are converted into higher value-add products such as hydroxide. Chile has traditionally been one of the largest producers of lithium (coming solely from Salar de Atacama), and although both SQM and Albemarle are expanding capacity, due to its strict permitting and regulations the country appears to be gradually losing its position (at least in the greenfield space) to Argentina. The latter has seen a string of greenfield lithium brine projects coming to the market. Some of these are in development and shown in Exhibit 13, but there are a number of relatively advanced projects that could potentially reach the market in the medium term (see Exhibit 11).

Finally, of note is a significant increase in both upstream and midstream lithium processing capacity in Australia. The recently announced restart of the Wodgina mine, which was decommissioned in 2019 due to low lithium prices, together with the greenfield Mt Holland project will add further to the currently operating large-scale Pilgangoora, Greenbushes and Mt Marion operations. Combined these assets could represent more than 500kt LCE concentrate capacity. This upstream capacity is expected to be matched by the hydroxide processing capacity that is being built in Australia and Asia/China. Overall, while lithium produced from brines often represents higher-quality ‘battery-grade’ material and the brine lithium projects are likely to be in demand, they are relatively small in scale and it appears that the main market balancing supply will come from Australia in the form of spodumene concentrate.

Lithium price expectations: Short-term market squeeze

Our price expectations assume that the market is likely to remain tight in the short term as the general shortage of new lithium capacity will be amplified by inevitable project delays. Coupled with high double-digit demand growth, this should provide support to the lithium prices. A higher price is also required to incentivise new project development. Following a period of weak demand and low prices in 2020–21 on the back of the COVID-19 related economic slump, the lithium market has seen a strong recovery starting from the end of last year, with contract and spot pricing enjoying sharp increases across all major products. The spot carbonate price delivered to China has recently exceeded the US$50,000/t level compared to the average 2021 price of only c US$7,000/t.

Contract prices should follow the spot level but remain at lower levels. Based on the current market fundamentals, we conservatively model the average contract hydroxide price at US$25,000/t in 2022–24, then gradually falling to our long-term price assumption of US$18,000/t in 2027. We assume a US$1,000/t price difference between carbonate and hydroxide, which is lower than the historical levels (driven by the traditional value chain for industrial applications) but could also be conservative given high carbonate demand in China due to the growing use of LFP batteries. We understand that the spot carbonate price is on par if not at a premium to hydroxide.

Exhibit 14: Edison contract lithium price expectations, US$/tonne

 

2022

2023

2024

2025

2026

Long term

Lithium hydroxide

25,000

25,000

25,000

22,000

20,000

18,000

Lithium carbonate

24,000

24,000

24,000

21,000

19,000

17,000

Source: Edison Investment Research

Exhibit 15: Lithium hydroxide versus carbonate contract price

Source: Refinitiv

Our long-term lithium price assumptions are underpinned by the following considerations:

The cash production cost of carbonate of c US$3,000–4,000/t for brines (outside China) and the cash cost of hydroxide production of c US$5,000–7,000/t for the Australian spodumene conversion route. Despite the industry-wide cost pressures, our long-term lithium prices provide enough headroom for a healthy internal rate of return in normal market conditions.

As we noted earlier, in general we see no shortage of greenfield lithium projects in Australia, Latin America, the United States and Africa. In the near term, the demand-driven market is likely to result in a period of high lithium prices, which should incentivise new capacity, but we expect supply to eventually catch up with demand. We note a number of large-scale spodumene operations in Australia and Africa potentially coming on stream, with processing capacity being added in Australia and China.

The inevitable increase in lithium recycling. Given the average EV battery life of c 10 years, with growing EV adoption we will eventually see a gradual increase in battery recycling, which could at some point represent a significant part of supply (similarly to other commodities).

Technological changes. While lithium-ion batteries currently dominate the market for larger, energy intensive applications such as transport, it is highly likely that new technologies will emerge that may use either less lithium or no lithium at all. That said, in the rechargeable battery space, it is unlikely that any such new technologies will become commercial in the next five to 10 years.

