Lepidico — Materially extended Phase 1 opportunity

Lepidico (ASX: LPD)

Currency in AUD

Last close As at 03/02/2023

AUD0.02

0.01 (100.00%)

Market capitalisation

AUD107m

Research: Metals & Mining

Lepidico — Materially extended Phase 1 opportunity

On Friday 23 September, Lepidico announced a series of impressive drill results from Helikon 4 (including 34.8m at 1.25% Li2O) that extend the zone of mineralisation both down dip and along strike to the east towards Helikon 3 and Helikon 2. Drilling will continue, with a view to upgrading the mineral resource estimate at Karibib in October into the measured and indicated categories and thereby extend the Phase 1 operating life of the project from 14 to 20 years and potentially beyond. The upgraded resource will form the basis of a new mine plan at Karibib that will complement the company’s chemical plant front-end engineering and design process, which is now scheduled for completion in November once procurement optimisation and design refinements are complete. A final investment decision on the project will then be made, with timing to be advised but possibly in the first quarter of calendar year 2023 (cf anticipated at end-September previously).

Lord Ashbourne

Written by

Lord Ashbourne

Director, Energy & Resources

Metals & Mining

Lepidico

Materially extended Phase 1 opportunity

Exploration update

Metals and mining

26 September 2022

Price

A$0.0245

Market cap

A$159m

A$1.5204/US$

Cash (A$m) at end-June 2022

8.0

Shares in issue

6,507.2m

Free float

83.2%

Code

LPD

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

Business description

Via its Karibib project in Namibia and unique IP, Lepidico is a vertically integrated lithium development business that has produced both lithium carbonate and lithium hydroxide from non-traditional hard rock lithium-bearing minerals using its registered L-Max and LOH-Max processes.

<Insert the business description here, up to a maximum of seven lines. To paste text here, use ‘PASTE UNFORMATTED TEXT’ on the Edison toolbar>

Analyst

Lord Ashbourne

+44 (0)20 3077 5700

Lepidico is a research client of Edison Investment Research Limited

On Friday 23 September, Lepidico announced a series of impressive drill results from Helikon 4 (including 34.8m at 1.25% Li2O) that extend the zone of mineralisation both down dip and along strike to the east towards Helikon 3 and Helikon 2. Drilling will continue, with a view to upgrading the mineral resource estimate at Karibib in October into the measured and indicated categories and thereby extend the Phase 1 operating life of the project from 14 to 20 years and potentially beyond. The upgraded resource will form the basis of a new mine plan at Karibib that will complement the company’s chemical plant front-end engineering and design process, which is now scheduled for completion in November once procurement optimisation and design refinements are complete. A final investment decision on the project will then be made, with timing to be advised but possibly in the first quarter of calendar year 2023 (cf anticipated at end-September previously).

Year end

Total revenues (A$m)

PBT
(A$m)

Cash from
operations (A$m)

Net cash/(debt)*
(A$m)

Capex
(A$m)

06/20

0.0

(10.8)

(4.7)

(0.4)

(7.5)

06/21

4.1

(0.3)

1.0

14.7

(0.6)

06/22

0.0

(7.9)

(5.5)

1.0

(8.6)

06/23e

0.0

(3.4)

(3.3)

8.7

(55.1)

Note: *Historical numbers include Desert Lion Energy convertible.

Lepidico’s current resource at Helikon 4 amounts to 1.5Mt at a grade of 0.38% Li2O in the inferred category, whereas the weighted average grade from the 2022 drill programme is in excess of 0.6% Li2O. At the same time, a pit optimisation there indicates a strip ratio of less than 2:1, which compares with a life of mine average strip ratio of the project (as currently conceived) of 3.8 to one. As such, the inclusion of upgraded inferred material from the 2022 programme in an updated and modified mine plan holds out the possibility of the project mining and processing around an additional six years of higher-grade material in total (the difference between 14 and 20 years, above) in the earlier years of the project’s execution and delaying the proposed cut-back of the Rubicon pit and the processing of lower grade material (hitherto anticipated around year nine of the project). All things being equal, this, in turn, should materially increase the US$221m NPV8 that Lepidico announced in its definitive feasibility study in mid-2020, even after making allowance for capex and opex inflation. In the meantime, Lepidico is continuing to proactively manage development risk, with an envisaged one quarter delay in the final investment decision being inconsequential within the context of the value added from the inferred mine life extension.

In our last note on the company (Coming in sight of the Rubicon, published on 5 August 2022), we valued Lepidico at 6.66 Australian cents per share (cf 6.64c/share previously) plus a potential, risk-adjusted 0.63–1.55 cents for a conceptual 20,000tps LCE Phase 2 Plant to take the total aggregate conceptual valuation to 7.29–8.21 cents (fully diluted). This will be updated in a longer note, which will more fully consider the effects of the company’s announcement in empirical terms in due course.

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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 <Company name> and prepared and issued by Edison, in consideration of a fee payable by <Company name>. 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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