Supply: Streetwise Studies 09/20/2024
In Brazil’s rising lithium sector, a US$370 million acquisition of an area firm has different junior explorers the questioning in the event that they may very well be subsequent.
Lithium costs have been on fairly the curler coaster. After peaking at a excessive of over US$79,637 per ton in 2022 on the again of the battery energy wanted for electrical automobiles (EVs) and the vitality transition, they hit their lowest level in three years in 2024 after EV gross sales did not soar as excessive as anticipated.
However that does not imply lithium will not nonetheless be wanted, or that EVs will not ultimately fulfill their promise, serving to transition the financial system to cleaner vitality.
Chief Government Officer Dale Henderson of Australian miner Pilbara Minerals Ltd. PILBF, which not too long ago introduced a US$370 million deal to take over Latin Assets Ltd. and its Salinas lithium venture in Brazil, mentioned his firm is pondering long-term with the acquisition.
“The standard of the Salinas venture that Latin Assets has developed may be very top quality and we predict it will likely be a really low-cost operation as soon as totally developed” Henderson mentioned, in response to a Reuters article. “Inevitable worth cycles, it will likely be in a position to navigate these, we predict, with ease.”
Below the all-share deal, Latin Assets shareholders will obtain 0.07 new Pilbara shares for every share held. After the deal was introduced in August, shares of Latin Assets soared 56% of their greatest one-day share acquire in additional than two years, one other Reuters article reported.
In Brazil’s rising lithium sector, the place an “overhaul in lithium export laws has reworked the nation right into a burgeoning hub for lithium manufacturing” in response to S&P International, the deal has different junior explorers questioning who may very well be subsequent.
A New Hub for Lithium Manufacturing
Brazil is turning into a burgeoning hub for lithium manufacturing, unlocking huge financial potential and attracting international investments.
“With three operational crops and eight extra deliberate, Brazil’s lithium carbonate equal output reached 29,976 Mt (metric tons) in 2023, with expectations of as much as a fivefold enhance by 2028” S&P famous.
Based on BMO Capital Markets analyst Greg Jones in an August 14 analysis report, the Pilbara acquisition of Latin Assets represented a 32% premium to Latin Assets’ 30-day VWAP (volume-weighted common worth).
“Primarily based on Latin’s assets of 77.7 Mt at 1.24% Li20, the consideration implies an EV (enterprise worth)/useful resource a number of of ~US$150/t LCE, which is usually consistent with multiples paid in different latest lithium developer transactions” Jones wrote.
Latin Assets’ “Salinas lithium venture has the potential to develop into one of many 10 largest rock-based lithium operations on this planet by way of manufacturing and will open up new progress markets in Europe and North America for Pilbara Minerals” Henderson informed the Exposibram (Brazilian Worldwide Mining Expo and Congress) occasion in Brazil, in response to an article in Stockhead.
“A September 2023 preliminary financial evaluation outlined the potential for an 11-year operation to supply 499,000 tonnes of 5.2% spodumene at complete money prices of US$567 per tonne” at Salinas, Australian mining journalist Kristie Batten wrote for the web site. “Capital prices for the two-stage operation are US$308 million, which will probably be refined by Pilbara as a part of an optimized definitive feasibility research by Pilbara as soon as the acquisition closes.”
The deal is predicted to shut by early December.
An Alternative for Patrons
BMO’s Jones wrote in a late August report that the panorama within the Americas (together with South America) is offering a possibility for patrons, Batten reported.
“Given present valuations and the issue in elevating capital, we see the situations as being favorable for M&A from a purchaser’s perspective” Jones famous within the report. “In our view, initiatives that patrons will discover probably the most enticing will provide high-quality assets with large-scale, long-life potential, low capital depth, working prices on the decrease finish of the fee curve, entry to infrastructure, in addition to profit from an outlined allowing course of and social license/group help.”
Whereas the agency sees a “restricted universe of potential patrons on the present time” he wrote, “These circumstances might current [an] alternative for others to outright purchase (e.g., mining-focused personal fairness), or pursue strategic/three way partnership investments (e.g., auto OEMs, battery producers) with much less competitors.”
“As well as, the present setting could immediate authorities funding, or direct involvement with a view to encourage venture growth, which might help developer valuations and bridge the hole to a stronger M&A market” Jones wrote, in response to Batten.
The Catalyst: Metallic Helps Put Spark in Power Transition
What is the huge deal? Lithium is a vital metallic important within the vitality transition for its use in batteries for EVs and different functions. It is also utilized in electronics, drugs and different industries.
