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Lithium Australia NL: THE INVESTMENT CASE

Lithium Australia stamps its authority as an emerging vertically integrated lithium play

The inferred resource at Sadisdorf in Germany now stands at 25 million tonnes grading 0.45% lithium.
Picture of lithium cycle
INVESTMENT OVERVIEW: LIT The Big Picture
Application of SiLeach® technology provides an opportunity to combine the value of the tin with that of the lithium

Lithium Australia NL (ASX:LIT) has made substantial ground in the last 12 months in achieving its goal of developing an integrated lithium company.

The group is developing the capabilities to capitalise on all major sectors of the lithium supply chain and in so doing closing the loop on the lithium production cycle.

While the lithium price has retraced from an all-time high in January, such is the strength of the outlook for the metal that it recently compensated for a production shortfall at Orocobre (ASX:ORE).

Bell Potter bullish on lithium price

While output at the company’s Olaroz project was down nearly 30% on a quarter-on-quarter basis, analysts at Bell Potter were not fazed by the development.

The broker pointed out that Orocobre had achieved a new record average price of US$13,530 per tonne and that pricing would offset any downside from the production shortfall.

Bell Potter expects robust pricing to continue with its 2019 and 2020 lithium carbonate projections standing at US$15,125 per tonne and US$15,400 per tonne respectively.

Hence, while one piece of bad news at Orocobre triggered a share price decline from $5.24 to $5.01, a month later it is trading at $5.65.

This highlights the fact that stocks exposed to the sector, such as Lithium Australia, need to be assessed on their medium to long-term merits.

An important backdrop for Lithium Australia

The Orocobre scenario is important to consider when examining Lithium Australia’s trading patterns, particularly in 2018.

After mainly trading in the vicinity of 20 cents in the latter half of 2017 and the first few months of 2018, the company's shares have dipped to around 13 cents.

As one of the few vertically integrated players in the lithium sector with a clearly defined medium to long-term outlook, this retracement could represent a buying opportunity.

Closing the loop in production cycle

As the company explains, its strategy is to close the loop in the lithium production cycle.

Lithium Australia has grown its resource base and developed a world-class processing technology called SiLeach®.

The company has also acquired an enterprise that has proprietary processes for the production of lithium-ion battery cathode materials.

With regards to the company’s SiLeach technology where a pilot plant is nearing completion, Lithium Australia managing director Adrian Griffin said: “The FEED study is advancing well and the improvements in lithium recovery are very encouraging.

READ: Lithium Australia nears completion of design for cutting edge SiLeach plant

“We're pleased with the increase in confidence around by-product recovery, which is an important aspect of the SiLeach revenue stream.

“We believe it will allow us to produce lithium chemicals from minerals but at the same low unit cost as that of the brine producers.

“Preliminary discussions with potential offtake partners have been encouraging.

"Our planned laboratory-scale pilot run, while aimed primarily at finalising the flowsheet for construction, will generate significant amounts of lithium chemical product for testing by potential offtake partners.”

Sadisdorf is an ideal fit

From a resource perspective, the company’s farm-in joint venture with Tin International AG is a coup as it provides an opportunity to cash in on its proprietary technology.

The Sadisdorf tin mine in Saxony, Germany, has tin mineralisation which is enveloped by a lithium-mica alteration.

Application of Lithium Australia’s SiLeach technology provides an opportunity to combine the value of the tin with that of the lithium.

For other miners, the lithium content within the ore mined is considered waste.

Resource modelling has confirmed that the dormant tin mine, which contains significant lithium mineralisation, can be considered a polymetallic deposit.

Substantial value can be extracted from lithium, tin and tungsten.

Resource upgraded

Moreover, application of SiLeach has the potential to provide significant by-product credits such as potassium sulphate fertiliser and sodium silicate.

Tin International AG had previously defined an inferred tin resource of 3.36 million tonnes grading 0.44% tin at a cut-off of 0.25%.

Following reanalysis and reinterpretation of historical drilling and underground sampling, the inferred resource now stands at 25 million tonnes grading 0.45% lithium.

Large-scale SiLeach pilot plant

Engineering design studies and financial modelling have shown that LIT’s proposed SiLeach large-scale pilot plant can produce lithium chemicals from waste.

This is in the form of lithium micas, and the studies have also identified multiple avenues for more substantial capital and operating cost reductions.

The pilot plant is nearing completion with metallurgical test work demonstrating improved lithium recovery.

Further, there is the potential to produce high-quality fertiliser as a by-product which will enhance the project economics.

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