Lepidico — Quantifying exploration’s dividends

Lepidico (ASX: LPD)

Currency in AUD

Last close As at 04/02/2023

AUD0.02

0.01 (100.00%)

Market capitalisation

AUD107m

Research: Metals & Mining

Lepidico — Quantifying exploration’s dividends

Lepidico recently announced a series of impressive drill results at Helikon 4 (including 34.8m at 1.25% Li2O) that extend the zone of mineralisation there 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 into the measured and indicated categories, which will form the basis of a new mine plan at Karibib, potentially extending the Phase 1 operating life of the project from 14 to 20 years and complementing the company’s chemical plant front-end engineering and design (FEED) process, which is scheduled for completion in November, once procurement optimisation and design refinements are complete. A final investment decision on the project is then anticipated to be made in early Q1 CY23. This note seeks to quantify the financial effects of incorporating the potential resource at Helikon 4 into Karibib’s mine plan.

Lord Ashbourne

Written by

Lord Ashbourne

Director, Energy & Resources

Metals & Mining

Lepidico

Quantifying exploration’s dividends

Helikon 4 drilling results

Metals and mining

6 October 2022

Price

A$0.024

Market cap

A$156m

A$1.5494/US$

Net cash (A$m) at 30 June 2022
(excludes A$7.0m in lease liabilities)

8.0

Shares in issue

6,507.2m

Free float

94.4%

Code

LPD

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(21.4)

(18.5)

0.0

Rel (local)

(20.9)

(21.0)

7.2

52-week high/low

A$0.05

A$0.02

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.

Next events

Resource update

October 2022

Final investment decision

Q1 CY23

Commencement of mining

Q3 CY23

Chemical plant commissioning

Late CY24

Analyst

Lord Ashbourne

+44 (0)20 3077 5724

Lepidico is a research client of Edison Investment Research Limited

Lepidico recently announced a series of impressive drill results at Helikon 4 (including 34.8m at 1.25% Li2O) that extend the zone of mineralisation there 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 into the measured and indicated categories, which will form the basis of a new mine plan at Karibib, potentially extending the Phase 1 operating life of the project from 14 to 20 years and complementing the company’s chemical plant front-end engineering and design (FEED) process, which is scheduled for completion in November, once procurement optimisation and design refinements are complete. A final investment decision on the project is then anticipated to be made in early Q1 CY23. This note seeks to quantify the financial effects of incorporating the potential resource at Helikon 4 into Karibib’s mine plan.

Year end

Total revenues
(A$m)

PBT
(A$m)

Cash from
operations (A$m)

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

Capex
(A$m)

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

(3.6)

(2.7)

(112.8)

(172.0)

06/24e

0.0

(17.5)

(17.1)

(307.2)

(177.3)

Note: *Includes lease liabilities; historical numbers include Desert Lion Energy convertible.

More production earlier and for longer

As well as extending the life of mining operations, the incorporation of newly intersected material at Helikon 4 into the Karibib mine schedule will defer the cut-back of the Rubicon open pit by six years, while producing higher-grade, higher-margin concentrate for longer for onward processing at Lepidico’s Abu Dhabi chemical plant.

Buffers against potential capex inflation

We estimate that the extension of the mine life at Karibib – with attendant increases in lithium hydroxide equivalent production in Abu Dhabi – will have increased the value of the integrated mine and chemical plant project by 33.6%, or US$128.0m relative to our previous valuation (see our note, Coming in sight of the Rubicon, published on 5 August 2022). This increase is moderated by assumed capex and opex inflation of 50% and 15%, respectively, to result in a final project value of US$379.7m, or A$588.3m (9.0c/share), which is just 0.3% below our previous valuation, but still 71.8% above Lepidico’s May 2020 DFS NPV8 of US$221m.

Valuation: 6.71–7.66 Australian cents per share

On the basis of a mine plan extended by six years, as well as changes to our capex and opex assumptions (among other things), we have revised our valuation of Lepidico to 6.05c/share (5.81c/share with equity dilution performed at the currently prevailing share price of 2.4c) plus a potential, risk adjusted 0.66–1.61c/share (fully diluted) for a conceptual 20,000tpa LCE Phase 2 Plant, to take our total aggregate conceptual valuation of the company to 6.71–7.66 cents per share (cf 7.29–8.21 cents per share previously).

Exploration begets production

On 23 September, Lepidico announced a series of impressive drill results (including 34.8m at 1.25% Li2O) that extend the zone of mineralisation at its Helikon 4 prospect at Karibib in Namibia 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 extending 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 expected to be in early CY23. In the meantime, Lepidico is continuing to manage development risk proactively.