International demand for lithium is predicted to keep up the regular climb it commenced in 2020 to at the least 2035, Statista knowledge present, reaching 3,829,000 metric tons of LCE from 917,000 metric tons in 2023.
Based on a report by Grand View Analysis, market measurement for the metallic was estimated at US$31.75 billion final 12 months and is projected to develop at a compound annual progress price (CAGR) of 17.7% from this 12 months via 2030.
“The automotive software section is predicted to witness substantial progress, pushed by stringent laws imposed by authorities our bodies on ICE automakers to scale back carbon dioxide emissions from automobiles” researchers mentioned. “This has shifted the curiosity of automakers towards producing EVs, which is anticipated to learn the demand for lithium and associated merchandise.”
EVs and battery storage primarily will gasoline future progress of the lithium market, Marin Katusa of Katusa Analysis wrote not too long ago. He identified that every one main electrical car batteries require lithium, about 1.55 kilos per kilowatt hour of battery capability, on common.
“I feel the info speaks for itself that there is extra progress and alternative on the horizon” Katusa wrote.
Slowdown May Simply Reverse
In a July article for Reuters, Andy Residence wrote that the present slowdown might simply reverse.
“One vital facilitator would be the build-out of EV charging infrastructure, a sector which has attracted far much less funding than battery manufacturing” he wrote. “Automobile patrons in Europe and the USA are selecting hybrids due to vary anxiousness, and they’re going to proceed to take action till they see extra charging factors. The second key issue is worth.”
Nonetheless, “the seeds of the following lithium upswing are already being sown within the present low-price setting” Residence wrote.
S&P reported that native business gamers in Brazil agree with Pilbara’s Henderson and are assured that “the low-cost construction of their initiatives and projected aggressive manufacturing prices will assist them stand up to the continued pricing stress.”
Following are two junior explorers working within the nation and watching the Pilbara/Latin Assets transaction with deep curiosity.
Atlas Lithium Corp.
Atlas Lithium Corp. ATLX introduced this 12 months that it has greater than doubled its lithium exploration portfolio within the Brazil’s “Lithium Valley” to about 539 sq. kilometers, or almost 54,000 hectares (roughly 133,000 acres), main the corporate to imagine “it has the most important declare possession place of any listed firm on this new lithium frontier” and the “largest lithium exploration footprint in Brazil.”
Earlier this 12 months, Atlas signed an offtake settlement with Mitsui & Co. Ltd. MITSF for future manufacturing from the corporate’s Neves Mission. Mitsui is likely one of the largest international corporations with headquarters in Japan; Warren Buffett’s Berkshire Hathaway is one among its largest traders.
Mitsui invested US$30 million in buying frequent shares of Atlas Lithium. In parallel, Mitsui secured an offtake settlement with Atlas Lithium, making certain entry to fifteen,000 tons of lithium focus from the preliminary manufacturing with the potential to broaden as much as 60,000 tons yearly.
The corporate’s modular dense media separation (DMS) lithium processing plant, fabricated in South Africa and presently in pre-shipment stage, is a key a part of its technique to advance manufacturing at its Minas Gerais lithium venture in a cheap and environmentally sustainable method.
“Atlas Lithium’s strategic initiatives in Brazil aren’t simply pivotal for the corporate but additionally play a vital function within the broader context of U.S. efforts to scale back dependence on international sources for these important supplies” wrote Mangeet Kaur Bouns for Benzinga. “The enlargement of Atlas Lithium’s exploration footprint in Brazil . . . highlights the potential of this area as a big contributor to the worldwide provide chain of vital minerals. Because the world transitions to a greener vitality combine, the demand for these minerals is about to skyrocket.”
And it isn’t only for environmental sustainability. The strategic significance of the mineral extends to nationwide safety and financial growth.
“China’s dominance in producing and processing vital minerals could exacerbate these dangers, as highlighted by latest geopolitical tensions and commerce restrictions” the Benzinga report mentioned. “To mitigate these vulnerabilities, the U.S. authorities is specializing in securing provide chains via partnerships and investments in international locations wealthy in vital minerals. With its substantial reserves of copper, lithium, and different vital minerals, Latin America is rising as a key area for such investments.”
Analyst Joe Reagor of ROTH Capital Companions wrote in a analysis observe on July 26 that “we proceed to imagine Atlas Lithium Corp. has the potential to enter manufacturing in early 2025.”
Heiko Ihle, an analyst with H.C. Wainwright & Co., agreed in a July 9 observe.
