LRS’ market cap increased 538% in FY23, but brokers say there’s still room to grow
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Latin Resources’ market capitalisation increased by 538% in the 2023 financial year and closed at over $900 million on 7 July 2023.
This follows a very successful period of share price appreciation for Latin Resources with total shareholder return of 4,471% between 1 July 2020 and 30 June 2023. Brokers believe there are very good reasons to expect even more growth.
To put this stunning growth into context, the company’s growth has outstripped lithium peer Liontown Resources (ASX:LTR), which grew by 183% in FY23, and in the entirety of the All Ords, was only exceeded by online luxury fashion retail platform Cettire.
Most of the recent gains can be attributed to the company increasing resources at the Colina lithium deposit within its Salinas project by over 241% to 45.2Mt grading 1.34% Li2O, or about 1.5Mt of contained lithium carbonate equivalent.
And with 67% of that, or 30.2Mt at 1.37% Li2O, in the higher confidence Measured and Indicated categories, Latin Resources (ASX:LRS) is clearly highlighting the potential to define a Tier 1 lithium deposit (being a resource tonnage in excess of 100Mt) within its tenure in Brazil.
This growth follows the trend set by Sigma Lithium at its Grota do Cirilo project – also located in Brazil’s Minas Gerais region, which increased its resource to 52.4Mt at 1.41% Li2O in 2021 before increasing again to 85Mt at 1.43% Li2O in 2022. Sigma Lithium had a market capitalisation of over A$6.4 billion at 7 July 2023.
The comparison between the two project is particularly apt as investment bank Canaccord Genuity had flagged late last year that the company could follow in Sigma’s footsteps.
Highlighting the potential for growth, the company recently identified what it described as a “district-scale” lithium corridor at Salinas after reconnaissance drilling intersected multiple spodumene pegmatites along strike to the southwest of the Colina deposit.
The resource upgrade is also the reason why a number of brokers have piled in with their expectations for Latin to experience further growth with PAC Partners’ 12-month target of 34c being the most conservative (and below the last price of 35c on 7 July 2023).
Bell Porter meanwhile upgraded its valuation up from $0.23 to $0.37 while Canaccord Genuity believes there is substantially more upside with its price target of $0.45 and Toronto-based market dealer Red Cloud being the most optimistic with a target of $0.70.
What all the brokers agree on unreservedly is that the company’s recent resource upgrade is a significant milestone that has driven their forecasts.
PAC Partners notes that while the upgraded resource is now factored into its price target, it expects the current EV/tonne valuation it is using to give way to project valuation scenarios once Latin’s feasibility studies are published and the project scope confirmed.
“Our own project model is 4Mt mining for ~525,000t/yr of 6% Li2O spodumene concentrate with US$200m capex and US$1,500 concentrate price. This yields unrisked valuation scenarios of US$2bn+,” it noted.
Bell Porter on the other hand has included the potential for the upgraded Colina resource to potentially support production of over 400,000tpa of spodumene concentrate into its risked valuation.
It noted that Latin Resources is funded to aggressively pursue a DFS and environmental permitting to de-risk the project while regional exploration could provide potential upside.
Meanwhile, Canaccord says there is potential for further resources to be defined given that the company is only part way through its major 65,000m drill program at Salinas that targets extensions and infills of resources at Colina and Colina West.
It noted that the updated resource estimate has the potential to support a significantly larger production scenario than its previous assumptions involving plant throughput of 1.4Mtpa.
Rather, it now models Salinas as a 10 year, 3Mtpa project with production beginning in 2016 that could generate US$360m in EBITDA albeit at an increase in Capex from US$175m to US$295m.
Canaccord added that any further resource upgrades could make its mine life assumptions look conservative.
At the high-end of projections, Red Cloud believes that the pace of resource growth since initial drilling began at the Salinas project in February 2022 along with remaining upside potential, is reason enough to believe that a doubling of the current, upgraded resource base is more than achievable.
“We believe continued resource growth as well as the de-risking of the Salinas project through a PEA and additional metallurgical test work should bode well for the share price,” Red Cloud noted.
It added that upcoming catalysts include the Salinas PEA that is due in the third quarter, metallurgical testwork results, the Definitive Feasibility Study expected in the fourth quarter of 2024 and updates from other assets.
The broker belief in the regional prospectivity of Salinas is highlighted by the company’s recent announcement that it has a “district scale” lithium corridor on its hands after reconnaissance drilling southwest and along strike from Colina intersected multiple spodumene-bearing pegmatites.
Three out of four holes completed to date struck shallow east dipping, coarse-grained spodumene-rich pegmatites, with visual observations identifying 32.69m of mineralisation in the first hole drilled.
Latin noted that these intersections validate its regional interpretation of a large, mineralised pegmatite system potentially extending up to 26km to the southwest of Colina, providing it with a very clear pathway for further resource expansion.
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.