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Last close As at 09/06/2023
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▲ −0.02 (−5.71%)
Market capitalisation
AUD208m
Research: Metals & Mining
Lithium Power International (LPI) has announced plans to acquire 100% control of its flagship Maricunga lithium project by way of a three-party all-share merger with the project’s minority owners. The transaction values LPI’s remaining c 48% share in the project at A$90m, which is a significant discount to our project valuation, and allows the company to streamline the project’s ownership structure ahead of the anticipated final investment decision. We have updated our financial model and valuation of LPI to reflect the transaction and the lower share price and associated higher funding dilution. Despite the current weakness in lithium shares against the backdrop of slowing economic growth, lithium prices remain high and the sector’s longer-term fundamentals are intact.
Lithium Power International |
Gaining full control of Maricunga |
Project update |
Metals & mining |
30 June 2022 |
Share price performance
Business description
Next events
Analyst
Lithium Power International is a research client of Edison Investment Research Limited |
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Lithium Power International (LPI) has announced plans to acquire 100% control of its flagship Maricunga lithium project by way of a three-party all-share merger with the project’s minority owners. The transaction values LPI’s remaining c 48% share in the project at A$90m, which is a significant discount to our project valuation, and allows the company to streamline the project’s ownership structure ahead of the anticipated final investment decision. We have updated our financial model and valuation of LPI to reflect the transaction and the lower share price and associated higher funding dilution. Despite the current weakness in lithium shares against the backdrop of slowing economic growth, lithium prices remain high and the sector’s longer-term fundamentals are intact.
Year end |
Revenue (A$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/20 |
0.0 |
(12.7) |
(4.9) |
0.0 |
N/A |
N/A |
06/21 |
0.0 |
(6.0) |
(2.2) |
0.0 |
N/A |
N/A |
06/22e |
0.0 |
(9.6) |
(1.9) |
0.0 |
N/A |
N/A |
06/23e |
0.0 |
(3.3) |
(0.5) |
0.0 |
N/A |
N/A |
Note: *EPS is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Acquiring 100% of the Maricunga project
LPI has announced its intention to merge with MSB SpA and Bearing Lithium, its two minority partners in its flagship Maricunga lithium brine project in Chile. The transaction is structured as a three-party all-share merger and will take place in two independent stages. In the first transaction, MSB SpA will contribute its 31.31% interest to a Delaware company, which will then be acquired by LPI for 161.6m LPI shares. The Bearing Lithium transaction will see LPI issuing 0.7 shares for each Bearing Lithium common share, which in total represents c 76.3m LPI shares (plus up to 18.2m shares for options and warrants). Excluding Bearing Lithium’s dilutive instruments, LPI will issue c 238m new shares (c 41% of the enlarged share capital) for the remaining 48.5% project interest. At the current share price, the deal values LPI’s remaining interest at A$90m (A$186m on a 100% basis), or c A$108m based on the one-month volume-weighted average price (VWAP) of A$0.464. According to the company, the current LPI shareholders will increase their proportionate interest in the project from 51.6% to 57.9%. Both transactions should be approved by LPI shareholders, with completion of the deal targeted for September 2022.
Valuation: Consolidation is a positive step
Our valuation of the Maricunga project remains largely unchanged at A$1.14bn at a 10% discount rate and the long-term carbonate price of US$17,000/t. We have updated our LPI valuation to reflect the change in the ownership structure as well as the reduction in the share price assumed for the dilutive effects of the project’s equity funding. On a diluted basis, our valuation of LPI reduces from A$1.1/share to A$1.0/share. If, as before, we assume that the project is funded at A$0.75/share, our diluted valuation would increase to A$1.3/share (see page 2 for valuation sensitivities). We believe that the announced transaction is positive for LPI as it is value accretive and also allows the company to streamline the project ownership structure ahead of the anticipated investment decision.
