Canada Unearthed: Are Toronto’s lithium brine explorers becoming a steal?

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• As lithium prices have come back to Earth so have valuations for most brine developers
• Ironically named Argentine brine explorer Lithium Chile has bucked the trend, lifting 33% YTD
• Fundamental Research Corp says lithium will enter a surplus this year, but remains long term bullish on EV metals stocks

Our Canada Unearthed column wraps the news driving mining and exploration stocks listed in Canada, mostly on the TSX and TSX.V.

Canada has become a hot-bed for lithium exploration of the hard rocking kind in the last year.

As of June a virtually untouched space little over a year ago with a handful of established players had blossomed into a field of over 30.

At the height of the craze as many as a dozen companies were picking up Canadian lithium projects each week.

Some continue to peg and buy up ground in the hope of becoming the next Patriot Battery Metals (ASX:PMT), which boasts a top-10 global spodumene resource at its 109.2Mt at 1.42% Li2O Corvette project in Quebec.

But on the Canadian stock market itself it isn’t all about the domestic spodumene that has West Australian interlopers all hot and bothered.

Long wedded to South America and its porphyry copper exploration scene, the North American space has a much denser population of brine explorers than the Australian stock exchange, with a host of companies aiming to turn salt lakes in Argentina, Chile, the USA and more into battery chemicals for the electric vehicle boom.

As lithium prices and equity valuations come down, these stocks are getting cheaper, despite the long term tailwinds for stocks looking to evaporate their way to a payday in the energy transition.

Is there fundamental value here?

In a note on C$155 million capped TSX-V brine resource holder Lithium Chile (TSX-V:LITH), Fundamental Research Corp head of research Sid Rajeev and equity analyst Nina Rose Coderis noted valuations in the brine space have been coming down.

Lithium prices are now 61% lower year on year to US$24,500/t for lithium carbonate against a five-year average of US$21,000/t.

FRC sees a surplus emerging this year, but views the lithium sector with a positive lens going forward.

“We believe lithium prices will remain under pressure, amid slower global GDP growth, and increasing supply,” Rajeev and Coderis said.

“We believe the lithium market will move from a deficit to a surplus this year. That said, we maintain a positive outlook on EV-focused juniors, as battery/EV manufacturers, and miners, are actively seeking long-term stable sources of supply.

“The sector has witnessed several M&A deals this year.”

When it comes to brine plays, FRC says valuations for pre-resource juniors have come down from C$502 per hectare to C$433 per hectare.

Players at the advanced stage are fetching valuations on average of C$12,154 per hectare, with the acquired Neo Lithium — bought out in 2022 by China’s Zijin — picked up for C$24,657/ha.

Century Lithium, owner of the proposed 27,400tpa LCE Clayton Valley deposit immediately east of Albemarle’s Silver Peak in the US, is valued at C$32,660/ha for its 2327ha land package.

Other players with larger, lower grade holdings are closer to pre-resource levels and far below the sector average assessed by FRC of C$7128/ha.

ASX-listed Lake Resources (ASX:LKE) trades at just C$490/ha, while Lithium Chile goes at C$805/ha.

Four-finger discount?

Much like Lisa Simpson’s Monster Island, the Lithium Chile name is a misnomer.

Trading up 33% in 2023, Lithium Chile’s main game is actually the Arizaro de Salar project in Argentina.

A preliminary economic assessment delivered an NPV at an 8% discount rate of US$1.1 billion with an after tax IRR of 24.1% at lithium carbonate prices of US$21,400/t.

The US$823 million project would deliver around 25,000tpa LCE for 19.1 years with a 3.6-year payback period on cash costs of US$5946/t LCE.

With over 3.3Mt of indicated and inferred resources, FRC says LITH is trading at a 41% discount to the sector average of C$100/t, coming in at around C$59 for each tonne of resource, with C$38m in cash and expansion drilling to extend Arizaro’s estimate beyond the 52% coverage of the main Arizaro concession.

“Given the robust PEA and potential for resource expansion, we believe LITH is emerging as a promising M&A target,” Rajeec and Coderis said.

FRC has a buy rating on LITH but pulled its price target back from C$1.91 to C$1.55 on lower prices and valuations across the sector. It currently trades at C$0.72.

There is a clear knock on the stock when it comes to the grades though.

At the moment most significant lithium brine operations measure 400-600mg/L or above.

READ: So You Think You Can Drill: How do I know if my lithium stock is onto a winner?

Arizaro’s indicated resource grades 278mg/L, while its inferred component grades around 360mg/L.

That contributes to relatively high cash costs, which mean projects like Lithium Chile’s require strong prices to succeed.

TSX and TSX.V Winners & Losers

Here’s how TSX and TSX.V-listed mining and exploration stocks performed last week:

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