VSA Morning Miner, 11/02/21
American Lithium (CVE:LI)
American Lithium (CVE:LI) has announced a definitive arrangement agreement to acquire Plateau Energy Metals (PLU CN) in which Plateau shareholders will hold approximately 21% of American Lithium’s shares. This represents a premium of 84% to the last close of PLU prior to the deal and 72% on a 20 day VWAP basis. American Lithium will acquire all of the issued and outstanding shares of PLI on the basis of 0.29 units of American Lithium for each share of PLU. Each unit will consist of one American Lithium common share plus one half of a warrant exercisable at C$3.00/sh. for 36 months. Two PLU Directors will join the American Lithium board. The deal is subject to certain approvals by shareholders and the TSX and the deal is expected to complete in May 2021 following a shareholder meeting expected to be held in April 2021. American Lithium has provided PLU a loan of C$1.5m to support working capital over the coming months. The Directors of both companies have unanimously approved the acquisition while PLU shareholders representing 17% of the outstanding share capital have supported the deal in principal.
The deal takes American Lithium from a developer focussed primarily on a single asset to a multi asset development company with PLU’s more advanced Falchani lithium project in Peru as well as its Macusani uranium project. It appears that the latter project will be subject to a strategic review post acquisition and the primary focus will be Falchani. The deal would take American Lithium from total contained LCE resources of 7.13mnt to 11.8mnt of which 2.92mnt of the additional 4.71mnt is a high grade core. Our prior valuation metric was based solely on contained resources on an EV/t basis.
Falchani is a volcanic hard rock lithium project with bulk heap leaching potential, therefore making it comparable to American Lithium’s Tonopah asset. With a PEA already defined which demonstrated an NPV8 of US$1.6bn at a US$12,000/t lithium carbonate price, on capex of US$587m, with a 33 year mine life it is more advanced than the Tonopah project and indicates strong economics. Production is phased starting at 23ktpa rising to 85ktpa by year 13 demonstrating that this a second scalable asset (930km2 in license acreage); a characteristic we consistently highlight as necessary given the expectations for lithium demand growth over the next ten years.
Given the similar leachable characteristics we expect American Lithium to be able to use its existing knowledge of its twin track approach to defining a suitable metallurgical process for Tonopah to optimise that of Falchani. PLU have made a strong play of Falchani’s green credentials using renewable power and water recycling which is clearly an advantage in the current climate. The deal looks set to transform American Lithium into a diversified and more advanced lithium play with the option to realise further value from the uranium asset.
We look forward to further developments although note that the deal has been positively received trading at C$3.88/sh, with the stock now up 112% since our initiation, however with the announcement our target price and recommendation are Under Review.
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