Valuation and sensitivities

Our valuation of LPI is based on the Maricunga project. We consider the first phase of the project, with production of 15.2ktpa of carbonate over 20 years supported by the OCC concessions and key operating and cost assumptions outlined in the January 2022 DFS, as a base case valuation scenario. To this, we add the value of the remaining lithium resources represented by the Litio 1–6 concessions. Given the difficulty in selecting an appropriate peer group (different types of projects/products, different development stages and regional exposures), we chose to use the company’s current EV/resource multiple, which we have discounted by 25% to account for the permitting uncertainty, as an appropriate approach to the Litio 1–6 resource valuation. We have also considered the valuation of the 20ktpa project supported by the combined OCC and Litio 1–6 resources with operating parameters provided in the 2019 DFS.

Our NPV of the Maricunga project is based on the discounted cash flow to equity holders (DCFE) and takes into account potential equity dilution. This approach assumes that the company pays out all free cash flow after debt repayments as a theoretical dividend to equity holders. We note that LPI owns 51.6% of the project and accounts for it on an equity basis. For the purpose of our valuation, we have assumed that development funding is split 60%/40% between debt and equity and that the equity portion of funding is provided by the owners of the project on a pro rata basis, while debt is raised at a project level. After debt is paid out at the project level, the remaining cash flow is distributed among the three current owners of the project, with LPI receiving its effective 51.6% share.

Based on this approach to funding, our lithium price assumptions and key operating and cost parameters from the 2022 DFS, our base case diluted valuation of LPI is A$0.85/share. We have assumed that the company finances its A$182m equity portion of capex (51.6% of total estimated project equity funding of US$251m) at the prevailing share price of A$0.68 (which implies 266m new shares). Our NPV is based on a 10% discount rate and assumes project start in 2026 (ie three years of construction and one year to raise funds) and a three-year ramp up to full production.

Exhibit 16: Maricunga key financial and valuation assumptions (attributable basis)

 

 

2022 DFS*

2019 DFS*

Project life

Years

20

20

Average annual carbonate production

ktpa

15.2

20.0

Average cash production cost

US$/t

3,864

3,841

Assumed royalty rate

%

3.0

3.0

Total development capex

US$m

626.4

563.5

Debt funding at the project level

US$m

375.8

338.1

Equity funding from LPI

A$m

181.0

164.0

Applied discount rate

%

10

10

Total discounted cash flow

A$m

519.8

695.1

Diluted number of shares

m

614.9

588.2

Diluted equity value to LPI

A$

0.85

1.18

Source: LPI, Edison Investment Research. Note: *2022 DFS is based on the OCC concessions, while 2019 DFS takes into account OCC and Litio 1–6 concessions.

To our NPV based valuation of the company we add the value of the Litio 1–6 lithium resources. LPI currently trades on an EV/Resource multiple (total M&I resource for OCC and Litio 1–6) of A$84.4/t of contained LCE. Assuming a 25% discount, this multiple implies a valuation of A$0.18/share when applied to the Litio 1–6 M&I resource of 0.98mt of LCE. This brings the company’s overall valuation to A$1.02/share.

For illustrative purposes, we have also considered the valuation of the full-scale 20ktpa carbonate project, which was considered in the 2019 DFS. Based on the key operating parameters as outlined in the 2019 study and our long-term carbonate price of US$17,000/t, our diluted valuation of LPI for the larger project is A$1.18/share. We have used a 10% discount rate and therefore applied no risking related to the lack of the required production permits.

Our LPI valuation is most sensitive to changes in the discount rate and long-term carbonate pricing. The main sensitivities for the company’s valuation based on the 15.2ktpa project are shown in the table below. Further, we note that a 10% change in the overall project capex results in a 7% reduction in LPI’s valuation, while a 10% increase in opex leads to a 4% reduction in the NPV. The valuation sensitivities to changes in the funding mix and the share price used to calculate dilution are shown is Exhibit 18.

Exhibit 17: NPV (A$/share) sensitivities to changes in the long-term carbonate price and discount rate

 

Long-term carbonate price, US$/tonne

WACC 

15,000

17,000

19,000

21,000

23,000

25,000

8.0%

0.86

1.05

1.25

1.44

1.64

1.83

10.0%

0.70

0.85

1.01

1.17

1.30

1.48

11.0%

0.63

0.77

0.91

1.06

1.20

1.34

13.0%

0.53

0.64

0.75

0.87

0.99

1.11

15.0%

0.44

0.54

0.63

0.73

0.83

0.93

Source: Edison Investment Research

Exhibit 18: LPI valuation (A$/share) sensitivity to changes in the funding mix and share price

