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Lithium Australia - ABID Report - 05 August 2024.pdf

An equity research report has been initiated for Lithium Australia by Arrowhead BID with a fair value of AUD 0.13 per share in the low-bracket scenario and AUD 0.17 per share in the high-bracket scenario, derived using the Net Present Value methodology. 

The highlights of the research report are:

LIT is at the forefront of advancing the circular economy in electrification by developing solutions for the lithium-ion battery materials industry.  Transitioning from its initial focus on mining and exploration, the      company now engages in multiple aspects of the lithium-ion battery value chain through its innovative technologies, operations and strategic partnerships. LIT operates through three main divisions - Battery Recycling, Battery Materials and Lithium Chemicals.

The company generates revenue through its subsidiary Envirostream, Australia's leading battery recycler processing lithium-ion batteries (LIBs) domestically. With agreements from major electric vehicle (EV) and energy storage system manufacturers such as LG Energy Solutions, Volvo and Hyundai Glovis, LIT recycled 1,542t of mixed battery material in FY2024. The company reported AUD 6.5 mn in annual revenue and an generated an operating cash profit of AUD 0.52 mn in Q4 FY2024. LIT's shift to an upstream-focused operational model has increased its recycling revenue per unit from AUD 3.05/kg in Q1 FY2024 to AUD 5.63/kg in Q4 FY2024, and gross profit per unit from AUD 0.04/kg to AUD 3.50/kg in the same period. This strategy reduces market and pricing volatility by earning revenue upfront. LIT aims to grow its LIB collection through new exclusive recycling agreements and secure funding for capacity expansion, expecting these efforts to support a sustainable economic model with higher revenue rates, effective cost management and increased recycling volumes.

LIT has developed the innovative LieNA® technology for extracting lithium from low-grade spodumene by partnering with Mineral Resources Limited (MinRes) through a joint development agreement (JDA). MinRes has provided raw materials and financed the pilot plant and engineering study up to AUD 4.5 mn, while LIT has contributed its LieNA® technology to the agreement. The initial phase of piloting at ANSTO has been completed, resulting in lithium phosphate production in July 2024. Having utilized AUD 4.2 mn of the allocated funds, the next step is establishing a 50:50 joint venture (JV) with MinRes to commercialize LieNA®     under a licensing model, aiming for an 8% gross product royalty rate. This JV will enable the company to earn significant royalties from all processed tonnage using LieNA® technology, potentially generating up to USD 21 mn (AUD 31 mn) annually per license once commercialized. The JV is expected to issue licenses to brownfield and greenfield mines, expanding the technology’s adoption and impact in the industry.

Through its subsidiary VSPC, Lithium Australia has over 20 years of nanotechnology experience, including nearly a decade developing Lithium Iron Phosphate (LFP), a key cathode material for batteries. In 2023, NOVONIX Ltd. (ASX: NVX) assessed LIT's LFP powder, finding it the most stable among tested samples, supporting long-lifetime cell designs. With global demand for LFP and Lithium Manganese Iron Phosphate (LMFP) batteries in EVs rising, LIT stands out as one of the few non-Chinese companies capable of producing      high-quality LFP powder. To capitalize on this opportunity, LIT signed a memorandum of understanding (MOU) with First Phosphate Corp. and Centrex,  aiming to commercialize its LFP and LMFP technologies. The company plans to develop a 250tpa LFP demonstration plant or secure an international partner for a 5,000tpa semi-commercial facility. Eventually, LIT aims to establish a 25,000tpa commercial-scale plant, potentially generating up to USD 319 mn (AUD 471 mn) annually at an LFP price of USD 12.75/kg. The company also plans to scale production to over 100,000 tpa of LFP/LMFP.

The company has raised AUD 1.8 mn with the potential to secure up to AUD 7.5 mn from Lind Global Fund II. Additionally, the company launched a Share Purchase Plan (SPP) at AUD 0.021 per share, allowing shareholders to subscribe for up to AUD 30,000 worth of shares. The funds will enhance operations and drive growth in the battery recycling division, including advancing recent recycling agreements, executing an off-take agreement with Mixed Metal Dust (MMD), and securing strategic partners and funding. LIT will also explore monetization options for its technology portfolio and provide working capital for ongoing operations and initiatives.

LIT’s management team, led by CEO and Managing Director Simon Linge, has extensive experience and strategic foresight to navigate the global battery industry's complexities. With over 25 years in manufacturing, recycling and engineering services, Mr. Linge has focused on expanding recycling volumes and forming key partnerships, such as the agreement with MinRes. The team, comprising experts in technology development, resource management and strategic alliances, instils confidence in stakeholders and investors. Their expertise and vision positions LIT to seize opportunities, drive growth and foster innovation in the dynamic battery sector.

Equity Research Report released for Lithium Australia