Lithium Ionic Corp. (LTH:TSX.V; LTHCF:OTCQX; H3N:FSE) should know by month-end whether it will be granted the critical license needed to advance its Bandeira lithium project in Brazil, reported Varun Arora, Clarus Securities analyst, in a Feb. 19 research note. Receipt of this permit likely would lead to partial project funding and a rerating of the mining company.
"Management has continued to advance the key project development initiatives. Engineering and logistical preparations are well underway, which will allow Lithium Ionic to commence construction activities at Bandeira soon after the LAC approval," Arora wrote, referring to the requisite Licença Ambiental Concomitante, an installation/construction license and an operating license in one.
Bandeira construction should take about 18 months, meaning first production could happen by late 2026, the analyst noted.
733% Return on Investment
A 733% return is implied in Clarus Securities' price target on Lithium Ionic, Arora highlighted. Whereas the target is CA$8 per share, the lithium explorer is priced at about CA$0.96 per share.
Lithium Ionic remains a Speculative Buy.
Final Decision on Feb. 28
Arora reported that SEMAD, or the State Department of Environment and Sustainable Development, the regulatory body overseeing environmental licensing in Brazil's Minas Gerais, recommended, in a technical report, Lithium Ionic be granted an LAC for Bandeira. The final decision, also noted in the report, is to be made on Feb. 28.
If the LAC is approved, the installation license, or LI, will be valid for four years. The operational license, or LO, will be valid for 10 years and may be renewed.
Warrants Higher Valuation
Investors should expect an upward rerating of Lithium Ionic if a LAC is granted, wrote Arora, given that LTH's current valuation is much lower than that of two nearby lithium companies.
Lithium Ionic's valuation is about CA$67 per ton of lithium carbonate equivalent, and Latin Resources' implied valuation when it was acquired last year (when its project was at the preliminary economic assessment stage) was about CA$215 per ton. Were Latin Resources' valuation multiple applied to Lithium Ionic, the resulting valuation would be about CA$250 million (CA$250M), or CA$2.50 per share on a fully diluted basis.
Similarly, if adjacent lithium producer Sigma Lithium Corp.'s (SGML:TSX.V; SGML:NASDAQ) valuation multiple were applied to Lithium Ionic, the resulting valuation would be about CA$1.2 billion (CA$1.2B), or CA$6.60 per share on a fully diluted basis.
Additionally, Arora wrote, Bandeira boasts "compelling economics," specifically an after-tax net present value discounted at 8% of US$1.3B and an internal rate of return of 40%, according to the May 2024 feasibility study.
Bandeira is forecasted to produce, on average, 178,000 tons per year of spodumene concentrate grading 5.5% Li2O. Opex is estimated to be US$444 per ton, which Arora indicated is low.
Supports Funding Agreement
Receipt of a LAC also would bode well for Lithium Ionic receiving debt financing from the U.S. Import-Export Bank (EXIM) in an amount that would cover initial Bandeira capex, US$266M, purported Arora. EXIM and the lithium company have a nonbinding agreement in place pertaining to this.
"Finalizing the debt funding agreement with EXIM will result in lower dilution than currently modelled in our valuation for LTH, resulting in upside to our target price," the analyst added.
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