Valuation update
Our cash flow based valuation of the Maricunga project remains broadly unchanged as we maintain all our underlying operational and financial assumptions based on the 2022 definitive feasibility study for the 15.2ktpa carbonate operation (see our initiation note for more details), but update slightly the USD/AUD FX rate (1.44 vs 1.40 previously). At the 10% discount rate and the long-term carbonate price of US$17,000/t we value the project at A$1.14bn. At the same time, we have revisited our LPI valuation to reflect the proposed change in ownership structure and recent weakness in the share price in line with the overall lithium sector and broader market. We have previously assumed that at the LPI level Maricunga is accounted for on an equity basis, which was consistent with the company’s current accounting and its 51.6% interest in the project. Consequently, we assumed that the required debt funding (US$376m) was raised at the project level and equity financing (US$250m) was contributed by the project owners on a pro rata basis. Following the repayment of debt at the project level, the remaining cash was expected to be distributed among the three owners, with LPI receiving its effective 51.6% interest.
Given the announced change in ownership, we now assume that LPI fully consolidates and funds the project and therefore retains all the cash flows from the project. Further, given the recent significant volatility in the LPI share price and the lithium sector in general, we now assume that the project’s equity funding is raised at the one-month VWAP of A$0.464/share (which is also used by the company for the transaction). Based on the above assumptions, we now calculate the diluted value of LPI of A$1.0/share (excluding Bearing Lithium’s dilutive instruments). This includes the value of the residual project resources at A$0.1/share and compares to our previous diluted valuation of A$1.1/share. The diluted valuation of the company is highly sensitive to the share price assumptions. We show this sensitivity analysis in Exhibit 1 below. We note that at the previous share price assumption of A$0.75/share, our updated diluted valuation of LPI would be A$1.3/share.
Exhibit 1: LPI diluted valuation sensitivity to changes in the share price, A$/share
Project equity to be raised (A$m) |
361 |
361 |
361 |
361 |
361 |
361 |
361 |
361 |
LPI share price (A$) |
0.3 |
0.4 |
0.5 |
0.6 |
0.7 |
0.8 |
0.9 |
1.0 |
Shares to be issued (m) |
1,203 |
902 |
722 |
601 |
515 |
451 |
401 |
361 |
Total number of LPI shares (m) |
1,790 |
1,489 |
1,309 |
1,188 |
1,102 |
1,038 |
988 |
948 |
Total project value (A$m) |
1,168 |
1,168 |
1,168 |
1,168 |
1,168 |
1,168 |
1,168 |
1,168 |
Diluted value of the project |
0.7 |
0.8 |
0.9 |
1.0 |
1.1 |
1.1 |
1.2 |
1.2 |
Value of additional resources |
0.1 |
0.1 |
0.1 |
0.2 |
0.2 |
0.2 |
0.2 |
0.3 |
Total diluted valuation of LPI |
0.7 |
0.9 |
1.0 |
1.1 |
1.2 |
1.3 |
1.4 |
1.5 |
Source: Edison Investment Research
The value of the project and the company is also highly sensitive to changes in the discount rate and carbonite price assumptions. We show these sensitivities in the table below.
