Proposed Financing Would Cover Capex of New Lithium Mine
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Disclosures for BMO Capital Markets, Lithium Ionic Corp., November 28, 2024

Analyst's Certification I, Greg Jones, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients. Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Company Specific Disclosures Disclosure 2: BMO Capital Markets has provided investment banking services for remuneration with respect to Lithium Ionic Corp. within the past 12 months. Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Lithium Ionic Corp. within the past 12 months. Disclosure 6A: Lithium Ionic Corp. is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services Disclosure 8A: BMO Capital Markets or affiliates have beneficial ownership of 1% or more of any class of the equity securities of Lithium Ionic Corp. (a) as of the end of the month prior to the issuance date of the research report, or (b) as of the end of the second most recent month if the report issuance date is less than 10 days after the end of the prior month.

Methodology and Risks to Target Price/Valuation for Lithium Ionic Corp. (LTH-TSXV) Methodology: We use a NAV-based methodology to value Lithium Ionic shares consistent with other developers in the mining sector. We apply a 0.60x multiple to our calculated NAV, appropriate in our view for an development-stage company with a low-capital project in an attractive jurisdiction and balanced by the current market environment. We include an in-situ value for resources defined at LTH's Salinas project. Risks: 1) Permitting Risk. Delays in advancing the Bandeira project through permitting in a timely manner could impact our assumed production start date and negatively impact our NAV per share estimate. 2) Financing Risk. Inability for the company to secure the financing required to advance its development plans along its anticipated timeline could impact our modelled start date, and if significant equity capital is raised it could introduce dilution to shareholders. 3) Stage of development. The Salinas project is early-stage and its ability to continue growing and improving the confidence of the resource base and defining the project economics is a key aspect to the company's growth story, in our view. 4) Geological risk. The presence of a river over portion of the Outro Lado deposit requires further study. A river passes over a portion of the Outro Lado deposit and will not allow for open pit mining of this area. Underground mining is contemplated, and additional mine design study is required, which could adversely affect the current mineral resource estimate for this area (3.4 Mt at 1.47% Li2O). 5) Commodity price risk. Weakness in lithium and spodumene demand and commodity prices could negatively impact share price performance.

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Lithium Ionic Corp. (LTH:TSX.V; LTHCF:OTCQX; H3N:FSE) signed a nonbinding letter of interest with the US Export-Import Bank (EXIM) for up to US$266 million (US$266M) in debt financing for its feasibility-stage Bandeira lithium project in Brazil, reported BMO Capital Markets Analyst Greg Jones in a Nov. 28 research note. On the news, BMO raised its target price on the mining company to CA$2 per share.

The funding is contingent upon Lithium Ionic completing and EXIM approving the related application.

"The debt financing minimizes future equity dilution, increasing our net asset value per share," Jones highlighted.

Two other factors contributed to the target price increase, the analyst explained. They are a lower assumption of equity Lithium Ionic will need to raise and the likelihood that such equity would be raised at a higher price. (The company's share price is about 42% higher now than it was at the time of BMO's previous research report on it.)

113% Implied Return

Compared to the new CA$2 per share target, Lithium Ionic was trading at the time of the report at about CA$0.94 per share, noted Jones. Thus, at this price, the indicated return for investors is 113%.

BMO maintained its Outperform rating on the hardrock lithium developer, in light of three key elements to the story. One is its low-capex Bandeira project with near-term production potential, its 100%-owned Salinas project for which a preliminary economic assessment (PEA) is in progress and its large, unexplored land package in Brazil's Lithium Valley offering resource expansion upside.

Model Estimates Revised

Jones pointed out that the amount of the proposed EXIM debt financing, US$266M, would exactly cover the full amount of Bandeira capex estimated in the May 2024 feasibility study. The financing amount also is more than what BMO expected, which was US$210M. So this reduced the amount of equity BMO assumes Lithium Ionic will need to raise to US$34M from US$80M.

BMO revised its model on Lithium Ionic to reflect these new data. Its new Bandeira capex estimate is about US$290M, 5% more than the estimate in the feasibility study. Its estimate of a future equity raise is US$34M, with an expected completion time of Q2/25 to mid-2025.

On The Horizon

Jones listed the upcoming catalysts for Lithium Ionic. Next, expected in Q4/24, are the receipt of construction permits for and initial mine development of Bandeira (Q4/24) along with completion of the Salinas PEA.

Next year, in H2/25, construction at Bandeira is slated to start. The target for subsequent commissioning there is Q3/26.

"We model Bandeira according to the 2024 feasibility study production schedule with first production in Q2/27," Jones added.