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Research: Metals & Mining
On 28 May, Lepidico (LPD) announced the results of its Association of the Advancement of Cost Engineering (AACE) class three (definitive) feasibility study (DFS) on its integrated Karibib mining/chemical plant project to produce 4,900tpa of battery grade lithium hydroxide (monohydrate) plus high value, Group 1 metal by-products over 14 years. At a lithium hydroxide price of US$13,669/t (cf US$10,350–11,200/t currently), the DFS calculated a project NPV8 of US$221m, or A$340m (A$0.066/share) and an IRR of 31% after initial capex of US$139m (including a 13.6% contingency). C1 cash costs were estimated to a ±15% level of accuracy at US$1,656/t lithium carbonate equivalent (LCE) and all-in sustaining costs at US$3,221/t LCE – putting it near the bottom of the known LiOH cost curve. A comprehensive review of the DFS is now planned, which will be reported on in due course.
Lepidico |
Developing to the (L-)Max |
Feasibility study results |
Metals & mining |
29 May 2020 |
Share price performance
Business description
Next events
Analyst
Lepidico is a research client of Edison Investment Research Limited |
On 28 May, Lepidico (LPD) announced the results of its Association of the Advancement of Cost Engineering (AACE) class three (definitive) feasibility study (DFS) on its integrated Karibib mining/chemical plant project to produce 4,900tpa of battery grade lithium hydroxide (monohydrate) plus high value, Group 1 metal by-products over 14 years. At a lithium hydroxide price of US$13,669/t (cf US$10,350–11,200/t currently), the DFS calculated a project NPV8 of US$221m, or A$340m (A$0.066/share) and an IRR of 31% after initial capex of US$139m (including a 13.6% contingency). C1 cash costs were estimated to a ±15% level of accuracy at US$1,656/t lithium carbonate equivalent (LCE) and all-in sustaining costs at US$3,221/t LCE – putting it near the bottom of the known LiOH cost curve. A comprehensive review of the DFS is now planned, which will be reported on in due course.
Year end |
Total revenues (A$m) |
PBT |
Cash from operations (A$m) |
Net cash/(debt)* (A$m) |
Capex |
6/18 |
0.2 |
(7.2) |
(3.0) |
4.9 |
(3.1) |
6/19 |
0.0 |
(5.1) |
(3.5) |
10.4 |
(6.3) |
6/20e |
0.0 |
(8.4) |
(15.1) |
56.5 |
(7.4) |
6/21e |
0.0 |
(3.0) |
(2.7) |
(66.1) |
(119.9) |
Note: PBT is normalised, excluding amortisation of acquired intangibles and exceptional items. *Includes Desert Lion Energy convertible.
Immediate 2.5x upside
The DFS’s calculated NPV8 of 6.6c/share may be directly compared to the non-diluting price of future equity funding calculated in our last report (Valuation update pending feasibility study, 6 April 2020) of 9.99c/share, albeit our estimate was based on estimated numbers for a project that had been materially re-scoped (eg the acquisition of Desert Lion Energy in July 2019 and the integration of Karibib into Lepidico’s L-Max project development plans). Nevertheless, in our report, Gold stars and black holes, published in January 2019, we calculated a mean EV for companies with projects at the bankable feasibility study/DFS stage of development of 30.9% of project NPV (ranging up to 133.5%). This alone would imply a valuation for Lepidico of 2.0c/share (ranging up to 8.8c/share) plus cash (we estimate A$4.9m, or 0.09c/share as at end-May) cf LPD’s current share price of 0.8c/share.
Valuation: longer-term 5.6x upside
The Karibib project is already fully permitted under a granted mining licence and its development has been materially de-risked by Lepidico’s earlier running of a pilot plant campaign to test L-Max and LOH-Max in continuous production. Within this context, LPD is currently investigating funding and offtake options for its project prior to making a final investment decision in May 2021. Based on the advice of specialist debt advisors, it is aiming for a debt:equity ratio in the range 60–70:40–30. Assuming 40% equity funding would require the company to raise c A$86m, which could be achieved by issuing 4,277m shares at 2.0c/share, such that the resulting company valuation of A$426m (A$86m plus A$340m NPV8 project valuation) would equate to 4.5c per (fully diluted) share (or 5.2c if equity is raised as 2.9cps as previously). Note that this valuation does not attribute any value to Lepidico from a Phase 2 Plant or any other development options (such as gold).
