Lepidico — Alvarrões resource increases 290%

Lepidico (ASX: LPD)

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Research: Metals & Mining

Lepidico — Alvarrões resource increases 290%

On 11 April, Lepidico announced an updated global mineral resource estimate of 5.87Mt at 0.87% Li2O at Alvarrões in Portugal, of which two-thirds (by tonnage) is contained within pegmatites and the remaining third within a 0.5m mineralised halo within the granite host rock. Although the average grade of the resource appears to have decreased, this can be attributed to the inclusion of the halo within the estimate. Excluding it, the aggregate grade of the pegmatite mineralised units has actually risen. Moreover, whereas before 100% of the resource was classified in the lower-confidence inferred mineral resource category, in the updated estimate 44.3% resides within the indicated category.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Lepidico

Alvarrões resource increases 290%

Alvarrões resource update

Metals & mining

12 April 2019

Price

A$0.031

Market cap

A$104m

A$1.3936/US$

Net cash (A$m) at end December 2018

8.0

Shares in issue

3,356.2m

Free float

68%

Code

LPD

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.8

93.8

(20.5)

Rel (local)

14.3

79.6

(25.2)

52-week high/low

A$0.05

A$0.02

Business description

Lepidico provides exposure to a portfolio of lithium assets via its wholly owned properties, JVs and IP in Australia, Canada and Europe. Uniquely, it has successfully produced lithium carbonate from non-traditional hard rock lithium-bearing minerals using its registered L-Max process technology.

Next events

Feasibility study

Q2 CY19

Permits & approvals

Mid-2018 to mid-2019

Pilot plant operation

May 2019

Phase 1 final investment decision

Mid-2019

Analyst

Charles Gibson

+44 (0)20 3077 5724

Lepidico is a research client of Edison Investment Research Limited

On 11 April, Lepidico announced an updated global mineral resource estimate of 5.87Mt at 0.87% Li2O at Alvarrões in Portugal, of which two-thirds (by tonnage) is contained within pegmatites and the remaining third within a 0.5m mineralised halo within the granite host rock. Although the average grade of the resource appears to have decreased, this can be attributed to the inclusion of the halo within the estimate. Excluding it, the aggregate grade of the pegmatite mineralised units has actually risen. Moreover, whereas before 100% of the resource was classified in the lower-confidence inferred mineral resource category, in the updated estimate 44.3% resides within the indicated category.

Year end

Total revenues (A$m)

Reported PBT*
(A$m)

Cash from operations (A$m)

Net
cash (A$m)

Capex
(A$m)

06/17

0.1

(5.4)

(3.6)

3.3

(0.9)

06/18

0.2

(7.2)

(3.0)

4.9

(3.1)

06/19e

0.0

(5.9)

(6.2)

24.3

(21.4)

06/20e

19.9

2.5

3.2

(5.2)

(32.7)

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Feasibility study anticipated later this quarter

Lithium mineralisation in the pegmatites is dominated by lepidolite, which comprises c 10–15% of the pegmatites. The mineralisation within the 0.5m halo is dominated by zinnwaldite – another lithium-mica mineral, albeit one that is still amenable to processing via Lepidico’s proprietary L-Max® technology. Not only does the updated estimate represent a material increase over the December 2017 estimate, it also now exceeds the top end of our prior (non-JORC) estimate of 4.4Mt at a grade of 1.13% Li2O (see our note, Alvarrões continues to deliver, published on 4 October 2017), not least via the inclusion of a newly defined sill (denoted Sill P) down to a depth of 80m. As a result, we estimate that the Alvarrões resource now contains c 126,249t of lithium carbonate equivalent, which we value at US$4.4m (A$6.1m), or 0.18 Australian cents per share (see our note, Mining overview: Gold stars and black holes, Analysing the discount: From resource to sanction, published in January 2019). Of at least as much significance, however, is the fact that Alvarrões has now been confirmed as an extensive system of lithium-mineralised pegmatites of sufficient scale and quality to provide long-term lepidolite concentrate feed for Lepidico’s Phase 1 L-Max plant for well over 10 years and will contribute to a maiden ore reserve later this quarter.

Valuation: 6.84c/share potentially rising to 7.27c

As per our most recent Outlook note, Piloting its way through, published on 9 October 2018, we estimate that execution of a 7t/hour (5,000tpa) Phase 1 plant will result in free cash flow to Lepidico of A$71.2m per year once steady-state production has been achieved, which we value at A$0.0684/share assuming US$30m (A$41.8m) of equity financing at the prevailing share price or A$0.0727/share assuming a reduced US$21.2m in equity funding with a A$16.8m net debt funding requirement. Note that neither of these valuations ascribe any value to the Phase 2 plant or other development options.

