KGI24 Jan 2019 11:04
KGI would have to pay substanially more that current price to acquire substanial stake.
Extract from Shard Capital report dated Dec 14th
Valuation considerations. Our current base-case valuation for European Metals is 45p/sh
fully-diluted (c.A$0.79/sh) based on a risked sum-of-the-parts NAV valuation for the Cinovec
project on a lithium carbonate basis. Our valuation standpoint is highly cautious at present;
we use conservative modelling assumptions and risk our valuation heavily. We also present a
flex case where we assume that EMH adjusts its strategy to produce a battery-market facing
lithium hydroxide product. Our fully diluted risked NAV under a lithium hydroxide scenario
increases to 80p/sh (A$1.40/sh). This implies EMH is trading at an undemanding 0.4x P/NAV
to our base-case and 0.2x to our hydroxide scenario. Our valuation does not factor in
leverage to higher lithium prices – we use $10,000/t for carbonate and $12,000/t for
hydroxide. Our base case valuation at $12,000/t lithium carbonate, 1.0x NAV and 8%
discount rate increases to 137p/sh, fully funded.
EMH is trading well below our risked NAV but we see considerable scope for renewed
price traction as the company meets development milestones. Permitting progress is key
to improved investor sentiment but the market should not lose sight of the fact that
Cinovec is the largest European lithium deposit, a non-brine, non-spodumene resource
with true vertical integration potential to produce battery-grade lithium hydroxide directly
to the EV/battery market on EMH’s doorstep. Whilst funding and permitting risk remains,
the current market valuation is undemanding and despite challenging lithium market
conditions at present, EMH offers a compelling call on a multi-decade commodity play.
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