On 11 April, Lepidico Ltd. (AX:LPD) announced an updated global mineral resource estimate of 5.87Mt at 0.87% Li2O at Alvarrões in Portugal, of which two-thirds (by tonnage) is contained within pegmatites and the remaining third within a 0.5m mineralised halo within the granite host rock. Although the average grade of the resource appears to have decreased, this can be attributed to the inclusion of the halo within the estimate. Excluding it, the aggregate grade of the pegmatite mineralised units has actually risen. Moreover, whereas before 100% of the resource was classified in the lower-confidence inferred mineral resource category, in the updated estimate 44.3% resides within the indicated category.
Feasibility study anticipated later this quarter
Lithium mineralisation in the pegmatites is dominated by lepidolite, which comprises c 10–15% of the pegmatites. The mineralisation within the 0.5m halo is dominated by zinnwaldite – another lithium-mica mineral, albeit one that is still amenable to processing via Lepidico’s proprietary L-Max® technology. Not only does the updated estimate represent a material increase over the December 2017 estimate, it also now exceeds the top end of our prior (non-JORC) estimate of 4.4Mt at a grade of 1.13% Li2O (see our note, Alvarrões continues to deliver, published on 4 October 2017), not least via the inclusion of a newly defined sill (denoted Sill P) down to a depth of 80m. As a result, we estimate that the Alvarrões resource now contains c 126,249t of lithium carbonate equivalent, which we value at US$4.4m (A$6.1m), or 0.18 Australian cents per share (see our note, Mining overview: Gold stars and black holes, Analysing the discount: From resource to sanction, published in January 2019). Of at least as much significance, however, is the fact that Alvarrões has now been confirmed as an extensive system of lithium-mineralised pegmatites of sufficient scale and quality to provide long-term lepidolite concentrate feed for Lepidico’s Phase 1 L-Max plant for well over 10 years and will contribute to a maiden ore reserve later this quarter.
Valuation: 6.84c/share potentially rising to 7.27c
As per our most recent Outlook note, Piloting its way through, published on 9 October 2018, we estimate that execution of a 7t/hour (5,000tpa) Phase 1 plant will result in free cash flow to Lepidico of A$71.2m per year once steady-state production has been achieved, which we value at A$0.0684/share assuming US$30m (A$41.8m) of equity financing at the prevailing share price or A$0.0727/share assuming a reduced US$21.2m in equity funding with a A$16.8m net debt funding requirement. Note that neither of these valuations ascribe any value to the Phase 2 plant or other development options.
Business description
Lepidico provides exposure to a portfolio of lithium assets via its wholly owned properties, JVs and IP in Australia, Canada and Europe. Uniquely, it has successfully produced lithium carbonate from non-traditional hard rock lithium-bearing minerals using its registered L-Max process technology.