Extended Phase 1

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. By-product (caesium, rubidium and potassium) grades have yet to reported, but are expected to be elevated versus the life-of-mine average and similar to those at Helikon 1. 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 per Lepidico’s May 2020 DFS) of 3.8 to one. As such, the inclusion of upgraded mineral resources from the 2022 programme in an updated and modified mine plan holds out the possibility of the project mining and processing an additional 2.5Mt – or six years’ worth – of higher-grade material (Edison estimate, including surface stockpiles) in the earlier years of the project’s execution and delaying the proposed cut-back of the Rubicon pit (hitherto anticipated around year nine of the project). A comparison of the potentially extended mine plan – as conceived by Edison – and the original is as follows, with an additional six years of mining and production indicated between FY29 and FY34, inclusive, effectively interposed between year 4 and year 5 of the original mine plan:

Exhibit 1: Karibib ore and waste mining (extended)

Exhibit 2: Karibib ore and waste mining (original)

Source: Edison Investment Research

Source: Lepdico, Edison Investment Research

Exhibit 1: Karibib ore and waste mining (extended)

Source: Edison Investment Research

Exhibit 2: Karibib ore and waste mining (original)

Source: Lepdico, Edison Investment Research

Readers should note the deferral of the Rubicon open pit cut-back from year 9 of the project (CY31 in the original schedule in Exhibit 2) to year 14 (FY39 of the extended schedule in Exhibit 1) as an immediate consequence of incorporating the material implied by Lepidico’s 2022 exploration programme into the Karibib mine plan. In addition, since the additionally mined material will be of relatively high grade, it will be suitable for processing ahead of the expansion in plant capacity and the processing of lower grade ore (originally anticipated in year 5 of the project):

Exhibit 3: Karibib ore processing (extended)

Exhibit 4: Karibib ore processing (original)

Source: Edison Investment Research

Source: Lepidico, Edison Investment Research

Exhibit 3: Karibib ore processing (extended)

Source: Edison Investment Research

Exhibit 4: Karibib ore processing (original)

Source: Lepidico, Edison Investment Research

Consequently, the extended mine plan will produce higher-grade, higher-margin concentrate for onward processing in the Abu Dhabi chemical plant for longer:

Exhibit 5: Karibib extended mine plan concentrate production and grade

Source: Edison Investment Research

While by-product grades for the additional material drilled at Helikon 4 have not been explicitly reported, in as much as they are known (or can be derived from Lepidico’s original DFS in May 2020), the grades of mined caesium and rubidium, in particular, can be seen to correlate closely with the grade of mined lithium:

Exhibit 6: Karibib caesium grade versus lithium grade

Source: Edison Investment Research

On the basis of these correlations, we may estimate the output of Lepidico’s Abu Dhabi chemical plant, over the life of the extended project, to be as follows:

Exhibit 7: Lepidico chemical plant forecast production (tonnes lithium hydroxide monohydrate equivalent per annum)

Source: Edison Investment Research. Note: Conversion into lithium hydroxide monohydrate equivalent performed on the basis of May 2020 DFS prices.

Note, that Helikons 2 and 3 which, while smaller tonnage (currently), nevertheless offer potential for further, good-quality multi-year additions to either mine life or a Phase 2 project.

Capex and opex

As has been well documented, the western world in general and the mining world in particular are in the midst of a cost of living crisis, which is manifesting itself in the case of the latter in the form of inflated capital and operating cost estimates. While the extent of this inflation is different from project to project, a brief comparison of recent project feasibility studies would suggest that, in the case of capital costs, it is running in the order of 25–50% relative to prior assumptions. At the time of its DFS in May 2020, capital expenditure for the integrated Karibib mine and chemical plant was estimated at US$139.0m, including a 13% contingency, but excluding lease costs, which were included in C1 cash costs and therefore treated as an operating, rather than a capital, expense. Subsequently, Edison increased its estimate of this capital expenditure by US$10.0m (plus a further US$1.3m contingency) to reflect the adoption of plate and frame filters and enlarged crystallisers in the design scope of the chemical plant (see Big swings and small roundabouts, published on 16 February 2022) to take the total to US$150.3m.

In order to be relatively conservative therefore, in the light of recent developments, Edison has opted to increase its estimate of pre-production capital costs by an additional 50%, from US$150.3m, to US$225.4m. We have also increased our operating cost estimates by 15%.

