American Lithium#: Secure, Scalable and Sustainable
American Lithium (CVE:LI) has completed the acquisition of Plateau Energy Metals to create a diversified lithium development company with one of the largest contained lithium resources of c12mnt LCE, in an industry where scalability will be increasingly important. The Falchani project in Peru is a volcanic tuff, amenable to acid leaching and the management team, whose technical specialists join American Lithium’s, are already applying their extensive knowledge to the flagship asset in Nevada, Tonopah, as the company seeks to capitalise on the impressive strong recoveries and rapid leaching times which are central to the investment case. The combined entity has a cash position of C$19m following a recent fundraise while, with the US Bureau of Land Management (BLM) accepting the Plan of Operations as complete with particular recognition for the early detailed environmental studies undertaken so far, the company is therefore well placed to advance workstreams across both projects to deliver a number of milestones in 2021/2, including a PFS, with a holistic environmental focus.
US Lithium Upside Risk Being Realised
Lithium prices have been amongst the strongest performing in the metals & mining space YTD, up some 120%. However, the immature nature of the market has created a significant opportunity with lithium equities down 6% YTD based on the Global X Lithium ETF despite a recent rally. With President Biden committing US$1.9trn in response to COVID-19, of which a significant proportion is dedicated to the energy transition and building a domestic supply chain within the USA, the medium-term outlook for lithium has been strengthened. This has been underpinned by the 100-day White House review which has highlighted the imperative need to invest in the full-scale lithium battery supply chain including the sourcing and processing of critical minerals. However, despite the advance of domestic projects the USA is likely to remain a net importer and projects which can be controlled by the US either by their location, ownership or management teams will have strategic value as this domestic supply chain is developed.
Recommendation and Target Price
American Lithium, up 28% YTD, now has two complimentary development assets which can be developed to be cornerstones of the new US battery supply chains. The knowledge and data acquired in this transaction are likely to play a key role in derisking Tonopah and unlocking project value supported by a strong macro backdrop. Our valuation is now based on a combination of EV/t resource valuations and risked NAVs.
We reiterate our Buy recommendation and increase our target price 76% to C$6.95/sh.
Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: email@example.com
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