Exhibit 1: Financial summary

Accounts: IFRS, Yr end: June, AUD: Thousands

 

 

2015

2016

2017

2018

2019e

2020e

Total revenues

 

 

9

116

127

171

16

19,948

Cost of sales

 

 

0

0

0

0

(2,090)

(11,170)

Gross profit

 

 

9

116

127

171

(2,074)

8,778

SG&A (expenses)

 

 

(455)

(617)

(912)

(5,284)

(3,868)

(3,146)

Other income/(expense)

 

 

0

0

0

0

0

0

Exceptionals and adjustments

Exceptionals

 

(16)

(415)

(878)

(2,171)

0

0

Depreciation and amortisation

 

 

(5)

(6)

(6)

(6)

(9)

(3,277)

Reported EBIT

 

 

(467)

(923)

(1,670)

(7,290)

(5,951)

2,354

Finance income/(expense)

 

 

(18)

(5)

128

70

24

121

Other income/(expense)

 

 

(559)

(448)

(3,815)

0

0

0

Exceptionals and adjustments

Exceptionals

 

0

(888)

0

0

0

0

Reported PBT

 

 

(1,044)

(2,263)

(5,357)

(7,220)

(5,927)

2,476

Income tax expense (includes exceptionals)

 

 

0

0

0

0

0

(619)

Reported net income

 

 

(1,044)

(2,263)

(5,357)

(7,220)

(5,927)

1,857

Basic average number of shares, m

 

 

178

465

1,802

2,624

3,803

4,705

Basic EPS

 

 

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

0.0

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

Property, plant and equipment

 

 

9

4

8

27

21,390

50,794

Goodwill

 

 

0

0

0

0

0

0

Intangible assets

 

 

0

16,204

16,698

19,027

19,027

19,027

Other non-current assets

 

 

1,485

715

1,620

730

730

730

Total non-current assets

 

 

1,494

16,922

18,326

19,783

41,147

70,551

Cash and equivalents

 

 

53

650

3,307

4,860

24,288

24,288

Inventories

 

 

0

0

0

0

1

1,662

Trade and other receivables

 

 

4

3,886

706

712

1,176

1,640

Other current assets

 

 

0

0

0

0

0

0

Total current assets

 

 

57

4,537

4,013

5,572

25,465

27,590

Non-current loans and borrowings

 

 

0

0

0

0

0

29,486

Other non-current liabilities

 

 

0

0

0

0

0

0

Total non-current liabilities

 

 

0

0

0

0

0

29,486

Trade and other payables

 

 

105

614

1,663

804

991

1,177

Current loans and borrowings

 

 

115

0

0

0

0

0

Other current liabilities

 

 

40

33

46

51

51

51

Total current liabilities

 

 

260

647

1,709

856

1,042

1,228

Equity attributable to company

 

 

1,292

20,812

20,630

24,500

65,570

67,427

Non-controlling interest

 

 

0

0

0

0

0

0

 

 

 

 

 

 

 

 

 

Cashflow statement

 

 

Profit for the year

 

 

(1,044)

(2,263)

(5,357)

(7,220)

(5,927)

1,857

Taxation expenses

 

 

0

0

0

0

0

619

Depreciation and amortisation

 

 

5

6

6

6

9

3,277

Share based payments

 

 

450

40

1,736

2,138

0

0

Other adjustments

 

 

(451)

1,036

(162)

2,066

0

0

Movements in working capital

 

 

(10)

132

133

(28)

(279)

(1,939)

Interest paid / received

 

 

0

0

0

0

0

0

Income taxes paid

 

 

0

0

0

0

0

(619)

Cash from operations (CFO)

 

 

(1,050)

(1,049)

(3,644)

(3,038)

(6,197)

3,195

Capex

 

 

(9)

(63)

(861)

(3,057)

(21,373)

(32,681)

Acquisitions & disposals net

 

 

0

32

122

110

0

0

Other investing activities

 

 

(563)

(80)

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(572)

(111)

(739)

(2,947)

(21,373)

(32,681)

Net proceeds from issue of shares

 

 

1,505

1,872

7,040

7,555

46,998

0

Movements in debt

 

 

100

(115)

0

0

0

29,486

Other financing activities

 

 

0

0

0

0

0

0

Cash from financing activities (CFF)

 

 

1,605

1,757

7,040

7,555

46,998

29,486

Increase/(decrease) in cash and equivalents

 

 

(18)

597

2,657

1,570

19,428

0

Currency translation differences and other

 

 

0

0

0

(17)

0

0

Cash and equivalents at end of period

 

 

53

650

3,307

4,860

24,288

24,288

Net (debt) cash

 

 

(61)

650

3,307

4,860

24,288

(5,198)

Movement in net (debt) cash over period

 

 

(61)

711

2,657

1,553

19,428

(29,486)

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 £49,500 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 Edison analyst 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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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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

1,185 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 Lepidico and prepared and issued by Edison, in consideration of a fee payable by Lepidico. Edison Investment Research standard fees are £49,500 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

1,185 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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