Debt/equity

LPI share price, A$

0.40

0.50

0.60

0.68

0.80

0.90

1.00

30%/70%

0.54

0.63

0.70

0.76

0.83

0.88

0.92

40%/60%

0.57

0.65

0.73

0.78

0.85

0.90

0.94

50%/50%

0.60

0.69

0.76

0.81

0.87

0.92

0.96

60%/40%

0.65

0.73

0.80

0.85

0.90

0.95

0.98

70%/30%

0.71

0.79

0.85

0.89

0.94

0.98

1.01

80%/30%

0.79

0.86

0.91

0.95

0.99

1.02

1.04

Source: Edison Investment Research

In addition to the above sensitivities, the royalty rate potentially payable on carbonate sales represents a significant uncertainty in the project’s economics and valuation. The company believes that because the project is based on the OCC concessions that were formed according to the old Chilean mining code, it should not be subject to any special royalty or lease payments regimes. Even though according to the current tax regime applicable in Chile, the specific mining tax rate for the project should be 1.2%, the 2022 DFS assumes a royalty rate of 3.0% payable on carbonate sales. This is also our base case assumption. The study notes that at present Chile is considering a number of options aiming at increasing royalties payable by mining companies. These options include a 3% rate on net sales and a 5% royalty on mining margin (defined as net profit excluding interest expense). Based on our model the latter is equivalent to a 2.4% sales-based royalty rate. We note that a 1pp change in our royalty rate assumption lowers our base case NPV valuation of LPI by only 1.4%. The valuation sensitivity to royalty payments is moderate due to the project’s high profitability.

Financials

As of June 2021 (FY21), LPI reported cash of A$6.3m. Since the period end the company raised A$11.8m in net equity and sold its 70% interest in the lithium exploration properties in the Centenario salar in Argentina for A$1.2m. As a result, the company had a cash position of A$15.4m at the December quarter end. We estimate that LPI will end FY22 with cash of A$12.9m, which we believe should be sufficient to get it through the FID and potentially fund it up to the development stage. The company’s main cash outflows are its investments in the JV as well as corporate overheads. In FY21, LPI spent A$6.5m in payments to the JV capital and burnt A$2.2m in employee and admin expenses.

If the project development goes according to the current plan with the FID in 2022 and construction start in 2023, the JV will have to secure a funding package in 2022. As part of this package, we expect debt financing to be raised at the project level and to potentially coincide with securing an offtake. This leaves c US$250m to be raised in total equity. Out of this amount, we would expect LPI to contribute its 51.6% share, which equates to c A$181m over 2023–26. Based on the current share price, this represents a dilution of c 43%.

Overall, we expect the project to be highly cash generative. Based on our long-term lithium carbonate price assumption of US$17,000/t and cost assumptions as outlined in the DFS (direct cash cost of US$3,864/t and total cash cost of US$4,230/t including 1.2% royalty), we expect the project to generate average EBITDA of c US$167m per annum.

Risks and sensitivities

We see a number of risks attached to the company and the Maricunga project. These include lithium pricing, project economics and funding, as well as the political situation and the overall lithium extraction regulations in Chile. We have discussed the key financial and valuation sensitivities above.

We believe the main risk associated with the project is the uncertain political situation in Chile. Following the recent presidential elections, Chile’s constituent assembly is debating motions for a new constitution, which could significantly alter the existing mining legislation. Some of the proposals include nationalisation of the large copper and lithium projects and a radical change in taxation aiming at increasing royalty payments. There is also a risk the concessions in the excluded areas can be revoked. The country is expected to vote on the new constitution later this year; however, there is no exact timing on this and it could be a protracted process that will continue affecting the investment climate.

At present the only two lithium producing operations in Chile are run by SQM and Albemarle. Both companies make significant financial contributions for their right to operate in the Atacama Salar. Earlier it was reported that the country announced an auction process to award five special operating licences to explore and produce 400,000t of lithium. While two of these licences were awarded to BYD and a local company, each offering to pay c US$60m, it was subsequently announced that the results of these auctions were suspended by a Chilean court. This underscores the opposition to lithium extraction in Chile, both from environmental and political points of view.

