Sigma Lithium Corp (TSX-V:SGML, NASDAQ:SGML) could become one of the four largest lithium producers globally by 2025, according to analysts at Canaccord Genuity (TSX:CF, LSE:CF).
The research house made the assertion following Sigma’s release of results from its combined Phase 2 + Phase 3 expansion at its Grota do Cirilo project, along with a US$100 million debt financing earlier this week.
The proposed expansion from 270,000 tons per annum (tpa) to 768,000 tpa SC5.5% (approximately 104,000 tons of lithium carbonate equivalent) was supported by a 63% increase in mineral reserves to 54.8 million tons grading 1.44% lithium oxide, Canaccord noted.
READ: Sigma Lithium hails positive results of study to potentially triple output from Brazil project as it secures debt financing
In a note to clients following the news, the Canaccord analysts called the news “very positive.”
“Our previous forecasts were based on Phase 1 + Phase 2 only. Even at our far more conservative price deck, the inclusion of a combined Phase 2 + Phase 3 production expansion results in a 45% increase in our Net Asset Value and materially higher near-term free cash flow projections,” the analysts said.
“As a result, we are increasing our target price to C$65, from C$45 and maintain our Speculative Buy rating," they added.
Grota do Cirilo “world-class,” according to analysts
Analysts at Bank of America (BofA) also hailed the resource expansion from the Brazilian project, noting that their analysis also supports a pull forward of the Phase 3 expansion, and consolidation with the Phase 2 work in its decision to raise the price target on Sigma shares to US$47.
“The pull forward of tonnage is accretive given the premium prices expected for spodumene in 2024 vs. 2025/2026, when we had prior expected Phase 3 to commission,” the BofA analysts noted.
The firm is expecting Phase 4 by the end of this year, with commissioning to start in the first quarter of 2023.
“The combination of today’s announcements and an updated price forecast is driving up our SGML net asset value (NAV) model, and consequently our new (price target). Our new NAV reflects an equity value of $4.7 billion, or $47/share. This is materially lower than the company’s NAV (of) $15 billion," the BofA analysts said.
Meanwhile, analysts at Cormark Securities Inc called Grota do Cirilo “one of the highest quality lithium hard rock deposits in the world.”
“With the resource expansion supporting at least a third phase, we expect the stock to move higher despite the recent increase, particularly as the expanded resource means a larger annual capacity and longer mine life project are viable,” the Cormark analysts noted.
The analysts raised their share price target for Sigma to $56 from $44 and reiterated a 'Buy' rating on the stock.
“There is further upside should Sigma sell at prices closer to the current spot pricing being realized by producers, particularly those in Australia,” the analysts added.
Closing the funding gap
Concurrently, Sigma’s closing of a $100 million fundraising effort to advance Grota do Cirilo was universally viewed as a positive by analysts covering the stock. The facility has a four-year maturity date and an interest rate of 6.95% per annum.
In the view of Canaccord’s analysts, the debt facility alleviates any near-term funding concerns related to the remainder of construction at Phase 1 and bolsters the balance sheet in advance of a Phase 2 + Phase 3 expansion.
“Based on the company’s cash balance of C$58 million on Nov. 18, 2022, we estimate that Sigma now has up to ~C$190 million in liquidity. The balance sheet should further improve upon first concentrate sale in Q2 2023,” the analysts said.
Cormark's analysts also noted that the debt facility eliminates the risk of issuing equity to fund engineering for the expansion.
The financing facility fills a previously highlighted funding gap for Phase 1 enabling commissioning to begin within the next three months, analysts at National Bank of Canada noted.
They said that the company's rating is justified by Grota do Cirilo’s “attractive economics and significant near-mine growth potential positioning the company in the top five largest lithium producers, complemented by SGML’s explicit ESG focus.”
National Bank of Canada analysts have a $55.50 price target on Sigma shares.
Contact Angela at angela@proactiveinvestors.com
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