Following the upgrade of Colina lithium resource by Latin Resources Ltd (ASX:LRS, OTC:LRSRF), Pac Partners has maintained its buy recommendation on the stock and increased its 12-month target price to $0.52 per share, up from $0.50 previously,
Colina resource upgrade
Latin Resources increased the Colina resource by 41% to 63.5 million tonnes at 1.3% lithium oxide for 2.06 million tonnes of lithium carbonate equivalent (LCE). This came off the back of a six-month exploration campaign consisting of an additional 63 holes since the previous MRE of 45 million tonnes in June 2023.
Including the Fog’s Block prospect, which now has a maiden resource of 6.79 million tonnes at 0.87% lithium oxide, the Salinas project as a whole now contains 70.3 million tonnes at 1.27% lithium oxide for 2.2 million tonnes of LCE.
Drilling continues on site with 16 drill rigs to be in operation in early 2024 and drilling into the foreseeable future. Resource growth will come from Colina extensions, Planalto and Fog’s Block (which in itself has an exploration target of 7-18 million tonnes).
The upgraded resource will assist in finalising the definitive feasibility study (DFS) which is set for completion in mid-2024. Following the DFS, the company will look at fast-tracking development of Colina with a view to first concentrate production in 2026.
Looking ahead, the key catalysts for the company include ongoing drilling results and assays, along with the DFS and resource upgrade mid-next year, and offtake agreement throughout 2024.
Investment view
The following investment view comes from Pac Partners analyst Phil Carter.
“Salinas has grown into a top-tier asset. The MRE will continue to grow further and push 80-100mt with ongoing exploration drilling continuing well into 2024. We have seen recently that projects which show scale are highly sought after by the majors and we believe Salinas can now be considered a peer with these projects.
“Furthermore, the successful ramp-up of Sigma Lithium (TSXV:SGML) shows Brazil lithium projects can be brought to market relatively quickly at a low cost (US$500-600/t). We see Brazil as having a logistical advantage over African and Australian projects, especially now we have clarity around the US Inflation Reduction and minimum Foreign Entity of Concern (FEOC) content.
“We see LRS as an inexpensive lithium explorer/developer with further upside to come in 2024 from growth in the MRE, advancement on offtake contracts and completion of the DFS contemplating a larger and longer project.
“We maintain our buy recommendation on LRS and increase our target price to $0.52/sh (previous $0.50/sh).
“We value LRS on a blended sum of the parts based on a development scenario DFS ($0.68/share) and an EV/LCE tonne ($0.37/share) for a price target of $0.52/share.
“Our development scenario is based on the PEA of Colina, producing 400,000 tonnes per annum of spodumene concentrate over an 11-year mine life. Capex has been assumed to be US$308 million with all-in sustaining costs (AISC) of US$536 per tonne. We assume a traditional 70:30 debt:equity funding plus an additional $25 million in working capital.”