While the Maricunga project is at a relatively advanced stage and noting a non-binding MOU with Mitsui, it is yet to secure a binding offtake or a strategic partner within the battery value chain. We note that the use of the salt removal plant is new in lithium brine processing, although the design of the plant is based on established technology and the use of evaporators and crystallisers is common in the chemical industry. The process was developed by GEA Messo (a well-known German engineering company), and according to the BFS was able to produce battery-grade carbonate from Maricunga’s brine (in particular, the original samples produced in 2018 indicated a 99.5% purity). The JV has undertaken a series of product tests at a semi pilot plant scale. However, given the novel processing approach for brines, additional product testing might be required to secure the offtake.

Exhibit 19: Financial summary

A$'000

2019

2020

2021

2022e

2023e

June YE

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

0.0

0.0

0.0

0.0

0.0

Operating costs

(3,014.7)

(2,942.3)

(2,448.0)

(2,652.0)

(3,000.0)

EBIT from continuing operations

 

(3,014.7)

(2,942.3)

(2,448.0)

(2,652.0)

(3,000.0)

Share of JV losses/profits

(9,108.0)

(3,786.9)

(1,967.3)

(1,900.0)

(2,000.0)

Net financing costs

241.7

183.6

8.2

0.0

0.0

Forex

1,816.5

(6,203.2)

(1,573.2)

(3,000.0)

0.0

Profit Before Tax

 

(10,064.5)

(12,748.8)

(5,980.3)

(7,552.0)

(5,000.0)

Tax

(147.5)

0.0

0.0

0.0

0.0

Profit After Tax

 

(9,917.0)

(12,748.8)

(5,980.3)

(7,552.0)

(5,000.0)

Minority interests

(57.5)

(95.7)

(57.3)

183.0

0.0

Discontinued operations

0.0

(319.2)

(191.1)

1,530.3

0.0

Net income

 

(10,154.4)

(12,972.2)

(6,114.1)

(6,204.7)

(5,000.0)

Basic average number of shares outstanding (m)

262

263

283

325

363

EPS, c

 

(3.87)

(4.94)

(2.16)

(1.91)

(1.38)

Dividend, c

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

N/A

N/A

N/A

N/A

N/A

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

Normalised Operating Margin

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

33,157.7

29,300.8

32,696.3

34,661.3

52,323.1

Equity investments

30,124.0

25,074.9

28,594.9

31,094.9

48,056.8

PP&E

147.9

26.4

24.2

24.2

24.2

Exploration assets

2,885.8

4,199.4

4,077.2

3,542.1

4,242.1

Current Assets

 

15,650.6

7,391.8

6,802.0

13,145.9

9,445.9

Cash

15,341.5

7,141.6

6,280.7

12,941.2

9,241.2

Receivables

125.2

74.7

16.3

16.3

16.3

Other

183.9

175.5

188.4

188.4

188.4

Assets held for sale

0.0

0.0

316.7

0.0

0.0

Current Liabilities

 

(308.6)

(336.0)

(359.1)

(404.2)

(404.2)

Creditors

(250.4)

(293.8)

(322.2)

(322.2)

(322.2)

Short term borrowings and leases

(58.3)

(42.2)

(36.9)

(82.1)

(82.1)

Long Term Liabilities

 

0.0

0.0

0.0

0.0

0.0

Net Assets

 

48,499.7

36,356.5

39,139.3

47,402.9

61,364.8

Minority interests

(153.8)

(187.1)

(183.0)

0.0

0.0

Shareholders' equity

 

48,653.5

36,543.6

39,322.3

47,402.9

61,364.8

CASH FLOW

Profit after tax

(10,211.9)

(13,067.9)

(6,171.4)

(6,021.7)

(5,000.0)

JV contribution

9,108.0

3,786.9

1,967.3

1,900.0

2,000.0

Forex

(636.0)

6,503.3

1,479.6

3,000.0

0.0

Other

113.9

853.5

382.2

(148.1)

0.0

Net operating cash flow

 

(1,626.0)

(1,924.3)

(2,342.4)

(1,269.7)

(3,000.0)

Payments for JV capital

(5,297.0)

(5,173.5)

(6,524.7)

(4,400.0)

(18,961.8)

Exploration

(952.3)

(1,202.2)

(205.8)

(700.0)

(700.0)

Equity financing

0.0

100.0

7,789.6

11,765.0

18,961.8

Other

(147.7)

0.0

452.6

1,235.1

0.0

Net Cash Flow

(8,023.0)

