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Research: Metals & Mining
On 10 October, Lepidico (LPD) announced that Galaxy Resources had agreed to subscribe for a 12% strategic shareholding in Lepidico via a private placement of 291.8m shares at a price of A$0.01/share to raise A$2.9m. At the same time, LPD is also offering existing shareholders the opportunity to invest alongside Galaxy on the same financial terms, via a 1-for-6 partially underwritten renounceable entitlement offer (effectively a rights issue) at A$0.01/share to raise up to an additional c A$4m. Total gross proceeds of up to A$7.0m will be used to fund LPD’s Phase 1 L-Max full feasibility study through to final investment decision as well as advancing Lepidico’s resource development and exploration activities.
Lepidico |
Forges Galaxy relationship |
Funds for L-Max study raised |
Metals & mining |
13 October 2017 |
Share price performance
Business description
Next events
Analysts
Lepidico is a research client of Edison Investment Research Limited |
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On 10 October, Lepidico (LPD) announced that Galaxy Resources had agreed to subscribe for a 12% strategic shareholding in Lepidico via a private placement of 291.8m shares at a price of A$0.01/share to raise A$2.9m. At the same time, LPD is also offering existing shareholders the opportunity to invest alongside Galaxy on the same financial terms, via a 1-for-6 partially underwritten renounceable entitlement offer (effectively a rights issue) at A$0.01/share to raise up to an additional c A$4m. Total gross proceeds of up to A$7.0m will be used to fund LPD’s Phase 1 L-Max full feasibility study through to final investment decision as well as advancing Lepidico’s resource development and exploration activities.
Year end |
Total revenues (A$m) |
PBT* |
Cash from operations (CFO) (A$m) |
Net (debt)/ |
Capex (A$m) |
06/16 |
0.1 |
(2.3) |
(1.0) |
0.7 |
(0.1) |
06/17 |
0.1 |
(5.4) |
(3.6) |
3.3 |
(0.9) |
06/18e |
0.0 |
(3.4) |
(5.7) |
14.0 |
(23.6) |
06/19e |
0.0 |
(5.4) |
(1.6) |
(10.8) |
(23.2) |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Partnering with a global lithium major
Galaxy (GXY) is an international lithium company, listed in Australia, with a market capitalisation of A$1,271m. It owns and operates the James Bay lithium pegmatite project in Quebec and the Mt Cattlin mine at Ravensthorpe in Western Australia, which is currently producing a spodumene and tantalum concentrate. It is also advancing plans to develop the Sal de Vida lithium and potash brine project in the lithium triangle in Argentina (whence 60% of global lithium production is currently sourced). As such, it has been described as the biggest of the non-Big 3 lithium producers. Given its existing contacts and relationships, Galaxy will assist Lepidico with future business and growth opportunities, including evaluating potential synergies with its Mt Cattlin mine and James Bay projects, as well as accessing additional mica feedstock sources for processing via L-Max. In addition to its initial investment, Galaxy has stated that it intends to take up all of its rights in the Entitlement Offer. It will also nominate a representative to LPD’s board.
Valuation: Rises 10% to 2.15c per share
We estimate that execution of the L-Max Phase 1 PFS according to the operational parameters contained therein will result in free cash flow to Lepidico of A$26.8m pa once steady-state production has been achieved. Lepidico’s share price jumped to A$0.015 in the immediate aftermath of its Galaxy announcement. Assuming a total of US$30m (A$38.5m) of equity financing at the prevailing share price (ie a balance of A$31.5m to go), this implies an updated valuation for Lepidico of A$0.0215/share currently (up from A$0. 0.0196/share previously). This rises to A$0.0315 in FY22 (vs A$0.0287 previously), based solely on discounting our estimate of (maximum potential) future dividends to shareholders derived from the Phase 1 plant at a rate of 10% pa (fully diluted), ie no value is yet ascribed to the development of the Phase 2 plant or other development options (see our initiation note, Masterful metallurgy, published on 4 July 2017).
