Edison Issues Initiation on Lepidico (LPD)

Central to Lepidico is its disruptive (patent-pending) L-Max® (hereafter L-Max) metallurgical technology that recovers lithium from micas (eg lepidolite), and therefore holds out the prospect of creating a new source of lithium supply. Despite being an abundant lithium-bearing mineral, lepidolite has hitherto been overlooked as there has been no commercial process by which to process it economically. This report necessarily values Lepidico on the basis of the pre-feasibility study (PFS) performed on a proposed Phase 1 L-Max plant at Kenora, Canada. Beyond that however, there are a number of development options including 1) scaling up the process to full industrial scale (Phase 2); 2) securing lepidolite resources cheaply and developing them into multiple dedicated mines; and 3) developing relationships with third-party mining companies to provide further feed sources to its plant(s).

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Edison estimates that execution of the PFS according to the operational parameters contained therein will result in free cash flow to Lepidico of A$28.4m per annum once steady-state production at the Phase 1 L-Max has been achieved. Assuming US$30m (A$39.8m) of equity financing at the prevailing share price, this implies a valuation for Lepidico of A$0.0202/sh currently, rising to A$0.0296 in FY22, based solely on discounting our estimate of (maximum potential) future dividends to shareholders derived from the Phase 1 plant at a rate of 10% per annum (fully diluted) - ie no value is ascribed to the development of the Phase 2 plant or other development options. As such, an investment in Lepidico may be considered to be an underwritten call on its L-Max technology.  

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