Lithium Power International Ltd (ASX:LPI) has received a higher share price valuation of A$1.42 per share, up from A$1.24 per share, on the back of a lithium price upgrade and the associated higher project equity dilution, according to a study from Edison Investment Research.
The analyst raised its near-term lithium price expectations to reflect the current supply and demand cycle and upgraded long-run price forecasts from US$17,000 per tonne to US$22,500 per tonne lithium carbonate equivalent to reflect lithium’s high demand growth and highly concentrated supply fundamentals.
Despite the current backdrop of slower global growth and somewhat weaker lithium prices, lithium supply/demand fundamentals remain favourable, and the sector retains its attractive long-term growth potential.
Below are key excerpts from Edison’s research report:
Strong long-term demand fundamentals
Lithium is a solid long-term structural growth story, reflecting its use in electric vehicle (EV) batteries and other energy storage applications linked to grid decarbonisation.
We see demand growing at a 20.3% CAGR from 2022 to 2030, which is exceptionally high in commodity and chemical markets.
Our estimates point to lithium demand in 2030 of approximately 3 million tonnes, broadly in line with industry and International Energy Agency projections and 4–5x current levels.
At a typical capital intensity of US$25,000/tonne (according to our review of public project plans), we estimate that the 2.1 million tonnes per annum of additional industry capacity by 2030 will require US$52.5 billion of investment.
This is both a financing and a technical challenge in this timeframe. Supply chain security and the decarbonisation of critical minerals supply chains mean a wide variety of new entrants will be needed.
Maricunga update: Water rights acquisition
LPI has recently announced that it completed an acquisition of the water rights for the Maricunga project.
This replaces a long-term lease that the company held for part of its water requirements and will secure water supply for both Stage 1 (15,200 tpa lithium carbonate) and any future expansions.
LPI estimates the initial stage of the project will only require eight litres/second of water compared to the 62 litres/second rights acquired by the company.
Valuation: Up on higher lithium prices
Our valuation of LPI increases from A$1.24/share to A$1.42/share on the back of the higher lithium prices, which were partly offset by the lower share price (A$0.50 vs A$0.71) and the associated higher project equity dilution.
Our underlying project assumptions remain largely unchanged and are based on Maricunga’s 2022 DFS.
We now assume 100% consolidation of the project ownership by LPI and have also updated our model for the latest financial results.
Despite the current backdrop of slower global growth and somewhat weaker lithium prices, lithium supply/demand fundamentals remain favourable, and the sector retains its attractive long-term growth potential.