Resource upgrade and happy strategic dilemma

The new resource estimate for the Mariana lithium brine deposit in Argentina transforms its potential into a world-class project in which ILC has a 13.7% share (and a back-in option for a further 10%), with Chinese lithium major, Ganfeng, owning the balance. Our DCF estimate for ILC, currently based solely on Mariana, is C$0.18/share (C$0.23/share with back-in). The company faces a happy strategic dilemma in how to valorise Mariana, as it awaits a maiden resource estimate for its 100%-owned Canadian hard rock lithium project at Raleigh Lake.

• Strategy: ILC’s strategy is to unlock value from its brine and hard rock lithium projects, as it takes advantage of rapid growth for lithium used in electric vehicles. Funding conditions for lithium companies will determine whether ILC can simultaneously advance Raleigh Lake and Mariana, or likely prioritise the former.
• Mariana: The updated estimate for Measured & Indicated (M&I) resources saw a 253% upgrade in lithium carbonate equivalent (LCE) to 4.410m tonnes for 2020, vs. 1.248m tonnes in 2017. This is now a world-class project, which Ganfeng has indicated its intention to fast-track to production (likely by 2024).
• Raleigh Lake: The 2019 exploration programme confirmed the existence of a 3km x 1km magnetic body, believed to contain lithium-bearing pegmatites. ILC hopes that this year’s drilling programme will confirm a near-continuous seam of mineralisation geologically similar to the huge Tanco mine.
• Risks: ILC is subject to the normal risks for a junior miner, notably continuing to achieve successful exploration results, staying ahead of the funding curve and cyclical market conditions for commodities, in this case lithium.
• Investment summary: While we lack any geological data on Raleigh Lake with which to estimate the project’s value, there is not long to wait, with a maiden resource estimate expected later in 2020. For the time being, our DCF valuation of ILC remains solely based on Mariana, at C$0.18/share (C$0.23/share including buy-in). Selling its Mariana stake, e.g. to a company seeking to guarantee long-term lithium supply, remains an option.