Lithium Power International Ltd (ASX:LPI) has received a valuation uplift from Edison Investment Research to A$1.24/share from A$1.0/share, following the company’s A$25 million equity placement.
Edison noted that LPI is now well capitalised with cash of A$31.5 million to advance its flagship Maricunga Lithium Brine Project in Chile.
The investment research house said that despite the backdrop of slowing global economic growth, lithium prices remain high reflecting tight supply/demand fundamentals and the sector’s attractive long-term growth potential.
The following is an extract from Edison’s research update:
Lithium Power International (LPI) has announced a successful equity placement, raising c A$25m in gross proceeds. This brings its proforma 30 June 2022 cash position to a comfortable level of A$31.5m. The funds will be used to advance LPI’s flagship Maricunga project. We have updated our model to reflect the news and LPI’s (now less dilutive) higher share price, increasing our valuation from A$1.0/share to A$1.24/share. Despite the backdrop of slowing global economic growth, lithium prices remain high reflecting tight supply/demand fundamentals and the sector’s attractive long-term growth potential.
Well funded after the raise
LPI has raised c A$25m in gross proceeds at A$0.6/share by placing 41.7m in new shares (11% of enlarged share capital). The placement price represents a 14% discount to the undisturbed share price, but only 3% to the 10-day volume weighted average price. Following the placement, LPI is now well capitalised with proforma end-June cash of A$31.5m. The company plans to use the proceeds to advance its Maricunga lithium project. The placement is in line with our model, which currently assumes that LPI will raise c A$38m in equity (and an additional A$57m in debt) in FY23 to fund project development and construction.
Maricunga project update
LPI is making progress on consolidating its ownership of the Maricunga project, with the slight delay to the original schedule caused by the time taken to obtain an independent expert’s report for shareholders and to finalise the audit of financials. The company continues to assess the best funding options for the project as it received several expressions of interest in relation to debt and equity funding as well as the acquisition of the project. Finally, we note that, on 4 September 2022, Chilean national plebiscite rejected the text of a new national constitution by a margin of 62% to 38%. While this extends the uncertainty, the news is positive for miners as the proposed draft was criticised as being too radical.
Valuation: Up on lower equity dilution
Our valuation of LPI increases from A$1.0/share to A$1.24/share on the back of the higher share price and the associated lower project equity dilution. While LPI shares have gained some support recently, we note the still-prevailing disconnect between the favourable lithium market fundamentals and the valuations of lithium developers and explorers (LPI in particular). This weakness caused by the general equity market sell-off could affect project development timelines and exacerbate the tight lithium supply/demand situation in the longer term.