PAC Partners has raised its base case valuation and target price for Latin Resources Ltd (ASX:LRS, OTC:LRSRF) to $0.50/share ($0.34c previously) and assumes a “fast to market” development for the Colina prospect.
While the current resource for the Salinas Lithium Project in Brazil is 45.2 million tonnes at 1.32% Li2O (lithium oxide), PAC Partners has factored in growth to 80 million tonnes given recent encouraging exploration results.
This assumes a 20% increase within the current JORC-defined footprint, and a fresh 26 million tonne resource from the step-out exploration drilling currently underway.
The following is an extract from PAC Partners’ report:
KEY POINTS
• Following PAC Partners Lithium Zoom Seminar featuring Latin Resources and 4 other global peers, we update our Colina development model published after our site visit in March (Link site visit note).
• We assume a “fast to market” development for Colina, utilizing the coarse ore fraction into a Dense Media Separation process plant, from 4Mt/yr mined ore, 12 year mine life, 13x strip ratio, overall recovery rate ~65% for 612kt/yr of 5.5% spodumene concentrate.
• The 25% mined fine fraction ore would be stockpiled and sold or processed via a floatation circuit at a later date - providing long term upside after a fast project start.
• At a 10% discount rate (higher versus Australian projects), 15.5% income tax rate, 3% royalty and US$225m in capex, our project scenario is worth US$2.5bn or >A$3.6bn (A$1.40/share).
• Our site visit 6 months ago enabled us to confirm the likely availability of hydropower from state grid, abundant road transport options (thriving trucking industry in the immediate vicinity) and available water resources at nearby reservoirs (regional area is subject to occasional flooding).
INVESTMENT VIEW AND VALUATION: INCREASED
• Our base case valuation and target price increases to $0.50/share ($0.34c previously). While the current Mineral Resource is 45.2Mt @1.32% Li2O given recent encouraging exploration results, we now factor in growth to 80Mt. This assumes a 20% increase within the current JORC defined footprint, and a fresh 26Mt resource from the step out exploration drilling currently underway.
• We expect EV/tonne valuation methodology (A$0.50c at 80Mt at A$1,259/tonne) to give way to project valuation scenarios (unrisked A$1.40) project viability demonstrated and regulatory pathway confirmed next year. Target (NYSE:TGT) end 2024 FID can give way to rapid project development (Sigma produced first ore 14 months after FID, we can see Latin tapping into some of Sigma’s retiring construction workforce).
KEY DRIVERS: DEPSITE THE RUN, STILL TONNES OF POTENTIAL
• Coming weeks: Preliminary Economic Assessment (PEA) to provide first glimpse into potential project scope and parameters.
• Q4: A hefty 11 drill rigs (up from 8) are continuing to work at Salinas and a JORC Resource update has been guided for Q4 2023.
• Mid-2024: Defensive Feasibility Study and mining permits are to be lodged. FID targeted for end 2024.
RISKS
• Risks include (and not limited to): Lithium price declines to uneconomic levels, failure on funding or regulatory or environmental pitfalls. Brazil risks are probably more elevated than Australia, but not as high as other South American countries.