Lithium Power International Ltd (ASX:LPI) has been initiated by Edison Investment Research with a valuation of A$1.02/share based on key operating and cost assumptions from the 2022 DFS of the Maricunga Lithium Brine Project in Chile.
Edison sees relatively attractive economics for the project, supported by the strong lithium market fundamentals and low opex.
The following is an extract from the initiation report:
Lithium Power International (LPI) owns 51.6% of the advanced lithium brine project in the Maricunga Salar in Chile. Based on the 2022 updated feasibility study, the project has relatively attractive economics supported by the strong lithium market fundamentals and low opex. Lithium demand is expected to grow exponentially, driven by e-mobility, with prices likely to remain at elevated levels that will encourage new supply. We value LPI at A$1.02/share based on the 15.2ktpa carbonate operation and additional lithium resources that are currently outside of the project’s scope.
Maricunga: Permitted lithium project with scalability
Since the release of a 20ktpa DFS in 2019, Maricunga’s scope has been revised in 2022 to focus on a smaller scale 15ktpa carbonate project underpinned by the mining concessions, which do not require a special operating licence (CEOL). This significantly reduces permitting and execution risks. The project’s brine resources have also been upgraded at depth to support the similar 20-year operating life. The smaller-scale 2022 DFS confirmed an attractive opex of US$3,864/t, and while the project’s capital intensity is relatively high, as it requires an additional processing step, it is expected to produce a high-quality battery grade product, which should be sought after in the structurally tight lithium market.
Lithium: In short supply
The lithium market is undergoing significant transformation on the back of explosive growth in e-mobility and energy storage. Given the shortage of development-stage lithium projects, the market is likely to remain in structural deficit at least over the next two to three years. This should support higher prices to incentivise new supply. After a period of market weakness in 2020–21 due to COVID-19, spot carbonate prices delivered to China have recently exceeded the US$50,000/t level. We conservatively model a contract carbonate price of US$23,000/t in 2022–24, falling to our long-term price assumption of US$17,000/t in 2027.
Valuation: 15ktpa project yields healthy upside
Our valuation of LPI is based on the 15.2ktpa project, and key operating and cost assumptions from the 2022 DFS. We use a discounted cash flow to equity approach that assumes equity dilution. At a 10% discount rate, our NPV yields a valuation of A$0.85/share for LPI. To this we add a value for the remaining lithium resources, which we estimate at A$0.18/share. A 10% increase in our long-term carbonate price moves our base case NPV up by c 20%. We see the key risks as an uncertain political situation and general opposition to lithium projects in Chile.