Light at the end of the tunnel for CleanTech

Shareholders in CleanTech Lithium (CTL:24.25p) have endured a rollercoaster ride in the past 12 months, but there is light at the end of the tunnel for the laggard in my 2023 Bargain Shares Portfolio.

The lithium company is making sound progress advancing its sustainable lithium projects in Chile, and a delayed listing on the Australian Stock Exchange (ASX) should happen this year. It will enable CleanTech to gain access to the deep pools of capital available for good projects in the resource-heavy Australian capital market and bring into focus the company’s modest valuation relative to lithium peers, many of whom are listed on the ASX.

Admittedly, the resignation of former chief executive and founder Aldo Boitano unsettled investors after he failed to disclose a stock lending loan agreement with a financial institution (‘CleanTech shares dive as CEO suspended’, 9 April 2024). It has since transpired that Boitano no longer has any interest in any of the 9.4mn shares he previously owned. Chairman Steve Kesler has taken on the role on an interim basis and his informative commentary in the latest annual results should reassure investors.

All go at Laguna Verde

CleanTech is amongst a small number of companies that are set to produce meaningful quantities of battery-grade lithium product at demonstration scale using direct lithium extraction (DLE).

The company’s pilot plant is working well and ahead of expectations, having been used to produce an initial 24 cubic metres of concentrated eluate for conversion into battery-grade lithium carbonate. Located at the company´s R&D centre 154 miles from its Laguna Verde flagship project, results released earlier this month demonstrates that the plant can operate at the designed capacity of concentrated eluate production sufficient for conversion to at least 1 tonne per month of battery grade lithium carbonate. It’s a significant milestone.

It means that CleanTech will be able to send battery-grade lithium samples to potential strategic partners and off-takers to start product qualification, as part of the development of the construction finance to bring Laguna Verde into operation. A five-well drilling programme will feed into a further resource assessment and a maiden reserve estimation later this year, supporting the pre-feasibility study (PFS), which is under way and targeted for completion in the third quarter of 2024.

In turn, this paves the way for the next phase of development, as CleanTech advances towards delivering a ‘green’ lithium product into a market that's increasingly keen to demonstrate a sustainable supply chain of battery materials.

Importantly, CleanTech has now completed the acquisition of 23 licences at Laguna Verde that were subject to an option agreement and now owns all 108 licences. This is critical to the Chilean government, which will be announcing in July which projects are to be prioritised for the award of Special Lithium Operations Contracts. The directors believe that both its most advanced projects (Laguna Verde and Francisco Bason) will be prioritised. The acquisition of the licences also supports the ASX listing as CleanTech’s previous option agreement didn’t conform to ASX listing requirements.

Sound project economics

Importantly, Laguna Verde’s investment case still stacks up to warrant the capital cost of $400mn needed to bring it into production.

Estimated operating costs below $4,000 per tonne are in the lower quartile of lithium producers, and 70 per cent less than the depressed lithium carbonate spot price of $14,500 per tonne. Using a long-term price of $22,500 per tonne, and an annual production rate of 20,000 tonnes over 30 years, the project has an estimated post-tax net present value of $1.8bn (£1.4bn) and internal rate of return (IRR) of 45 per cent. CleanTech has a market capitalisation of £35.2mn.

Ultimately, if CleanTech’s management can get the funding to bring Laguna Verde into production, the share price will be many times the current level. So, ahead of what is likely to be an eventful year, I would continue to hold onto your shares. Hold.

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