“We stay assured that the agency can begin recording income from spodumene at Das Neves as soon as manufacturing begins” the analyst wrote.
About 34% of Atlas Lithium is owned by administration and insiders. About 11% of the shareholders are institutional, strategic companions with one other 12%. The remaining, about 43%, is retail.
Prime shareholders embody Waratah Capital Advisors Ltd. with 4.34%, Mitsui & Co. Ltd. with 12.27%, and Candace Shira Associates LLC with 1.39%, in response to Reuters.
Its market cap is about US$143.8 million. It trades in a 52-week vary of US$34 and US$8.37.
Lithium Ionic Corp.
One other firm within the nation making the transition from exploration to manufacturing is Lithium Ionic Corp. LTHCF has achieved a milestone with the approval of its remaining exploration stories for the Bandeira and Outro Lado lithium properties by Brazil’s Nationwide Mining Company (Agencia Nacional de Mineracao, or ANM).
The corporate has submitted each the mining concession software and the financial viability research (Plano de Aproveitamento Economico, or PAE) for its Bandeira property following the ANM’s approval. The PAE outlines technical, financial, and environmental particulars of the mining venture and is seen as important for securing the ultimate approval wanted for the venture’s operational part.
A Feasibility Examine printed earlier this 12 months for the corporate’s flagship Bandeira Lithium Mission highlighted a post-tax NPV of US$1.31 billion and an IRR of 40% for a 14-year mine life producing a median of 178,000 tonnes per 12 months of 5.5% spodumene focus at a low working value of US$444 per tonne.
Now, Lithium Ionic is awaiting approval for the Licenca Ambiental Concomitante (LAC), an environmental license that may allow building on the Bandeira web site, with approval anticipated within the coming months. The LAC is one other vital step earlier than the mining concession will be totally granted.
In a September 10 analysis report, BMO’s Jones highlighted the importance of the ANM approval, stating, “LTH has now submitted the Mining Concession software and the Financial Viability Examine. Reaching concession standing will mark the ultimate authorized approval required to transition Bandeira from exploration to extraction/manufacturing.”
The analyst maintained an Outperform(S) score and a goal worth of CA$2.00 on the inventory.
Canaccord Genuity Analyst Katie Lachapelle, in one other September 10 analysis report, wrote that “from a regulatory perspective, the following main hurdle — and a key catalyst, in our view — would be the approval of the Licença Ambiental Concomitante (LAC) for the Bandeira Lithium Mission.” Lachapelle maintained her Speculative Purchase score for Lithium Ionic with a worth goal of CA$2.50.
Lastly, Desjardins Analyst Frederic Tremblay rated Lithium Ionic a Purchase in an August 15 analysis observe.
Pilbara’s acquisition of Latin Assets reinforces Lithium Ionic’s standing as a takeout candidate, Tremblay identified. One risk is that Pilbara acquires Lithium Ionic’s Salinas venture, too, given the potential for synergies between it and Latin Assets’ Salinas venture. One other risk is that Lithium Ionic will get taken out in its entirety relatively than simply one among its property, by an organization searching for publicity to Brazil.
“That mentioned, we additionally proceed to view [Lithium Ionic] as a pretty funding even when no takeout state of affairs finally materializes” wrote Tremblay.
Based on the corporate, administration and insiders personal 20% of the Lithium Ionic.
One of many insiders, President & Director Helio Diniz, owns 5.52%, Director Michael Lawrence Man owns 5.10%, Director David Patrick Gower owns 2.56%, and Andre Rezende Gumaraes owns 2.52%, in response to Reuters.
30% is held by institutional traders. Reuters stories Waratah Captial Advisors owns 7.01%, JGP Gestao de Recursos Ltda owns 2.69%, RBC International Asset Administration Inc owns 1.94%, Sprott Asset Administration LP owns 1.55%, BMO Asset Administration owns 1.30%, and IXIOS Asset Administration SA owns 1.20%. The remaining is retail.
Lithium Ionic has 158.58 million shares excellent and 131.15 million free-float traded shares.
The corporate’s market cap is CA$104.66 million, and it trades in a 52-week vary of CA$0.41 – 2.24 per share.
Necessary Disclosures:
- Atlas Lithium Corp. and Lithium Ionic Corp. are billboard sponsors of Streetwise Studies and pay SWR a month-to-month sponsorship price between US$4,000 and US$5,000.
- Steve Sobek wrote this text for Streetwise Studies LLC and offers companies to Streetwise Studies as an worker.
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