Canadian Lithium Co. Achieves Major Derisking of Project

Source: Varun Arora 12/05/2024

The developer lands financing with the U.S. government’s credit agency for an amount equal to the initial capex, a Clarus Securities report.

Lithium Ionic Corp. (LTH:TSX.V; LTHCF:OTCQX; H3N:FSE) received a letter of interest (LOI) from the Export-Import Bank of the United States (EXIM) proposing up to US$266 million (US$266M) in debt financing, which would cover initial capex of its feasibility study (FS)-stage Bandeira lithium project in Brazil, reported Clarus Securities Analyst Varun Arora in a Nov. 27 research note.

“We think securing up to 100% of the project capex in nondilutive financing with a U.S. government agency, a highly coveted strategic partner, is a big win for the project and the team,” Arora wrote.

725% Return Potential

Lithium Ionic is trading now around CA$0.97 per share, at about a 70% discount to the August takeout valuation of neighbor Latin Resources Limited, for CA$509M by Pilbara Minerals Ltd. (PLS:ASX), noted Arora. Lithium Ionic’s valuation, however, is likely to rise for a few reasons.

“Given Bandeira’s robust economics, potentially fully funded status, current cash balance of about CA$30M, near-term milestones (including permitting potentially before year-end), and increasing mergers and acquisitions activity in the sector, we see a significant rerate opportunity for Lithium Ionic,” Arora wrote.

Clarus’ target on the Canadian lithium company is CA$8, suggesting a significant potential return for investors of 725%.

Lithium Ionic remains rated Speculative Buy.

Financing Likely to Happen

Bandeira aligns with EXIM’s China and Transformational Export Program, or CTEP, the purpose of which is to help secure critical minerals and energy supply for the country, Arora wrote.

The LOI from the U.S. government’s credit agency to Lithium Ionic “demonstrates Bandeira’s strategic importance amidst a push from the U.S. to secure the supply of critical minerals,” added the analyst. “Hence, while currently nonbinding, we see high likelihood that the debt funding will materialize given the geopolitical environment and a strong interest from the U.S. in securing critical minerals supply.”

Arora described the financing as the final hurdle before Bandeira could be advanced to construction, and this LOI from EXIM derisks it. He noted that Lithium Ionic has a long time, 15 years, to repay the debt.

Also, noted Arora, the expressed interest in Bandeira from the U.S. Department of Defense’s Southern Command and U.S. Department of State suggest there is a good potential for offtake agreements between Lithium Ionic and U.S. agencies, pertaining to future supply.

Project Could be Enhanced

Arora summarized the highlights of the 2024 Bandeira FS and pointed out elements offering “significant near-term upside.”

The FS outlines a 14-year operation producing about 178,000 tons per year at a cost of US$444 per ton and an all-in-sustaining cost of about US$600 per ton. The project would yield a net present value discounted at 8% (NPV8%) of US$1.3 billion (US$1.3B) and an internal rate of return of 40%. Payback would take 3.4 years.

About 5,000,000 tons (5 Mt) of Measured & Indicated resource could be added to Bandeira now, which would extend its life of mine by about three to four years and increase its NPV8% by 15–20% toward US$1.5B.

There is an Inferred near-surface resource of about 3–5 Mt within 200 meters of the FS-outlined mine, which should allow for mining at shallow levels with only minimal incremental capital development required.

Incorporating these resources into the mine plan early on could increase the grade in the first years and lead to greater early production and free cash flow.

Including both the M&I and Inferred resources mentioned would add 8–10 Mt, thereby increasing the mine life to 20-plus years and the NPV8% by about 40% toward US$1.7B.

Upside to Lithium Developer

Arora discussed exploration upside to Lithium Ionic, at both Bandeira and Salinas. As for Bandeira, the resource there, now at about 42 Mt of 1.35% lithium dioxide, is still growing. Bandeira accounts for only 1% of the company’s 17,000-hectare land package but about 70% of its global resource of about 60 Mt, suggesting “massive upside from regional exploration,” the analyst purported.

Regarding Salinas, summer 2024 drill results showed the Noe zone could nearly double the existing resource to about 30 Mt, from its current 14.8 Mt. (Pilbara’s adjacent Colina project has a current 77.7 Mt resource.) Latin Resources’ acquisition metric implies a valuation of about CA$75M for just the current 15 Mt resource at Salinas alone, noted the analyst. Pilbara’s takeout of Latin Resources “has massively enhanced Salinas’ strategic value,” Arora wrote.

Further, there is potential to consolidate Colina and Salinas down the line, given that about 8–10 Mt of the Colina resource may not be mineable because it is located on the claim boundary with Salinas.

“Consolidating the projects would avoid any sterilization at Colina, while further growing the mineable inventory and exploration upside with the addition of Salinas,” Arora added.

Near-Term Catalysts

Lithium Ionic management expects to receive construction permit approval for Bandeira by year-end, which would put the company ahead of peer, Colina owner Pilbara, by 12–18 months with respect to time to first production. First production at Bandeira is anticipated sometime in late 2026 to early 2027.

Before the end of 2024, a resource update for Salinas is expected, too. In the meantime, investors should watch for an offtake agreement tied to Bandeira production.

Sign up for our FREE newsletter at: www.streetwisereports.com/get-news

Important Disclosures:

1. Lithium Ionic Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
3. This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.

For additional disclosures, please click here.

Disclosures for Clarus Securities Inc., Lithium Ionic Corp., November 27, 2024

Clarus Securities Equity Research Disclosures Within the last 24 months, Clarus Securities Inc. has managed or co-managed a public offering of securities of this company. Within the last 24 months, Clarus Securities Inc. has received compensation for investment banking services with respect to the securities of this company.

General Disclosure The information and opinions in this report were prepared by Clarus Securities Inc. (“Clarus Securities”). Clarus Securities is a wholly-owned subsidiary of Clarus Securities Holdings Ltd. and is an affiliate of such. The reader should assume that Clarus Securities or its affiliate may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein. The opinions, estimates and projections contained in this report are those of Clarus Securities as of the date of this report and are subject to change without notice. Clarus Securities endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, Clarus Securities makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to Clarus Securities or its affiliate that is not reflected in this report. This report is not to be construed as an offer or solicitation to buy or sell any security. No part of this report may be reproduced or re-distributed without the written consent of Clarus Securities.

Conflicts of Interest The research analyst and/or associates who prepared this report are compensated based upon (among other factors) the overall profitability of Clarus Securities and its affiliate, which includes the overall profitability of investment banking and related services. In the normal course of its business, Clarus Securities or its affiliate may provide financial advisory and/or investment banking services for the issuers mentioned in this report in return for remuneration and might seek to become engaged for such services from any of such issuers in this report within the next three months. Clarus Securities or its affiliate may buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. Clarus Securities, its affiliate, and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities discussed herein, or in related securities or in options, futures or other derivative instruments based thereon.

Analyst’s Certification Each Clarus Securities research analyst whose name appears on the front page of this research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst’s personal views about the Company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst’s compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Dissemination of Research Clarus Securities’ Equity Research is available via our website and is currently distributed in electronic form to our complete distribution list at the same time. Please contact your Clarus institutional sales or trading representative or investment advisor for more information. Institutional clients may also receive our research via THOMSON and REUTERS.

( Companies Mentioned: LTH:TSX.V; LTHCF:OTCQX; H3N:FSE, )

Source: https://www.streetwisereports.com/article/2024/12/05/canadian-lithium-co-achieves-major-derisking-of-project.html