(8,199.9)

(830.7)

6,630.3

(3,700.0)

Opening net debt/(cash)

 

(23,364.5)

(15,341.5)

(7,141.6)

(6,280.7)

(12,941.2)

FX and other

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

(15,341.5)

(7,141.6)

(6,280.7)

(12,941.2)

(9,241.2)

Source: LPI, Edison Investment Research

Contact details

Revenue by geography

Level 7
151 Macquarie Street
Sydney
NSW 2000
Australia
info@lithiumpowerinternational.com

N/A

Contact details

Level 7
151 Macquarie Street
Sydney
NSW 2000
Australia
info@lithiumpowerinternational.com

Revenue by geography

N/A

Management team

CEO: Cristobal Garcia-Huidobro

Chairman: David Hannon

Cristobal Garcia-Huidobro is a civil engineer with more than 18 years’ experience of developing and financing in mining, energy, infrastructure, finance and property projects. He led MSB’s exploration and development programme for the Maricunga Salar. Mr Garcia-Huidobro was formerly the CIO of CENTINELA, an investment company with a significant portfolio under management worldwide. He also served as board and committee member on a number of mining, property and agricultural funds in North and South America.

David Hannon is the founding shareholder of LPI and has more than 30 years’ experience in the finance industry with a focus on property, mining and international investing. He was founding director and former chairman of Atlas Iron, which grew to a more than A$3bn market capitalisation. Mr Hannon has operated a private investment group, Chifley Investor Group Pty, for over 15 years.

CFO, executive director: Andrew Phillips

Chief Development Officer (MSB): Tarek Halasa

Andrew Phillips has more than 25 years’ commercial, financial and corporate governance experience internationally. He previously held senior management and board positions in several public and multinational companies including Aristocrat, Allianz, Hoya Lens and Sequoia Financial Group and has additional board experience in the small-cap resources sector. Mr Phillips is also the company secretary of LPI.

Tarek Halasa is a civil engineer with 17 years of international experience, specialising in project and cost management, feasibility studies and subcontractor management. Previously he held the role of construction coordinator for Bechtel for the past eight years, working on projects for BHP, Xstrata, Anglo, and BP.

Management team

CEO: Cristobal Garcia-Huidobro

Cristobal Garcia-Huidobro is a civil engineer with more than 18 years’ experience of developing and financing in mining, energy, infrastructure, finance and property projects. He led MSB’s exploration and development programme for the Maricunga Salar. Mr Garcia-Huidobro was formerly the CIO of CENTINELA, an investment company with a significant portfolio under management worldwide. He also served as board and committee member on a number of mining, property and agricultural funds in North and South America.

Chairman: David Hannon

David Hannon is the founding shareholder of LPI and has more than 30 years’ experience in the finance industry with a focus on property, mining and international investing. He was founding director and former chairman of Atlas Iron, which grew to a more than A$3bn market capitalisation. Mr Hannon has operated a private investment group, Chifley Investor Group Pty, for over 15 years.

CFO, executive director: Andrew Phillips

Andrew Phillips has more than 25 years’ commercial, financial and corporate governance experience internationally. He previously held senior management and board positions in several public and multinational companies including Aristocrat, Allianz, Hoya Lens and Sequoia Financial Group and has additional board experience in the small-cap resources sector. Mr Phillips is also the company secretary of LPI.

Chief Development Officer (MSB): Tarek Halasa

Tarek Halasa is a civil engineer with 17 years of international experience, specialising in project and cost management, feasibility studies and subcontractor management. Previously he held the role of construction coordinator for Bechtel for the past eight years, working on projects for BHP, Xstrata, Anglo, and BP.

Principal shareholders

(%)

HSBC Custody Nominees

10.2

Chifley Portfolios

6.2

Treasury Services Group/Nero Resources Fund

5.0

Citicorp Nominees

5.0

UBS Nominees

4.8

Minera Salar Blanco

4.7


General disclaimer and copyright

This report has been commissioned by Lithium Power International and prepared and issued by Edison, in consideration of a fee payable by Lithium Power International. Edison Investment Research standard fees are £60,000 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 2022 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 Lithium Power International and prepared and issued by Edison, in consideration of a fee payable by Lithium Power International. Edison Investment Research standard fees are £60,000 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 2022 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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