Pac Partners has prepared a new research report on Latin Resources Ltd (ASX:LRS, OTC:LRSRF) following a mineral resource estimate (MRE) upgrade at the Colina deposit within the Salinas Lithium Project in Brazil, retaining its ‘buy’ recommendation for the company and marginally adjusting its 12-month target price to A$0.51 per share.
Latin Resources recently increased the Colina resource by 11.6% to 70.9 million tonnes at 1.26% lithium oxide for 2.2 million tonnes lithium carbonate equivalent (LCE), although the real focus of the upgrade was increasing the confidence of the MRE.
READ: Latin Resources boosts world-class credentials of Salinas with lithium resource update
This updated resource estimate has increased the overall resource and boosted JORC confidence levels with greatly enhanced project economics expected.
The global MRE for the wider Salinas Project — including both Colina and the Fog’s Block prospect — now stands at 77.7 million tonnes at 1.24% lithium oxide, up 11% than the previous estimate. This included an impressive 95%, or 67.27 million tonnes at 1.27% lithium oxide, of the Colina Deposit resource in the higher confidence measured and indicated categories.
This MRE is now suitable for inclusion in the detailed DFS scheduled for completion in Q3 2024.
The Salinas project remains on track for first production in 2026 with project finance and offtake agreements to ramp up post DFS with a view of finalising project finance by Q1 2025.
“A top-tier hard rock lithium asset”
Pac Partners commented: “At a resource of nearly 80 million tonnes, Salinas is a top-tier hard rock lithium asset now in the crucial development phase.
“A DFS is expected early Q3 2024 which, based on the previous PEA study, should show an economically robust project with low operating costs and modest upfront capital expenditure.
“Upon completion of the DFS, the company will accelerate discussions with debt financiers and offtake parties with a view of securing a project finance solution by the end of 2024. Construction will commence early 2025 and first production in 2026.
“We see LRS as one of the few companies with projects of a sizeable scale and a realistic timetable to production. We maintain our buy recommendation on LRS and adjust our target price marginally to $0.51/sh (previous $0.52/sh).”
Drilling has now ceased at Colina but continues with four rigs at the Planalto prospect, which is 1.8 kilometres from Colina, with a view of declaring a maiden MRE for that prospect by the end of 2024.
It says that “with continued drilling, the company has an ambition of ultimately reaching +100 million tonnes in resource size at the combined Salinas project, solidifying it as a world-class asset.”
LRS valuation
Pac Partners has valued LRS on a blended sum of the parts based on a development scenario DFS (A$0.67/share) and an EV/LCE tonne (A$0.35/share) for a price target of A$0.51/share.
Its development scenario is based on the PEA of Colina, producing around 400,000 tonnes per annum of spodumene concentrate over an 11-year mine life.
Capex has been assumed to be US$308 million with an AISC of US$536 per tonne.
A traditional 70:30 debt:equity funding is assumed plus an additional $25 million in working capital. The number of fully diluted shares on issue post-project finance has assumed to be 3.661 million. The valuation is risk-weighted by 20% for development risk.