Neo Lithium Corp. (CVE:NLC) has one of the highest-grade lithium brine projects in the world, yet has a market cap of less than $200 million
SmallCapPower | October 26, 2017: Neo Lithium Corp. (TSXV:NLC) is relatively new to the lithium space, having listed in July 2016. Despite that, the Company continues to generate plenty of news flow, including positive drill results at its 3Q project, $25 million funding in 1Q17, a resource estimate in May 2017, and the release of PEA later this month. These developments have had a positive impact on the stock price of Neo Lithium, which has gained nearly 87% YTD with further upside possible on key milestones pending over the coming months.
Investment Thesis
- Fast tracking 3Q project into production
- Strong balance sheet and high institutional ownership
- Large and growing lithium market opportunity
Holds large, high-grade, low-cost lithium asset in Argentina
Located in the prolific Lithium Triangle, Neo Lithium’s 100%-owned 3Q project (Tres Quebradas) is one of the highest-grade lithium brine projects in the world. Many of the world’s largest brine lithium mines and projects in the world are located in salars in the Lithium Triangle, including Atacama Salar (SQM and Albermarle), Cauchari-OlarozSalar (Orocobre and Lithium Americas) and Hombre MuertoSalar (FMC and Galaxy). The 3Q Project encompasses 350 sq km with the lithium salar and brine lake complex encompassing ~160 sq km.
During 1Q17, Neo Lithium announced completion of the first two drill holes and preliminary geochemical results of high-grade lithium and very low impurities. Subsequently in May 2017, Neo Lithium announced a maiden resource calculation with a Measured and Indicated resource of 714,242 tonnes of lithium carbonate (equivalent at an average grade of 716 mg/L Lithium) and an Inferred resource estimate of 1,339,546 tonnes of lithium carbonate (equivalent at an average grade of 713 mg/L Lithium), at a conservative 520 mg/L cut-off. The resources could be revised upwards as additional targets remain untested at the 3Q Project. Whilst hosting high-grade lithium, the project is also one of the lowest cost projects with lowest combined impurity of any known salar in Argentina.
Fast tracking to production with a PEA expected shortly
Neo Lithium is on track to become a junior miner of lithium as it has all the necessary approvals in place, including a construction permit. Additionally, the Company has the necessary funding for a Feasibility Study (FS), with the closing of a bought-deal financing of $25 million in February 2017. Key milestones on its path to production include a PEA expected in October 2017, followed by FS and final mine permits for lithium production.
Strong balance sheet and high institutional ownership
Neo Lithium has a strong and clean balance sheet with $26 million in cash as of June 30, 2017, and no debt. The cash will be sufficient to meet its current obligations, including planned operating costs and expenditures on its mineral properties over the next 18 months, includinga PEA and Feasibility Study.
Neo Lithium also has high institutional ownership of ~40%, comprising marquee names such as M&G, BlackRock, JPMorgan, Mackenzie, RBIM, and Sprott. The high ownership not only bodes well for the stock but will also aid the Company in raising a large amount of money (~atleast $100million) required for the actual production at the 3Q project. Insiders, who know the company best, also own a decent ~15% ownership stake.
Large and growing market opportunity
Rising demand for electric vehicles continues to fuel demand for lithium, the key ingredient used in the manufacture of batteries. Strong demand coupled with supply shortages continue to drive the lithium price, which reached a record high of US$23,000 per ton for lithium carbonate in China on surging demand for e-vehicles. Such high prices portray strong margins for many lithium mines and low-cost resources, such as those in the Lithium Triangle, would fare particularly well. According to Neo Lithium,and other industry sources, global lithium carbonate demand is expected to more than double from ~250,000 tons in 2017 to 500,000 tons by 2025.
Outlook and valuation
Although Neo Lithium is relatively new to the lithium space, it offers an opportunity for investors who want exposure to this sector to buy early into this junior developer that continues to fast track its large, high-grade lithium asset to production. Compared with other lithium juniors such as Nemaska Lithium and Lithium Americas, which trade at much higher valuations of ~$700-$900 million, Neo Lithium’s market cap of $180 million appears relatively inexpensive and could increase as several milestones (PEA, FS, Production) are realized over the coming months and quarters.
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