Exhibit 1: Financial summary
Accounts: IFRS, Year-end: June, A$000s |
|
|
2015 |
2016 |
2017 |
2018e |
2019e |
Profit & Loss |
|||||||
Total revenues |
|
|
9 |
116 |
127 |
0 |
0 |
Cost of sales |
|
|
0 |
0 |
0 |
0 |
0 |
Gross profit |
|
|
9 |
116 |
127 |
0 |
0 |
SG&A (expenses) |
|
|
(455) |
(617) |
(912) |
(912) |
(912) |
Other income/(expense) |
|
|
0 |
0 |
0 |
0 |
0 |
Exceptionals and adjustments |
|
(16) |
(415) |
(878) |
0 |
0 |
|
Depreciation and amortisation |
|
(5) |
(6) |
(6) |
(1,702) |
(3,812) |
|
Reported EBIT |
|
(467) |
(923) |
(1,670) |
(2,614) |
(4,724) |
|
Finance income/(expense) |
|
(18) |
(5) |
128 |
17 |
70 |
|
Other income/(expense) |
|
(559) |
(448) |
(3,815) |
(783) |
(783) |
|
Exceptionals and adjustments |
|
0 |
(888) |
0 |
0 |
0 |
|
Reported PBT |
|
|
(1,044) |
(2,263) |
(5,357) |
(3,381) |
(5,437) |
Income tax expense (includes exceptionals) |
|
|
0 |
0 |
0 |
0 |
0 |
Reported net income |
|
|
(1,044) |
(2,263) |
(5,357) |
(3,381) |
(5,437) |
Basic average number of shares, m |
|
|
178 |
465 |
1,802 |
3,372 |
4,708 |
Basic EPS (A$) |
|
|
(0.0) |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
|
|
|
|
|
|
|
|
Balance sheet |
|
|
|||||
Property, plant and equipment |
|
|
9 |
4 |
8 |
18,654 |
38,051 |
Goodwill |
|
|
0 |
0 |
0 |
0 |
0 |
Intangible assets |
|
|
0 |
16,204 |
16,698 |
19,909 |
19,909 |
Other non-current assets |
|
|
1,485 |
715 |
1,620 |
4,831 |
4,831 |
Total non-current assets |
|
|
1,494 |
16,922 |
18,326 |
43,394 |
62,791 |
Cash and equivalents |
|
|
53 |
650 |
3,307 |
13,986 |
13,986 |
Inventories |
|
|
0 |
0 |
0 |
0 |
0 |
Trade and other receivables |
|
|
4 |
3,886 |
706 |
0 |
0 |
Other current assets |
|
|
0 |
0 |
0 |
0 |
0 |
Total current assets |
|
|
57 |
4,537 |
4,013 |
13,986 |
13,986 |
Non-current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
24,835 |
Other non-current liabilities |
|
|
0 |
0 |
0 |
0 |
0 |
Total non-current liabilities |
|
|
0 |
0 |
0 |
0 |
24,835 |
Trade and other payables |
|
|
105 |
614 |
1,663 |
139 |
139 |
Current loans and borrowings |
|
|
115 |
0 |
0 |
0 |
0 |
Other current liabilities |
|
|
40 |
33 |
46 |
46 |
46 |
Total current liabilities |
|
|
260 |
647 |
1,709 |
185 |
185 |
Equity attributable to company |
|
|
1,292 |
20,812 |
20,630 |
57,195 |
51,757 |
Non-controlling interest |
|
|
0 |
0 |
0 |
0 |
0 |
|
|
|
|
|
|
|
|
Cash flow statement |
|
|
|||||
Profit for the year |
|
|
(1,044) |
(2,263) |
(5,357) |
(3,381) |
(5,437) |
Taxation expenses |
|
|
0 |
0 |
0 |
0 |
0 |
Depreciation and amortisation |
|
|
5 |
6 |
6 |
1,702 |
3,812 |
Share based payments |
|
|
450 |
40 |
1,736 |
0 |
0 |
Other adjustments |
|
|
(451) |
1,036 |
(162) |
(3,211) |
0 |
Movements in working capital |
|
|
(10) |
132 |
133 |
(818) |
0 |
Interest paid / received |
|
|
0 |
0 |
0 |
0 |
0 |
Income taxes paid |
|
|
0 |
0 |
0 |
0 |
0 |
Cash from operations (CFO) |
|
|
(1,050) |
(1,049) |
(3,644) |
(5,708) |
(1,626) |
Capex |
|
|
(9) |
(63) |
(861) |
(23,559) |
(23,209) |
Acquisitions & disposals net |
|
|
0 |
32 |
122 |
0 |
0 |
Other investing activities |
|
|
(563) |
(80) |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(572) |
(111) |
(739) |
(23,559) |
(23,209) |
Net proceeds from issue of shares |
|
|
1,505 |
1,872 |
7,040 |
*39,946 |
0 |
Movements in debt |
|
|
100 |
(115) |
0 |
0 |
24,835 |
Other financing activities |
|
|
0 |
0 |
0 |
0 |
0 |
Cash from financing activities (CFF) |
|
|
1,605 |
1,757 |
7,040 |
39,946 |
24,835 |
Increase/(decrease) in cash and equivalents |
|
|
(18) |
597 |
2,657 |
10,679 |
0 |
Currency translation differences and other |
|
|
0 |
0 |
0 |
0 |
0 |
Cash and equivalents at end of period |
|
|
53 |
650 |
3,307 |
13,986 |
13,986 |
Net (debt) cash |
|
|
(61) |
650 |
3,307 |
13,986 |
(10,849) |
Movement in net (debt) cash over period |
|
|
(61) |
711 |
2,657 |
10,679 |
(24,835) |
Source: Company sources, Edison Investment Research. Note: *Assumes additional A$31.5m equity raise in FY18 to fund L-Max Phase 1 capex.
|
|
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