Valuation

Assumptions

In addition to the changes in operational and financial assumptions detailed above, we have made the following adjustments to our financial model of Lepidico:

We have delayed the implementation of the project by six months to reflect the delay in the company’s making a final investment decision on the project from September 2022 to early Q1 CY23.

We have brought forward chemical plant capex into FY23 (from FY24) so that the mine and chemical plant are developed, to all intents and purposes, concurrently, in anticipation of concentrator commissioning in mid-CY24 and chemical plant commissioning in late CY24 and ramp-up to full production throughout FY25.

We have maintained the size of Lepidico’s presumed FY23 equity financing at US$41.8m (or A$64.7m at the current forex rate). We have assumed that this will take place at an unchanged share price of A$0.028/share, given that any Phase 1 development equity will be raised after debt finance is arranged, which might reasonably be expected to lead to a re-rating of the company’s shares. Note that a sensitivity analysis of Lepidico’s valuation to changes in the assumed price of equity funding is provided in the Sensitivities section on page 7 below.

We have updated our forex rate from A$1.4391/US$ to A$1.5494/US$.

Project valuation

Lepidico’s DFS (see Developing to the (L-)Max, published on 29 May 2020) calculated a project NPV8 for the integrated Karibib mining and chemical plant operation of US$221m, or A$342m (5.3c/share) on a pre-funding basis at the current foreign exchange rate of A$1.5494/US$. At that time, we valued the project at US$210.4m using the same inputs as the DFS, or US$205.8m using our own input assumptions (including a 20% minority interest in the Karibib mining operation). After a number of adjustments – most particularly relating to the long-term lithium price (see Big swings and small roundabouts, published on 16 February 2022) – at the time of our last update note (Coming in sight of the Rubicon, published on 5 August 2022), we valued Lepidico’s integrated project at US$380.8m, or A$590.0m (9.1c/share), before funding. On the basis of the extended mine plan alone, this valuation increased by a further 33.6% to US$508.8m, or A$788.3m (12.1c/share), before being moderated by capex and opex inflation to a final value of US$379.7m, or A$588.3m (9.0c/share) – almost exactly in line with our previous valuation, but still 71.8% in excess of Lepidico’s May 2020 DFS NPV8 of US$221m. A bridge chart of the evolution of the project’s valuation by component part over time is as follows:

Exhibit 8: Karibib project valuation bridge, July 2020 to October 2022 (US$m)

Source: Edison Investment Research. *Includes 20% minority interest in Namibian mining and concentration operation.

Company valuation

Our valuation of Lepidico’s equity varies from our value of the integrated Karibib mining and chemical plant project, among other things, on account of the following:

Our valuation of the project is conducted on the basis of discounted cash flows (DCF) at a discount rate of 8% (to be consistent with the original DFS), whereas our valuation of the company is based on the present value of future dividends potentially payable to shareholders in Australian dollars, using a discount rate of 10%.

Our valuation of the company automatically takes into account anticipated changes in working capital requirements (based on assumed creditor, debtor and stock days), which is also excluded from our DCF valuation model.

Our equity valuation of the company is necessarily stated after debt interest payments, which is not the case for our DCF valuation of the project, where the cost of debt is implicitly embedded in the discount rate applied to cash flows.

Our company valuation assumes ongoing corporate costs in the order of A$3.1m per year.

As a consequence, changes in the project valuation are dampened when applied at the company level

In our last note on the company, we calculated a value for Lepidico’s shares of 6.45c plus 0.22c for the value of an envisaged loan to the minority shareholders in the upstream Namibian operation to give a total valuation for the company of 6.66c/share. In the wake of the changes discussed above, our discounted valuation of Lepidico’s future (maximum potential) dividend stream to shareholders is now 5.67c/share, rising to a peak of 9.26c/share (cf 8.58c/share previously) on the cusp of the company’s (assumed) first material dividend in FY29, as shown in the chart below:

Exhibit 9: Edison estimate of future Lepidico EPS and (maximum potential) DPS

Source: Edison Investment Research

To this valuation of 5.67c/share should then be added the value of Lepidico’s envisaged future loan to the minority shareholders in the Namibian mining and concentrating operation, which we now estimate at 0.38c/share (fully diluted), to result in a total value for Lepidico’s shares of 6.05c/share (cf 6.66c/share previously), based solely on its Phase 1 project. A bridge chart, showing the major components in the evolution of the valuation from 6.66c/share to 6.05/share is provided in Exhibit 10, below.

