Clarus Securities analyst Varun Arora, in a research report published on May 30, 2024, provided an update on Lithium Ionic Corp. (LTH:TSX; LYHCF:OTCQX) following the company's release of a positive feasibility study (FS) for its Bandeira lithium project in Brazil. The analyst maintained a Speculative Buy rating and a target price of CA$8.00 on the stock.
"LTH announced the results from Feasibility Study at its Bandeira project, which is located next to CBL's producing mine, as well as Sigma's Phase 2 Barreiro project," Arora noted. The analyst highlighted the robust economics demonstrated in the FS, with an NPV to Capex ratio of approximately 4.9x and globally top quartile margins.
"Bandeira's FS has confirmed robust economics with NPV:Capex of ~4.9x and globally top quartile margin with an operating cost of US$444/t and AISC of <US$600/t vs developer peers at ~US$660/t; LRS US$599/t, Sigma US$523/t & CBL ~US$550/t," Arora stated.
The analyst emphasized the significant near-term upside potential beyond the FS results, suggesting that the study is "only a snapshot in time, offering immediate upside from the expanded M&I resource reported in April 2024 as well as from conversion of inferred resources into the mine plan." Arora estimates a potential for up to a 40% boost in mine life and a 30% increase in NPV to approximately US$1.7 billion.
Lithium Ionic's strategic plans include advancing the Bandeira project towards production, with the company aiming to become Brazil's next operating lithium mine by H2/2026. Arora highlighted several key advantages for LTH, including:
1. Early submission of permitting application in November 2023
2. Secured grid power connection and water rights for Bandeira
3. Permitting process progressing well, with mine construction approval expected in Q3/2024
4. Completion of the FS, which is a material de-risking milestone
The analyst also noted multiple catalysts for Lithium Ionic over the balance of 2024, including potential non-dilutive funding opportunities, 50,000 meters of planned drilling, construction permit approval, and the commencement of initial mine development.
Clarus Securities' valuation methodology for Lithium Ionic is not explicitly stated in the provided report excerpt. However, given the analyst's focus on the project's NPV and comparison to peer companies, it's likely that a combination of discounted cash flow analysis and peer comparisons is used to derive the target price.
With a Speculative Buy rating and a target price of CA$8.00, representing a substantial potential return from the price at the time of the report of CA$0.89, Clarus Securities views Lithium Ionic as an attractive investment opportunity in the lithium sector.
Arora concluded that despite its robust project economics and strategic advantages, "at CA$123 MM mkt cap, LTH is the cheapest of all the players in the region."
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Disclosures for Clarus Securities, Lithium Ionic Corp., May 30, 2024
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