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Lithium Power - Maricunga project ownership passes 51%

Jun 2018

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Summary - Maricunga project ownership passes 51%

Lithium Power (ASX:LPI) has increased its stake in the Maricunga lithium brine project in Chile. Highlights of the announcement include the following. 

  • The transaction increases Lithium Power’s share in Minera Salar Blanco S.A. (‘MSB’), which owns the Maricunga lithium brine project, to 51.35%.
  • Lithium Power acquired (subject to the JV partners’ acceptance) an extra 1.35% interest in MSB for A$2.03 million.
  • Following the transaction, Lithium Power will retain cash reserves of around A$22 million, with a further US$7 million held by MSB.
  • Lithium Power has strengthened its board by appointing MSB director and significant shareholder Mr Martin Borda and MSB CEO Mr Cristobal Garcia-Huidobro as non-executive directors.

TSI’s view: this is a positive move for Lithium Power on a number of levels: it not only gives the company effective control of the asset (ownership greater than 50%) but also highlights its long-term support for, and belief in, the Maricunga project despite an ongoing legal dispute relating to CEOL (Lithium Special Operation Contract) and Codelco, a dispute that is currently under review in the Chilean Appeals Court.

Interestly, the transaction also sets a precedent for the assets current valuation of around A$150 million (Lithium Power’s ownership A$77 million), based on the acquisition price (A$2.03 million) and the percentage acquired (1.35%). We note that this is a 67% premium compared to Lithium Power’s current enterprise valuation of A$46 million (EV = market cap. (A$78 million) – cash (Lithium Power A$22 million and MSB A$9.3 million).

In addition to Lithium Power effectively taking control of the asset, the appointment of two local directors adds intangible value as the project moves towards a development decision within the next year. While both those directors bring with them a wealth of experience and increase the company’s standing within the local community, we believe the appointment of Martin Borda adds even more weight, given the high regard in which he is held in the Chilean business community (as a co-founder and director of Multiexport Foods, one of the world’s largest salmon-farming companies, with a current market capitalisation of around CLP $440 billion.

The information in this email should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions. 

Valuation: we maintain our valuation for Lithium Power of $1.13/share (share price $0.30), which assumes a positive resolution of the current legal dispute with CEOL/Codelco. We will review this valuation once the matter is finalised.