- 74 per cent resource upgrade at key lithium project
- Robust Scoping Study likely to be released within weeks
- Listing of shares on the Australian Stock Exchange before the end of September
CleanTech Lithium (CTL:52p), a lithium company in Chile, has announced a major upgrade to what it expects to mine in one of its key projects, Francisco Basin. It is located within 100km of the company’s more advanced Laguna Verde project.
Following an extensive exploration drilling programme, CleanTech has upped its expectations by 74 per cent compared with what was estimated in the maiden report. The company said a potential 0.92mn tonnes of lithium carbonate equivalent (LCE) might be found at the site, up from 0.53mn tonnes. This includes 0.44mn tonnes at an average grade of 221mg/L lithium classified in the all-important JORC Measured and Indicated categories.
Although not yet categorised as a 'reserve', it is considered sufficient to support annual production of 20,000 tonnes of battery-grade lithium carbonate for up to 20 years. It will be used in the Scooping Study, which is expected to be completed within weeks and announced to the market prior to next month’s listing of the shares on the Australian Stock Exchange (ASX).
The resource upgrade and a positive pumping test programme suggest that the forthcoming release of the Scoping Study will further reinforce the project’s path to production. In addition, the directors believe there is “large upside to the resource size and grade”, noting that the upcoming fourth quarter exploration programme will complete wells that were impacted by last winter’s harsh weather.
Eye-catching financials
The potential financial returns to be made from the significant resource upgrade at this miner’s Francisco Basin project are eye-catching. Its base-case production rate is similar to Laguna Verde, a project that is forecast to deliver $6.3bn (£5bn) operational cash flow over a 20-year operation. Laguna Verde requires capital investment of $384mn, a sum equating to only 21 per cent of the project’s post-tax net present value (NPV) of $1.83bn using a discount rate of 8 per cent.
Furthermore, the financial projections are based on a long-term LCE price of $22,500 per tonne, or 25 per cent below the spot price. It’s also worth pointing out that three-quarters of the capital investment could be debt funded, given the short 20-month pay-back period, thus enabling CleanTech’s shareholders to retain a greater share of the economic value in both projects.
CleanTech’s share price rallied from 40p to 67p after my last update (‘A lithium stock with a potential sevenfold return, 17 July 2023) taking the price close to the entry point in my 2023 Bargain Share Portfolio. From my lens, the subsequent profit taking has created a repeat buying opportunity given scope for multiple positive share price catalysts to drive a re-rating and narrow the 81 per cent share price discount to house broker Canaccord Genuity’s 295p target price.
These include the forthcoming dual listing of the shares on the ASX. Australian-based shareholders make up around 31 per cent of the share register and have been urging the company to dual list on the ASX. That’s because they believe that with the greater knowledge of natural resource and lithium investing by the institutional and retail market in Australia, CleanTech would receive a higher rating, closer to that of lithium company peers listed on the ASX.
Bearing this in mind, the listing prospectus will include an updated competent person's report (CPR) that incorporates details of the current work programmes and resource upgrades, thus showcasing the investment case to a broader geographic pool of institutional and retail investors. It can only improve liquidity in the shares and increase the investor base.
From a technical perspective, a close above last month’s intra-day share price high (67p) would open the door for a rally back towards the 2023 record high (94p). Buy.
■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com at £16.95 each plus P&P of £3.75, or £25 plus P&P of £5.75 for both books.