Exhibit 10: Lepidico valuation bridge, August 2022 to October 2022

Source: Edison Investment Research

To this valuation of 6.05c/share may then be added a potential risk-adjusted 0.66–1.61c/share (fully diluted) for a conceptual 20,000tpa LCE Phase 2 Plant (see our note, Phase 2 coming into view, published on 18 June 2021), to take our total aggregate conceptual valuation of Lepidico to 6.71–7.66 cents per share (cf 7.29–8.21 cents per share previously).

Sensitivities

The three principal risks to which our valuation of Lepidico is exposed are: 1) the long-term price of lithium hydroxide; 2) the price at which it raises future equity; and 3) capex inflation. The effects of variations in the long-term price of lithium hydroxide from the one currently assumed (US$18,000/t) are shown in the table below.

Exhibit 11: Lepidico valuation sensitivity to the long-term price of lithium hydroxide (US$/t)

Lithium hydroxide price (US$/t)

18,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Lepidico valuation (Australian cents per share)

6.05

6.80

8.65

10.50

12.36

14.21

16.07

17.92

Change cf ‘base case’ (%)

u/c

+12.4

+43.0

+73.6

+104.3

+134.9

+165.6

+196.2

Source: Edison Investment Research

At the same time, our financial model assumes that Lepidico will raise US$41.8m/A$64.7m (gross) in FY23 at an unchanged share price of 2.8c (cf Lepidico’s prevailing share price of 2.4c at the time of writing) and Exhibit 12 demonstrates the sensitivity of our valuation to variations in this equity price:

Exhibit 12: Lepidico valuation sensitivity to future equity funding price (Australian cents per share)

Equity funding price

1.50

2.00

2.40

2.50

2.80

3.00

3.50

4.00

5.00

6.00

7.00

7.14

Lepidico valuation

4.97

5.50

5.81

5.88

6.05

6.16

6.37

6.55

6.80

6.99

7.12

7.14

Source: Edison Investment Research

Readers should note that it is also possible that Lepidico may choose to source all (or a portion) of this future equity funding requirement from a strategic partner after debt funding has already been secured, in which case it is possible/likely that a higher equity price could be supported.

Finally, our valuation of Lepidico is sensitive to any further changes in capex above and beyond those already assumed to the following extent:

Exhibit 13: Lepidico valuation sensitivity to capex variations (Australian cents per share)

Pre-production capex estimate (US$m)

180.3

202.9

225.4

248.0

270.5

Change cf US$225.4m central assumption

-20%

-10%

u/c

+10%

+20%

Lepidico valuation (Australian cents per share)

6.70

6.38

6.05

5.73

5.41

Change cf central assumption (%)

+10.7

+5.5

-

-5.3

-10.6

Source: Edison Investment Research


Exhibit 14: Financial summary

Accounts: IFRS, year-end: June, A$’000s

 

 

2018

2019

2020

2021

2022

2023e

2024e

PROFIT & LOSS

Total revenues

 

 

171

2

47

4,137

10

0

0

Cost of sales

 

 

0

0

0

0

0

0

(3,619)

Gross profit

 

 

171

2

47

4,137

10

0

(3,619)

SG&A (expenses)

 

 

(5,284)

(4,006)

(4,904)

(3,398)

(4,796)

(3,146)

(3,146)

Other income/(expense)

 

 

0

0

0

0

0

0

0

Exceptionals and adjustments

 

(2,171)

(1,150)

(2,740)

(338)

(2,275)

0

0

Depreciation and amortisation

 

(6)

(8)

(1,208)

(713)

(411)

(411)

(411)

Reported EBIT

 

(7,290)

(5,162)

(8,805)

(311)

(7,472)

(3,558)

(7,176)

Finance income/(expense)

 

70

57

17

0

(392)

5

(10,313)

Other income/(expense)

 

0

0

0

0

0

0

0

Exceptionals and adjustments

 

0

0

(2,026)

0

0

0

0

Reported PBT

 

 

(7,220)

(5,105)

(10,814)

(311)

(7,863)

(3,552)

(17,490)

Income tax expense (includes exceptionals)

 

 

0

0

696

593

(78)

0

(285)

Reported net income

 

 

(7,220)

(5,105)

(10,118)

283

(7,941)

(3,552)

(17,774)

Basic average number of shares, m

 

 

2,624

3,272

4,568

5,218

6,247

7,593

8,679

Basic EPS (c)

 

 

(0.0)

(0.0)

(0.0)

0.0

(0.0)

(0.0)

(0.0)

BALANCE SHEET

 

 

Property, plant and equipment

 

 

27

20

1,904

1,669

8,591

180,175

357,057

Goodwill

 

 

0

0

0

0

0

0

0

Intangible assets

 

