Seven things every investor should know about lithium and Lepidico
The lithium cycle has turned. Prices have taken off during 2021 and, as the impact of cleantech’s exponential growth becomes clearer, demand estimates continue to be upgraded, suggesting lithium prices have yet to peak.
Yet getting exposure to this expected price uplift via equities is not simple. The smart money is in studying each lithium company in detail – navigating a multidimensional minefield of rapidly evolving battery tech, greenhouse emissions, waste management, questionable impacts of water extraction and the integration of the up- and downstream, as well as security of supply and startups that make big claims about the future, but have uncertain horizons with early-stage technologies.
Lepidico exists largely outside this complex landscape. You can read our latest research for a detailed exposition but here are the seven things every investor needs to know about lithium and Lepidico.
#1 Lithium’s macros make it a hot sector
Demand for the metal is high and rising. More than 3,000 GWh of lithium-ion batteries are expected to be produced in 2027, while annual EV sales will breach 20 million units. As large projects take five, seven, or even more years to come onstream, a long-term undersupply of lithium seems certain and the market may start to experience shortages as early as the end of 2021.
#2 Big news: seven-year offtake agreement signed
On 16 December, Lepidico announced a binding offtake agreement with world-renowned metal trader Traxys for 100% of its lithium hydroxide production. The agreement will run for seven years (or 35,000t of LiOH) from its Phase 1 project. In response, Edison research analyst Lord Ashbourne, raised his valuation to 5.70c/share. Read the whole note here.
#3 Lepidico’s business model is cleverly engineered
Lepidico is a vertically integrated developer. It will mine ore containing lithium and other alkali metals and process them to deliver specialty and bulk chemicals. This ensures it captures all the value in the supply chain. Lepidico’s first project that transforms lithium mica into battery-grade chemicals is poised to go live in 2023. News on customer contracts for the purchase of the lithium chemical Lepidico will produce is expected before the end of this year.
#4 Lepidico is also a technology play
Lithium mica was previously unusable as a source of battery-grade lithium chemicals. Lepidico developed its proprietary L-Max and LOH-Max processing technologies to open this less-contested mineral supply, and subsequent testing in a comprehensive pilot plant programme has confirmed both of these processes are economically viable. As such, the technology is no longer at an early stage and can be used to deliver lithium hydroxide and lithium carbonate to customers, hedging against the uncertain and evolving technology needs of battery manufacturers.
#5 Recurring revenues are being established to exploit scale easily
Lepidico is licensing the L-Max and LOH-Max tech to partners – one deal in the UK is already complete with Cornish Lithium. And as demand for the chemical surges, the search for lithium sources will intensify. Licensing its technology globally gives Lepidico the ability to take far greater advantage of market growth, as suppliers seek to fill the demand gap, without the risk or capital intensity of multiple full-scale projects.
#6 It’s not all about lithium
However, with Lepidico’s technology there is more. Its soon-to-be live project will also yield strategic critical minerals – caesium and rubidium. Securing a supply of these, beyond Chinese control, is so important to America that the US’s International Development Finance Corporation is in discussions with Lepidico about providing debt finance to its project in Namibia. In addition, the proprietary technology can deliver other valuable outputs, including potassium sulphate and amorphous silica, in an ecofriendly manner.
#7 Lepidico has solid ESG credentials
Although lithium-ion batteries are at the core of cleantech, some of the downstream activities required to produce them are less than ideal. The concerns surrounding lithium include the questionable effects of water extracted for brine processes and the production of sodium sulphate from spodumene conversion. Lepidico’s processes do not risk water overuse, do not produce sodium sulphate waste and, as a recent independent audit concludes, have close to best-in-class carbon emissions.
#8 The investment case is in demand, yet there may be share price upside
Lepidico is well capitalised. It successfully completed its fourth oversubscribed capital raising in May, bringing in A$12.6m from equity investors. In our June note, we valued Lepidico at 4.96 Australian cents per share, plus a potential risk-adjusted 0.61–1.53 cents for organic growth potential. At the time, Lepidico’s share price was 1.2c; now it’s around 4c. It’s also worth pointing out that our renowned metals and mining analyst Lord Ashbourne currently values the business at 5.7c/share and still sees potential upside on top of that figure.
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