Canaccord Genuity flags potential for Latin to follow in Sigma’s footsteps

Canaccord Genuity has flagged that Latin Resources might follow in the footsteps of Canada’s Sigma Lithium, which plans to start Brazilian production in 2023.

And that is sufficient grounds for the investment bank to initiative coverage on the company, tagging Latin Resources’ (ASX:LRS) with a speculative buy rating and a price target of 25c, well above its last traded price of 14.5c.

Key to this valuation is the company’s Salinas hard-rock lithium project in Minas Gerais, Brazil, located just 75km north of Sigma’s Grota do Cirilo, which is expected to receive a maiden JORC resource estimate this quarter while a preliminary economic assessment is expected in the March quarter of 2023.

Additionally, recently completed metallurgical test work has found that simple Heavy Liquid Separation (HLS) was able to recover an average of 80.5% of the lithium oxide (Li2O) into a concentrate grading a very high average of 6.30% Li2O.

Canaccord Genuity believes Salinas project could host a maiden resource in the range of 13Mt to 15Mt grading between 1.1% Li2O and 1.3% Li2O.

While nothing to sneeze at, the investment bank believes this is just the beginning for the company with meaningful upside potential at the Colina West and Salinas South areas.

This is sufficient for Canaccord to assume an overall mining inventory of 12Mt at 1.2% Li2O as the basis of its modelled production scenario, which sees the potential for the company to produce about 187,000 tonnes per annum of SC6 spodumene concentrate over a 10-year mine life at a cash cost of US$609/t.

Production is expected to start towards the end of 2025 following an 18-month construction period starting in 2024.

“We forecast cash flows to become positive in 2026, and will average approximately $200m over the LOM with EBITDA averaging $250m through the 10-year project life,” it added.

Growing Brazilian lithium production

It added that while Brazilian lithium production had previously been limited to small scale concentrate production, this is expected to increase dramatically once Sigma’s Grota do Cirilo operation comes online.

That this has progressed from resource drilling through to pre-production in less than five years reflects the well-developed permitting and approvals process in Minas Gerais which bodes well for Latin’s potential development of Salinas.

Canaccord also noted that Brazil’s high concentration of renewable energy, with low-cost hydropower and wind making up 65% and 11% of its energy mix, meant that potential lithium producers would benefit from low-cost and renewable energy.

Brazil’s proximity to North America could also place it well as a potential supplier to the burgeoning battery sector there.

More than Brazil

Besides its flagship Salinas project, Latin also holds a 50% interest in the Catamarca hard rock lithium project in Argentina and the Cloud Nine halloysite-kaolin project in Australia.

Cloud Nine currently hosts a JORC resource of 207Mt of kaolinised granite with a pre-feasibility study currently underway with results expected in mid-2023.

Meanwhile, limited work has been completed at Catamarca in recent times despite encouraging results from historical drilling in 2017.

Other assets include the MT-03 Copper Project in Peru and a 13% shareholding in TSX Venture Exchange listed Solis Resources, which has a portfolio of early-stage IOCG properties in Peru.

Valuation

Canaccord values the Salinas project at $861m (risked to 40%) on the back of its modelled development/production scenario and SC6 price assumptions.

This is sensitive to changes in the spodumene price with the investment bank noting that running spot prices (US$6,500/t) through its model would take the NAV/share estimate up to $1.10.

This article was developed in collaboration with Latin Resources, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

The post Canaccord Genuity flags potential for Latin to follow in Sigma’s footsteps appeared first on Stockhead.

tsx
tsx venture
asx
lithium
tsxv-sgml
sigma-lithium
sigma lithium