Latin Resources Ltd (ASX:LRS) is expected to see material value accretion as it moves from lithium prospector to announcing a MRE at Salinas and ultimately defining its path to development, according to Bell Potter Securities.
Bell Potter estimates that LRS will deliver an initial MRE of up to 15Mt in December 2022 with defining features being a relatively high grade (~1.3% Li2O) and its delineation as a single deposit.
The following is an extract from Bell Potter’s initiation report:
Building a lithium base in Brazil’s mining heartland
LRS is progressing the Salinas Lithium Project (100% LRS) located in one of Brazil’s key mining states, Minas Gerais. An initial JORC Mineral Resource Estimate (MRE) is expected by the end of 2022, with ongoing drilling and metallurgical test work to further upgrade confidence levels, test mineralisation extensions and provide the required data for a Preliminary Economic Assessment (PEA) in the March 2023 quarter. Step out drilling has returned an additional lithium discovery within 500m of the company’s current focus and geological mapping has identified exciting prospects further afield. At 30 June 2022, LRS had cash of $34m to support ongoing works.
Aggressive path to adding scale & de-risk the project
We estimate that LRS will deliver an initial MRE of up to 15Mt in December 2022 with defining features being a relatively high grade (~1.3% Li2O) and its delineation as a single deposit. While key parameters will evolve as the Salinas PEA is completed, we expect that the deposit could notionally support +200ktpa spodumene concentrate operation. A potential analogue of Salinas is Sigma Lithium’s (TSX-V:SGMLV, not rated) project located around 100km to the southeast and designed to initially produce 270ktpa spodumene concentrate ramping up from early 2023.
Investment view: Speculative Buy, Valuation $0.18/sh
We expect material value accretion as LRS moves from lithium prospector to announcing a MRE at Salinas and ultimately defining its path to development. Our LRS valuation is based on modelling a notional project development at Salinas, heavily risked for its early stage of assessment. We expect the company to aggressively pursue the required feasibility studies and environmental permitting to de-risk Salinas with further potential upside from step-out and regional exploration over the short term.
LRS is an asset development company with prospective operations and cash flows. Our Speculative risk rating recognises this higher level of risk and volatility of returns.