Atlas Lithium Corp. (ATLX:NASDAQ) announced a strategic investment and offtake agreement from Mitsui, "which we expect to aid in fast tracking the development of Atlas' Minas Gerais lithium project in Brazil," reported Alliance Global Partners analyst Jake Sekelsky in an April 2 company update.
"The agreement with Mitsui serves as an additional form of validation for Minas Gerais," Sekelsky wrote.
223% return implied
Upon the news, Alliance revised its target price on Atlas to $55 per share, down from $75. It did this to reflect dilution incurred from the Mitsui investment, to reflect Alliance's newly decreased discount rate on Atlas given Minas Gervais' lower risk profile and to reflect Alliance's new, reduced, short-term lithium price forecasts.
As for the latter, Sekelsky explained, "While we remain constructive on the longer-term outlook for lithium, we expect near-term volatility to continue due to a combination of oversupply and weaker demand fears."
Despite Alliance's reduced target price on Atlas, the stock still offers investors significant potential gain, of 223%. This is based on the battery metals company's current share price of about $17.02.
Atlas remains a Buy.
"We continue to believe Atlas trades at a discount and believe the company is primed for a rerating in the coming quarters," wrote Sekelsky.
Terms of Mitsui agreement
With respect to Mitsui's equity investment in Atlas, the $30M is equal to a 10% premium to Atlas' five-day volume-weighted average price. This amount, purported Sekelsky, should cover initial capex for phase one at Minas Gervais and cover advancement of the project to the start of production.
Per the offtake agreement, Mitsui will purchase 15,000 tons per annum (15 Ktpa) of lithium concentrate during phase one of production and 60 Ktpa during phase two at the Neves project, part of the Minas Gervais set of mineral claims, Sekelsky noted. These amounts are only a portion of the production capacity estimated for both phases, about 150,000 tons (150 Kt) in phase one and about 300 Kt in phase two.
"We view leaving uncommitted capacity as a strategic step by management in order to allow for additional flexibility with respect to future strategic agreements," Sekelsky commented.
The analyst highlighted that Atlas is amassing strategic partners while obtaining funding for initial capex needs at Minas Gervais ahead of the initiation of production. Prior to the Mitsui agreement, in Q4/23 Atlas landed a $50M offtake agreement, including an equity investment, with Chengxin Lithium and Yahua Lithium.
Rest of 2024 catalyst rich
Atlas plans to begin production at Minas Gervais sometime later this year.
In the meantime, by the end of April, the processing facility, now 80% done, is expected to be shipped to Brazil.
Also in Q2/24, the maiden resource estimate and preliminary economic assessment on the project should be completed, with the final permits and construction to start in H2/24.
"We view Atlas as an emerging lithium producer with the ability to scale up production in a staged approach," wrote Sekelsky.
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