Exhibit 2: Project valuation sensitivity to changes in lithium price and discount rate (A$/share)
|
Long-term carbonate price, US$/tonne |
|||||
Discount rate |
15,000 |
17,000 |
19,000 |
21,000 |
23,000 |
25,000 |
8.0% |
0.92 |
1.09 |
1.25 |
1.42 |
1.59 |
1.76 |
10.0% |
0.72 |
0.85 |
0.99 |
1.13 |
1.26 |
1.40 |
11.0% |
0.64 |
0.76 |
0.89 |
1.01 |
1.13 |
1.26 |
13.0% |
0.51 |
0.61 |
0.72 |
0.82 |
0.92 |
1.02 |
15.0% |
0.41 |
0.50 |
0.59 |
0.67 |
0.75 |
0.84 |
Source: Edison Investment Research
Exhibit 3: Financial summary
A$'000s |
2020 |
2021 |
2022e |
2023e |
||
Year end June |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
Operating costs |
(2,942.3) |
(2,448.0) |
(3,552.0) |
(3,250.0) |
||
EBIT from continuing operations |
|
(2,942.3) |
(2,448.0) |
(3,552.0) |
(3,250.0) |
|
Share of JV losses/profits |
(3,786.9) |
(1,967.3) |
(3,000.0) |
0.0 |
||
Net financing costs |
183.6 |
8.2 |
0.0 |
0.0 |
||
Forex |
(6,203.2) |
(1,573.2) |
(3,000.0) |
0.0 |
||
Profit Before Tax (norm) |
|
|
(12,748.8) |
(5,980.3) |
(9,552.0) |
(3,250.0) |
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax |
|
|
(12,748.8) |
(5,980.3) |
(9,552.0) |
(3,250.0) |
Minority interests |
(95.7) |
(57.3) |
183.0 |
0.0 |
||
Discontinued operations |
(319.2) |
(191.1) |
1,530.3 |
0.0 |
||
Net income |
|
|
(12,972.2) |
(6,114.1) |
(8,204.7) |
(3,250.0) |
Average Number of Shares Outstanding (m) |
263 |
283 |
444 |
628 |
||
EPS - normalised (c) |
|
|
(4.94) |
(2.16) |
(1.85) |
(0.52) |
Dividend, c |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
N/A |
N/A |
N/A |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Normalised Operating Margin |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
29,300.8 |
32,696.3 |
146,646.9 |
241,391.1 |
Equity investments |
25,074.9 |
28,594.9 |
0.0 |
0.0 |
||
PP&E |
26.4 |
24.2 |
143,004.7 |
237,499.0 |
||
Exploration assets |
4,199.4 |
4,077.2 |
3,642.1 |
3,892.1 |
||
Current Assets |
|
|
7,391.8 |
6,802.0 |
9,545.9 |
6,045.9 |
Cash |
7,141.6 |
6,280.7 |
9,341.2 |
5,841.2 |
||
Receivables |
74.7 |
16.3 |
16.3 |
16.3 |
||
Other |
175.5 |
188.4 |
188.4 |
188.4 |
||
Assets held for sale |
0.0 |
316.7 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(336.0) |
(359.1) |
(404.2) |
(404.2) |
Creditors |
(293.8) |
(322.2) |
(322.2) |
(322.2) |
||
Short term borrowings and leases |
(42.2) |
(36.9) |
(82.1) |
(82.1) |
||
Long Term Liabilities |
|
|
0.0 |
0.0 |
0.0 |
(56,696.5) |
Debt |
0 |
0 |
0 |
(56,696.5) |
||
Net Assets |
|
|
36,356.5 |
39,139.3 |
155,788.5 |
190,336.2 |
Minority interests |
(187.1) |
(183.0) |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
36,543.6 |
39,322.3 |
155,788.5 |
190,336.2 |
CASH FLOW |
||||||
Operating Cash Flow |
(13,067.9) |
(6,171.4) |
(8,021.7) |
(3,250.0) |
||
JV contribution |
3,786.9 |
1,967.3 |
3,000.0 |
0.0 |
||
Forex |
6,503.3 |
1,479.6 |
3,000.0 |
0.0 |
||
Other |
853.5 |
382.2 |
(148.1) |
0.0 |
||
Net operating cash flow |
|
|
(1,924.3) |
(2,342.4) |
(2,169.7) |
(3,250.0) |
Payments for JV capital |
(5,173.5) |
(6,524.7) |
(7,000.0) |
(94,494.2) |
||
Exploration |
(1,202.2) |
(205.8) |
(800.0) |
(250.0) |
||
Equity financing |
100.0 |
7,789.6 |
11,765.0 |
37,797.7 |
||
Other |
0.0 |
452.6 |
1,235.1 |
0.0 |
||
Net Cash Flow |
(8,199.9) |
(830.7) |
3,030.3 |
(60,196.5) |
||
Opening net debt/(cash) |
|
|
(15,341.5) |
(7,141.6) |
(6,280.7) |
(9,341.2) |
FX and other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(7,141.6) |
(6,280.7) |
(9,341.2) |
50,855.3 |
Source: Lithium Power International, Edison Investment Research
|
|
Research: Industrials
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