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VSA Capital Market Movers - American Lithium and PYX Resources

Published: 11:19 16 Sep 2021 BST

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VSA Morning Miner, 16/09/21

 

American Lithium (CVE:LI)

American Lithium (CVE:LI) has announced further strong testwork results from Tonopah. The latest results relate to the salt roast and water leach process. Although we note that the recent newsflow highlights that testing is being carried out across all three processes with the data to be incorporated into the upcoming PEA; the three being, leaching with hydrochloric acid, sulphuric acid and this roast and water leaching.

The company has been assessing the performance with different reagent combinations primarily. 89.4% lithium extraction was achieved using gypsum, sodium chloride and sodium sulphate roasting, 87.3% using gypsum and chloride and 79.3% using gypsum only. With the former two combinations the process appears technically competitive against the other two main alternatives. Further optimisation has been undertaken relating to grind size, roasting temperature and time.

We highlight a crucial advantage which this process brings; it enables greater flexibility as to the production of lithium carbonate or lithium hydroxide. The market has shifted somewhat over the past two years with the expectations that lithium hydroxide could ultimately become dominant for batteries being reset by China’s higher safety standards prompting a resurgence in LFP batteries which favour lithium carbonate. The ultimate market balance therefore remains open and project flexibility is a great advantage, in our view, as development looms and the company courts offtakers and potential financing partners.

The second advantage of this process is that it appears to yield stronger results for the potential by-products including the highly technical but highly valuable rubidium hydroxide as well as SOP.

We reiterate our Buy recommendation and target price of C$6.95/sh.

 

PYX Resources (ASX:PYX)

PYX Resources (ASX:PYX) has announced a major fourth price increase for its premium zircon product of US$555/t to US$2,305/t. the last three increases totalled US$400/t and the latest increase highlights the severe market tightness driven by the inventory drawdowns caused by COVID-19 and compounded by the halt to Rio Tinto’s South African operations which has prevented supply from keeping pace with demand.

We recently upgraded our zircon price forecast, however, this now appears conservative as our full year average was US$2,300/t. The strong price increase appears in part to be driven by the company’s ability to produce a premium product, with limited impurities, suitable for specialist high tech applications which commands above benchmark pricing. Our current forecasts anticipate a doubling in revenue YoY in 2021F, however, this is also dependent on a substantial 47% increase in output as the Mandiri ramp up continues.

A 21% increase in product sales was achieved in H1 2021 driving a 20% increase in revenue YoY to US$4.7m. Higher prices and production are both back weighted to the latter part of the year which underpins our confidence in the potential for exceptional earnings growth in 2021F. However, with the company transitioning to in house mining, the business model is currently leveraged far more greatly to rising prices than to rising output. This means that even if the ramp up is slower than expected, in the current pricing environment the earnings impact from this latest pricing increase will be far more significant and our bullish forecasts for near term earnings can be achieved. The end result of the transition and growth programme across both assets, however, we believe will be amongst the lowest production costs in the sector and leading margins due to the company’s product mix which is uniquely dominated by zircon.

We reiterate our Buy recommendation and A$2.65/sh. target price.

 

Oliver O'Donnell, CFA, Head of Research & Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
Paul Renken, Senior Geologist | T: +44 (0)20 3005 5011 | E: prenken@vsacapital.com

VSA Capital Research | T: +44 (0)20 3005 5000 | E: research@vsacapital.com

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