Mining Company Expands Premium Lithium Resource in Brazil
Research Report

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Lithium Ionic Corp.'s (LTH:TSX.V; LTHCF:OTCQX; H3N:FSE) announcement of a 32% increase to its Baixa Grande resource combined with recent M&A activity next door implies a strong valuation for the deposit, Stifel Analyst Cole McGill noted in a January 14 updated research note.

The increase led the company to rename the Baixa Grande resource (formerly Salinas), noted the analyst, who rated the Stock a Speculative Buy.

The resource now measures 19.42MMt (million metric tons) grading 1.01% Li2O for about 486,000 tons contained Lithium Carbonate Equivalent (LCE), compared to the maiden estimate for the deposit in April measuring 14.76MMt grading 1.02% Li2O for about 372,000 tons contained LCE.

"Today's news builds confidence in our investment thesis that LTH can build value via exploration across their substantial and mostly unexplored land package while simultaneously advancing flagship project Bandeira (now awaiting construction permits)," the analyst wrote. "Importantly, Baixa Grande is directly adjacent to the Colina deposit, recently acquired by lithium major Pilbara Minerals Ltd. (PLS:ASX) for an implied value of US$152/tonne Lithium Carbonate Equivalent, substantially higher than LTH's current valuation of US$46/t — and we see potential to narrow this valuation gap given the likely synergies for a combined Colina+Baixa Grande development scenario."

McGill noted that the resource increase at Baixa Grande was achieved at essentially the same grade as the earlier estimate (1.01% Li2O vs the earlier 1.02% Li2O).

Combining Deposits?

In August, lithium producer Pilbara Minerals paid US$376 million in share value to acquire Latin Resources (LRS), with its Colina deposit adjacent to Baixa Grand, at an implied EV/LCE value of US$152/tonne.

"We see a future development scenario combining the two deposits as preferable given likely economics of scale and the risk of sterilizing parts of the Colina deposit given pit wall constraints," McGill wrote.

At the same take-out value, the PLS+LRS deal would imply a value of US$73 million for Baixa Grande, or CA$0.65/share, according to the analyst.

"We estimate today’s resource increase adds approximately CA$0.16/share in value based on the LRS take-out valuation," he wrote.

McGill noted that shares of LTH "remain cheap versus recent transaction prices. LTH trades at CA$46/t on an EV/LCE basis, vs US$136/t for average M&A comps in 2024 and US$152/tonne for Pilbara Minerals take-out valuation for next-door neighbor Latin Resources."

LTH would be worth CA$3.03/share at a similar valuation, the analyst said. "While LTH remains smaller, we think this valuation gap has potential to narrow thanks to financing and permitting milestones being ticked off, leaving a low cost, scalable beachhead project on sale."

Upcoming catalysts for the company include a construction license decision and approvals for an environmental license for the Bandeira Project.