Lithium Co. Deeply Undervalued, Analyst Says

Source: Frederic Tremblay 08/20/2024

For this company with projects in Brazil, the acquisition of a neighboring lithium developer is significant, noted a Desjardins report.

Lithium Ionic Corp.'s LTHCF neighbor in Brazil, Latin Resources Ltd. LRSRF, developing its flagship Salinas lithium project, agreed to be acquired by Pilbara Minerals Ltd. PILBF, an Australian hardrock lithium producer, reported Desjardins analyst Frederic Tremblay in an August 15 research note.

"Overall, we view the Pilbara-Latin transaction as positive for [Lithium Ionic]" Tremblay wrote.

Lithium Ionic is a Canadian company whose Bandeira and Salinas projects are in Brazil's Minas Gerais state. The company's Salinas asset is adjacent to Latin Resources' Salinas project.

621% Return Potential

Lithium Ionic's share price at the time of the report was about CA$0.52, reflecting a "deeply depressed" valuation, noted Tremblay. In comparison, Desjardins' price target on the Canadian company is 621% higher, at CA$3.75 per share.

Lithium Ionic is a Buy.

The price being paid for Latin Resources highlights Lithium Ionic's "cheap valuation" and "the potential to unlock value through transactions" wrote Tremblay.

Despite both companies having relatively equivalent global mineral resource estimates, Latin Resources in the deal is receiving US$152 per ton of lithium carbonate equivalent from Pilbara, per Desjardins' calculation, and Lithium Ionic is trading at about US$18 per ton.

As for their overall resource estimates, Latin Resources has 77,700,000 tons (77.7 Mt) of 1.24% lithium oxide (Li2O), and Lithium Ionic has 60.1 Mt of 1.28% Li2O.

The Pilbara-Latin deal is an all-share transaction at a premium of 57% to the 10-day volume-weighted average price (VWAP) and 32% to the 30-day VWAP.

Implications for Lithium Ionic

Tremblay presented the two other ways the acquisition is significant for Lithium Ionic.

One, the deal confirms Brazil is an attractive jurisdiction for future lithium mining, the analyst wrote. The fact that Pilbara, a leading lithium producer in Australia, is going to a different continent for an acquisition project validates Brazil's lithium industry as well as Minas Gerais' "attractive attributes for lithium project development and operations (e.g.,) fast-tracked permitting process, pro-mining government, low costs, access to labor, established infrastructure)" wrote Tremblay.

Two, the acquisition reinforces Lithium Ionic's status as a takeout candidate, Tremblay pointed out. One possibility is that Pilbara acquires Lithium Ionic's Salinas project, too, given the potential for synergies between it and Latin Resources' Salinas project. Another possibility is that Lithium Ionic gets taken out in its entirety rather than just one of its assets, by, say, a company looking for exposure to Brazil.

"That said, we also continue to view [Lithium Ionic] as an attractive investment even if no takeout scenario ultimately materializes" wrote Tremblay.

What To Watch For

Upcoming catalysts for Lithium Ionic include drill results, receipt of construction permits for Bandeira, expected in Q3/24, and completion of the Salinas preliminary economic assessment, expected in H2/24.

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.
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Disclosures for Desjardins, Lithium Ionic Corp., August 15, 2024

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