In an April 22 research note, analyst Eric Zaunscherb reported that Canaccord Genuity raised its target price to CA$2.75 per share from CA$2.25 on Neo Lithium Corp. (NLC:TSX.V), its "top lithium exploration pick." The company's stock is currently trading at around CA$0.73 per share.
Zaunscherb explained that "the increased target price reflects conservatively applied parameters gleaned from the Tres Quebradas lithium brine project prefeasibility study, including the impact of higher grades and flow rates in early years."
The higher target also takes into account Canaccord having lowered its assigned discount rate on the project to 11% from 12%. "The reduced discount rate mirrors the project stage, management's ongoing success in derisking the project and our increased confidence following a successful site visit," Zaunscherb indicated.
The analyst then presented the main reasons why Canaccord highly favors Neo Lithium as an investment.
One, its Tres Quebradas is "the highest-grade lithium brine project with the most attractive chemistry globally in the hands of a junior company," Zaunscherb commented. Canaccord expects that over the next two to three years, the company will take the project through ramp-up of lithium carbonate equivalent production, toward 20,000 tons per annum, and require low capex and opex to do so.
Also, the project offers "excellent" exploration upside, with the high likelihood the mine can produce at a greater rate and for longer than the terms outlined in the prefeasibility study.
Two, the company's management team has "done a superb job advancing" Tres Quebradas, and maintains a "strong and positive relationship with the government of Catamarca," Zaunscherb noted. Given those two factors, Neo Lithium should easily move through the feasibility and permitting stages.
Three, Neo Lithium's is currently trading at "a considerable discount to non-precious exploration and development companies we cover," and to "peer averages based on enterprise values per in situ resources and reserves," indicated Zaunscherb.
Four, if the lithium price remains static over the next 12 months, Zaunscherb wrote, Neo Lithium should lean toward offering reward versus risk.
Canaccord Genuity has a Speculative Buy rating on Neo Lithium.
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Disclosures from Canaccord Genuity, Neo Lithium Corp., Raising Target Price, April 22, 2019
Analyst Certification: Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the research.
Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Required Company-Specific Disclosures (as of date of this publication):
Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking services from Neo Lithium Corp. in the next three months.
An analyst has visited the material operations of Neo Lithium Corp.. Partial payment was received for the related travel costs.
The authoring analysts who are responsible for the preparation of this research have received (or will receive) compensation based upon (among other factors) the Investment Banking revenues and general profits of Canaccord Genuity. However, such authoring analysts have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Investment Banking activities, or to recommendations contained in the research.
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