The turnaround of International Lithium Corp. (LON:ILC) has taken its first steps under the stewardship of a new Chairman/CEO appointed in March 2018. At the same time, the company continues to benefit from partnering with China’s “lithium major”, Ganfeng, which is providing support in terms of technology and capital. ILC’s core asset in Argentina, the Mariana lithium salar (brine lake), is centrally located in South America’s famous “Lithium Belt”, and should take two key steps towards commissioning in the next six to nine months, with i) a Preliminary Economic Assessment this summer, and ii) a Pre-Feasibility Study in early 2019.
Strategy: ILC’s goal is to unlock value from its three brine and hard rock lithium projects, as it takes advantage of explosive demand growth for lithium used in batteries for electric vehicles (EVs). The global market share of EVs is expected to grow by a factor greater than 10, from 1% in 2017 to 12%-15% by 2026.
Strategic partner: Ganfeng owns 11.35% of ILC and majority stakes in two of its lithium projects, which is in line with its strategy to ensure sufficient lithium supply in the future. It reiterated its commitment to Mariana in its recent Hong Kong IPO prospectus, with an ambitious target for commissioning in 2021.
ILC’s core Mariana project (it has three) should “punch above its weight”: Size is far from everything when it comes to lithium salars. A productive salar is dependent on high transmissivity (i.e. rate of flow through the aquifer), specific yield (the ratio of extractable brine) and the uniformity of lithium grades.
Risks: The new Chairman/CEO has resolved operational issues and, aside from the normal risks for a junior miner, his focus now is staying ahead of the funding curve – a further C$3.5m needs to be raised in 2018. A “funding feedback loop” is in play, where continued success should attract a fair valuation for ILC shares.
Investment summary: Our DCF valuation for ILC is C$0.30-C$0.37/share, based on the Mariana project only. Using EV/resources multiples, ILC is valued at less than US$40/t LCE (lithium carbonate equivalent), compared with the average for its small-cap peers above US$45/t. The May 2018 sale of Galaxy Resources’ non-core asset, Salar del Hombre Muerto (a lithium brine project with a resource estimate like Mariana), achieved an EV/resource price of US$110/t LCE.