Exhibit 1: Financial summary
Accounts: IFRS, year end June, A$000s |
|
|
2015 |
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
Total revenues |
|
|
9 |
116 |
127 |
171 |
2 |
0 |
0 |
Cost of sales |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Gross profit |
|
|
9 |
116 |
127 |
171 |
2 |
0 |
0 |
SG&A (expenses) |
|
|
(455) |
(617) |
(912) |
(5,284) |
(4,006) |
(7,001) |
(3,146) |
Other income/(expense) |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Exceptionals and adjustments |
Exceptionals |
|
(16) |
(415) |
(878) |
(2,171) |
(1,150) |
(1,331) |
0 |
Depreciation and amortisation |
|
|
(5) |
(6) |
(6) |
(6) |
(8) |
(163) |
(163) |
Reported EBIT |
|
|
(467) |
(923) |
(1,670) |
(7,290) |
(5,162) |
(8,496) |
(3,309) |
Finance income/(expense) |
|
|
(18) |
(5) |
128 |
70 |
57 |
52 |
283 |
Other income/(expense) |
|
|
(559) |
(448) |
(3,815) |
0 |
0 |
0 |
0 |
Exceptionals and adjustments |
Exceptionals |
|
0 |
(888) |
0 |
0 |
0 |
0 |
0 |
Reported PBT |
|
|
(1,044) |
(2,263) |
(5,357) |
(7,220) |
(5,105) |
(8,444) |
(3,027) |
Income tax expense (includes exceptionals) |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Reported net income |
|
|
(1,044) |
(2,263) |
(5,357) |
(7,220) |
(5,105) |
(8,444) |
(3,027) |
Basic average number of shares (m) |
|
|
178 |
465 |
1,802 |
2,624 |
3,272 |
5,630 |
6,888 |
Basic EPS (c) |
|
|
(0.0) |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
|
|
|
|
|
|
|
|
|
|
Balance sheet |
|
|
|||||||
Property, plant and equipment |
|
|
9 |
4 |
8 |
27 |
18,487 |
24,907 |
144,597 |
Goodwill |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Intangible assets |
|
|
0 |
16,204 |
16,698 |
19,027 |
22,925 |
22,925 |
22,925 |
Other non-current assets |
|
|
1,485 |
715 |
1,620 |
730 |
9,001 |
8,181 |
8,181 |
Total non-current assets |
|
|
1,494 |
16,922 |
18,326 |
19,783 |
50,414 |
56,013 |
175,704 |
Cash and equivalents |
|
|
53 |
650 |
3,307 |
4,860 |
13,660 |
59,802 |
59,802 |
Inventories |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Trade and other receivables |
|
|
4 |
3,886 |
706 |
712 |
1,869 |
0 |
0 |
Other current assets |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Total current assets |
|
|
57 |
4,537 |
4,013 |
5,572 |
15,529 |
59,802 |
59,802 |
Non-current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
3,276 |
3,276 |
125,876 |
Other non-current liabilities |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Total non-current liabilities |
|
|
0 |
0 |
0 |
0 |
3,276 |
3,276 |
125,876 |
Trade and other payables |
|
|
105 |
614 |
1,663 |
804 |
10,940 |
142 |
259 |
Current loans and borrowings |
|
|
115 |
0 |
0 |
0 |
0 |
0 |
0 |
Other current liabilities |
|
|
40 |
33 |
46 |
51 |
86 |
86 |
86 |
Total current liabilities |
|
|
260 |
647 |
1,709 |
856 |
11,026 |
227 |
344 |
Equity attributable to company |
|
|
1,292 |
20,812 |
20,630 |
24,500 |
53,252 |
113,922 |
110,895 |
Non-controlling interest |
|
|
0 |
0 |
0 |
0 |
(1,610) |
(1,610) |
(1,610) |
|
|
|
|
|
|
|
|
|
|
Cash-flow statement |
|
|
|||||||
Profit for the year |
|
|
(1,044) |
(2,263) |
(5,357) |
(7,220) |
(5,105) |
(8,444) |
(3,027) |
Taxation expenses |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Depreciation and amortisation |
|
|
5 |
6 |
6 |
6 |
8 |
163 |
163 |
Share based payments |
|
|
450 |
40 |
1,736 |
2,138 |
520 |
511 |
0 |
Other adjustments |
|
|
(451) |
1,036 |
(162) |
2,066 |
664 |
1,641 |
0 |
Movements in working capital |
|
|
(10) |
132 |
133 |
(28) |
410 |
(8,930) |
117 |
Interest paid / received |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Income taxes paid |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Cash from operations (CFO) |
|
|
(1,050) |
(1,049) |
(3,644) |
(3,038) |
(3,504) |
(15,059) |
(2,747) |
Capex |
|
|
(9) |
(63) |
(861) |
(3,057) |
(6,251) |
(7,403) |
(119,854) |
Acquisitions & disposals net |
|
|
0 |
32 |
122 |
110 |
0 |
0 |
0 |
Other investing activities |
|
|
(563) |
(80) |
0 |
0 |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(572) |
(111) |
(739) |
(2,947) |
(6,251) |
(7,403) |
(119,854) |
Net proceeds from issue of shares |
|
|
1,505 |
1,872 |
7,040 |
7,555 |
18,462 |
68,603 |
0 |
Movements in debt |
|
|
100 |
(115) |
0 |
0 |
0 |
0 |
122,600 |
Other financing activities |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Cash from financing activities (CFF) |
|
|
1,605 |
1,757 |
7,040 |
7,555 |
18,462 |
68,603 |
122,600 |
Increase/(decrease) in cash and equivalents |
|
|
(18) |
597 |
2,657 |
1,570 |
8,707 |
46,142 |
0 |
Currency translation differences and other |
|
|
0 |
0 |
0 |
(17) |
93 |
0 |
0 |
Cash and equivalents at end of period |
|
|
53 |
650 |
3,307 |
4,860 |
13,660 |
59,802 |
59,802 |
Net (debt)/cash |
|
|
(61) |
650 |
3,307 |
4,860 |
10,385 |
56,526 |
(66,074) |
Movement in net (debt)/cash over period |
|
|
(61) |
711 |
2,657 |
1,553 |
5,525 |
46,142 |
(122,600) |
Source: Company reports and accounts, Edison Investment Research. Note: FY19 balance sheet is Lepidico’s stated balance sheet consolidated with Edison’s estimate of Desert Lion’s balance sheet as at 30 June 2019, converted into Australian dollars.
|
|
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