Foster Stockbroking notes in its research update that Lithium Energy Ltd (ASX:LEL) looks undervalued when compared to other lithium brine developers and explorers.
This follows the completion of the scoping study for the Solaroz Lithium Project in Argentina’s Jujuy Province, which showcased the project’s potential as a large-scale, long-life, high-margin venture with excellent ESG metrics.
The pre-tax net present value (NPV10) of Solaroz stands at around $6.2 billion (US$3.9 billion), supported by an internal rate of return (IRR) of 44%.
Solaroz benefits from a substantial lithium resource, with a projected production capacity of up to 40,000 tons per annum (tpa) of battery-grade lithium carbonate equivalent (LCE) for 19 years, achieved through conventional evaporation pond processing.
The following is an extract from Foster Stockbroking’s research update:
Long-life and lowest cost quartile. A scoping study for Solaroz has been completed, yielding attractive metrics based on 40ktpa lithium carbonate production. Mine life is 19 years with NPV10 post-tax of US$2.2b and IRR 32%, using a lithium carbonate price of US$25k/t. The study also considered a single-train 20ktpa case, which can be employed for a lower capex start-up.
Conventional ponds to minimise risk. Pond evaporation was employed in the study given it is well established. However DLE is also being examined in parallel, given the benefits it can confer such as higher recovery and lower cost. Final decision will be made as studies advance.
Graphite a free option. LEL owns two graphite projects in Queensland with JORC resources. A PFS is being conducted to examine an integrated mine concentrator and purified spherical graphite plant. The assets are an attractive option, especially in light of the China export controls.
Undervalued vs peers. We show that using EV/Resource of LCE, as well as market capitalisation as percentage of project NPV, LEL looks undervalued when compared to other lithium brine developers and explorers. We believe these discounts will unwind as Solaroz progresses.