London, UK, 10 October 2018
Edison issues outlook on Lepidico (LPD)
Although an abundant lithium-bearing mineral, lepidolite has hitherto been overlooked as there has been no commercial process by which to process it economically (unlike spodumene). Central to Lepidico (LPD:ASE) is its disruptive (patent pending) L-Max metallurgical technology that recovers lithium from micas (eg lepidolite), and therefore holds out the prospect of creating a new source of lithium supply. Lepidico has completed mini-plant trials on its L-Max process at a processing rate of 1kg/hour and a pre-feasibility study (PFS) on the development of a 3.6t/hour Phase 1 demonstration plant. It is developing a 15kg/hour pilot plant in part to mitigate scale-up risk, while simultaneously completing a full FS on a 7t/hour plant ahead of a final investment decision in mid-2019.
Our valuation of Lepidico is substantially based on the unit operating costs of the 3.6t/hour plant (on which the PFS was conducted) and our updated estimate of capex (see Exhibit 9). On the basis of this assumption, we estimate that execution of the 7t/hour Phase 1 plant will result in free cash flow to Lepidico of A$52.0m per year once steady-state production has been achieved. Assuming US$30m (A$42.4m) of equity financing at the prevailing share price, this implies a valuation for Lepidico of A$0.0398/share (vs A$0.0202 for the 3.6t/hour plant a year ago), rising to A$0.0530 in FY22, based solely on discounting our estimate of (maximum potential) future dividends to shareholders at a rate of 10% per year (fully diluted), ie no value is ascribed to the development of the Phase 2 plant or other development options.
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