NextSource Materials Inc. (TSX:NEXT, OTCQB:NSRCF) is positioned to be a leading vertically integrated supplier of lithium-ion battery anode material for electric vehicles, analysts at Capital Access believe.
The firm has initiated coverage on NextSource Materials, which is ramping up to Phase 1 production of 17,000 tons per year at its Molo graphite mine in Madagascar and the final permitting process for its first Battery Anode Facility in Mauritius.
Graphite makes up almost half of a lithium-ion battery cell, with 50 kilograms to 100 kilograms required per EV battery pack.
Capital Access analyst Colin Smith described NextSource Materials’ Molo mine, which has more than 100 million tons of measured and indicated resources, as a “world-scale graphite resource.”
“The current Phase 1 is just a fraction of what it is capable of. The company plans to expand capacity to 150,000 tons a year,” he told Proactive.
Smith said that when its battery anode manufacturing plant in Mauritius comes online, NextSource will be one of the very few companies able to offer the supply of processed graphite independent of China.
“China currently produces almost 100% of the version of processed graphite that ends up being used in batteries,” he said. “What NextSource offers is the graphite and the processed graphite that is independent of China.”
The Capital Access analysts also highlighted that NextSource Materials is backed by Vision Blue, established by former Xstrata CEO Mick Davis who serves as Chair of NextSource.
Vision Blue holds a 47% stake in the company, having provided US$64.1 million in financing.
“While investors may not be super familiar with the NextSource management team, they are much more likely to be familiar with Mick Davis who built Xstrata into a mining behemoth which was sold to Glencore (LON:GLEN) for over $60 billion,” Smith noted.
Stock ‘heavily discounted’
Capital Access believes that, based on its calculations, NextSource is trading at a fraction of its net asset value and is heavily discounted when compared to its peers.
The company’s shares traded at C$0.76 at the time of writing.
Using a 15% discount rate, Smith told Proactive that Capital Access has calculated NextSource’s net asset value to be C$2.60, which is about four times its current share price.
If they were to use a 10% discount rate, the upside is more like 70%, he added.
“If we look at the peer group that has a similar vertically integrated strategy to build EV battery anode material supply chains outside of China, NextSource Materials is trading at a fifth to a third of their valuations based on planned mine site size," Smith told Proactive.
"Two of those competitors haven’t even started production unlike NextSource, which is in the process of bringing Phase 1 of its Molo mine on stream."
He attributed the company’s current share price to the fact it is a Canadian-listed company that is in the pre-revenue stage.
“But as the investment thesis does become better known, the company offers an exceptional opportunity for investors who are looking for exposure to the energy transition and the policy impetus to build out supply chains independent of China,” Smith concluded.