 

19,027

22,925

23,870

24,631

29,065

29,065

29,065

Other non-current assets

 

 

730

27,469

42,798

44,058

47,396

47,396

47,396

Total non-current assets

 

 

19,783

50,414

68,573

70,358

85,052

256,636

433,519

Cash and equivalents

 

 

4,860

13,660

4,793

14,738

8,043

8,043

8,043

Trade and other receivables

 

 

712

1,869

1,767

244

2,204

0

0

Total current assets

 

 

5,572

15,529

6,560

14,982

10,247

8,043

8,043

Non-current loans and borrowings

 

 

0

3,276

5,215

0

6,744

120,583

314,943

Other non-current liabilities

 

 

0

0

10,055

9,283

9,669

9,669

9,669

Total non-current liabilities

 

 

0

3,276

15,271

9,283

16,413

130,252

324,612

Trade and other payables

 

 

804

10,940

565

968

1,986

259

556

Current loans and borrowings

 

 

0

0

0

0

280

280

280

Other current liabilities

 

 

51

86

108

140

179

179

179

Total current liabilities

 

 

856

11,026

672

1,108

2,445

717

1,014

Equity attributable to company

 

 

24,500

53,252

52,404

68,314

70,037

127,306

109,436

Non-controlling interest

 

 

0

(1,610)

6,785

6,636

6,404

6,404

6,499

CASH FLOW STATEMENT

 

 

Profit for the year

 

 

(7,220)

(5,105)

(10,118)

283

(7,941)

(3,552)

(17,774)

Taxation expenses

 

 

0

0

(696)

(593)

78

0

285

Depreciation and amortisation

 

 

6

8

1,208

713

411

411

411

Share based payments

 

 

2,138

520

1,027

338

1,823

0

0

Other adjustments

 

 

2,066

664

4,716

(497)

837

0

0

Movements in working capital

 

 

(28)

410

(1,509)

201

(689)

477

297

Income taxes paid

 

 

0

0

696

593

0

0

(285)

Cash from operations (CFO)

 

 

(3,038)

(3,504)

(4,676)

1,037

(5,483)

(2,665)

(17,066)

Capex

 

 

(3,057)

(6,251)

(7,452)

(550)

(8,631)

(171,995)

(177,294)

Acquisitions & disposals net

 

 

110

0

416

0

0

0

0

Other investing activities

 

 

0

0

0

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(2,947)

(6,251)

(7,036)

(550)

(8,631)

(171,995)

(177,294)

Net proceeds from issue of shares

 

 

7,555

18,462

3,523

14,707

7,432

60,821

0

Movements in debt

 

 

0

0

0

(5,176)

0

113,839

194,360

Other financing activities

 

 

0

0

0

0

0

0

0

Cash from financing activities (CFF)

 

 

7,555

18,462

3,523

9,531

7,432

174,660

194,360

Increase/(decrease) in cash and equivalents

 

 

1,570

8,707

(8,190)

10,017

(6,681)

0

0

Currency translation differences and other

 

 

(17)

93

(678)

(72)

(14)

0

0

Cash and equivalents at end of period

 

 

4,860

13,660

4,793

14,738

8,043

8,043

8,043

Net (debt)/cash

 

 

4,860

10,385

(422)

14,738

1,019

(112,820)

(307,180)

Movement in net (debt)/cash over period

 

 

1,553

5,525

(10,807)

15,160

(13,719)

(113,839)

(194,360)

Source: Company sources, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Lepidico and prepared and issued by Edison, in consideration of a fee payable by Lepidico. 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.

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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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This report has been commissioned by Lepidico and prepared and issued by Edison, in consideration of a fee payable by Lepidico. 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.

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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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Ultimovacs’ lead therapeutic vaccine candidate, UV1, continues to display positive signs of clinical efficacy, this time in the form of long-term patient survival from the ongoing Phase I (NCT03538314) study in advanced unresectable and metastatic malignant melanoma patients. The trial is investigating UV1 in combination with Merck’s immune checkpoint inhibitor (ICI) pembrolizumab (Keytruda) in the first-line setting. The three-year overall survival (OS) rate from patients in cohort one of the study was 71% (12/17). This result builds on the consistently high OS rates already observed from the trial: 85% (17/20) after one year and 80% (16/20) after two-year follow-up. We believe these latest data not only highlight the clinical utility of UV1 in melanoma patients, but also provide encouraging signs for further indications which UV1 is being investigated in the clinic. We continue to value Ultimovacs at NOK7.2bn or NOK209/share.

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