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Research: Metals & Mining
Lithium Power International’s (LPI’s) Q322 activities report suggests continued progress on its 52%-owned Maricunga lithium project in Chile. The company has also confirmed its plans to demerge its Western Australia (WA) lithium assets by the end of CY22. We have updated our estimates slightly to bring them in line with the reported cash spend. Our valuation increases to A$1.1/share, due to the implied lower forecast project equity dilution. The planned lithium assets spin-off should crystalise additional value for shareholders.
Lithium Power International |
Maricunga progress and WA asset demerger |
Quarterly update |
Metals and mining |
4 May 2022 |
Share price performance
Business description
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Analyst
Lithium Power International is a research client of Edison Investment Research Limited |
Lithium Power International’s (LPI’s) Q322 activities report suggests continued progress on its 52%-owned Maricunga lithium project in Chile. The company has also confirmed its plans to demerge its Western Australia (WA) lithium assets by the end of CY22. We have updated our estimates slightly to bring them in line with the reported cash spend. Our valuation increases to A$1.1/share, due to the implied lower forecast project equity dilution. The planned lithium assets spin-off should crystalise additional value for shareholders.
Year end |
Revenue (A$m) |
PBT* |
EPS* |
DPS |
P/E |
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 |
(9.6) |
(2.52) |
0.0 |
N/A |
N/A |
06/23e |
0.0 |
(5.3) |
(1.45) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Maricunga project update
Following the release of the revised 15.2ktpa BFS in early 2022, LPI is working with Worley and Bechtel to update the EPC proposals for the project, aiming to obtain the final proposal at around mid-2022. According to LPI, Mitsui has advanced its due diligence process and is likely to progress with a non-binding off-take agreement. The company reported additional third-party interest from potential partners. LPI has also initiated further product tests with the project’s technical engineering partner GEA Messo, targeting to produce up to 10kg of battery-grade carbonate. A final investment decision on the project is expected in Q4 CY22.
WA lithium assets spin-off
The company has confirmed its intention to spin-off its WA lithium assets by the end of the year. The demerged assets will be listed on the ASX as Western Lithium, with shares distributed among the current LPI shareholders on a pro-rata basis. LPI’s WA lithium assets are early-stage, pre-resource hard rock deposits that are adjacent to the currently producing lithium operations. LPI has also reported net cash of A$10.6m at end Q322. We have updated our cash flow estimates slightly to bring them in line with the reported cash spend and expect end FY22 net cash of A$9.1m (versus A$12.9m before), mainly due to the higher project spend in Q3.
Valuation: Supportive lithium prices
Our valuation of LPI increases from A$1.02 to A$1.1/share, thanks to the higher LPI share price, which implies lower estimated project equity dilution. We do not attribute any value to LPI’s WA lithium assets due to their early stage and expect the proposed demerger to unlock additional value for LPI shareholders. Despite the current equity and commodity market weakness, the LPI shares remain well supported by the resilient lithium prices, favourable long-term lithium market fundamentals and the company’s continued progress on the Maricunga project.
Exhibit 1: Financial summary
A$'000s |
2020 |
2021 |
2022e |
2023e |
||
June YE |
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) |
(2,000.0) |
||
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 |
|
|
(12,748.8) |
(5,980.3) |
(9,552.0) |
(5,250.0) |
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax |
|
|
(12,748.8) |
(5,980.3) |
(9,552.0) |
(5,250.0) |
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) |
(5,250.0) |
Average Number of Shares Outstanding (m) |
263 |
283 |
325 |
362 |
||
EPS (c) |
|
|
(4.94) |
(2.16) |
(2.52) |
(1.45) |
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 |
36,471.3 |
54,068.5 |
Equity investments |
25,074.9 |
28,594.9 |
32,794.9 |
49,892.2 |
||
PP&E |
26.4 |
24.2 |
24.2 |
24.2 |
||
Exploration assets |
4,199.4 |
4,077.2 |
3,652.1 |
4,152.1 |
||
Current Assets |
|
|
7,391.8 |
6,802.0 |
9,335.9 |
5,585.9 |
Cash |
7,141.6 |
6,280.7 |
9,131.2 |
5,381.2 |
||
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 |
0.0 |
Net Assets |
|
|
36,356.5 |
39,139.3 |
45,402.9 |
59,250.2 |
Minority interests |
(187.1) |
(183.0) |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
36,543.6 |
39,322.3 |
45,402.9 |
59,250.2 |
CASH FLOW |
||||||
Operating Cash Flow |
(13,067.9) |
(6,171.4) |
(8,021.7) |
(5,250.0) |
||
JV contribution |
3,786.9 |
1,967.3 |
3,000.0 |
2,000.0 |
||
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) |
(7,200.0) |
(19,097.3) |
||
Exploration |
(1,202.2) |
(205.8) |
(810.0) |
(500.0) |
||
Equity financing |
100.0 |
7,789.6 |
11,765.0 |
19,097.3 |
||
Other |
0.0 |
452.6 |
1,235.1 |
0.0 |
||
Net Cash Flow |
(8,199.9) |
(830.7) |
2,820.3 |
(3,750.0) |
||
Opening net debt/(cash) |
|
|
(15,341.5) |
(7,141.6) |
(6,280.7) |
(9,131.2) |
FX and other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(7,141.6) |
(6,280.7) |
(9,131.2) |
(5,381.2) |
Source: LPI, Edison Investment Research
|
|
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