Critical Elements Lithium Corp V.CRE

$ 2.75

[Boursicotte]

METALS & MINING

Critical Elements Corp. .

David Davidson, Sr. Analyst | 416.360.3462| [e-mail] Jeff Woolley, CFA, Analyst | 416.361.9557 | [e-mail] Gordon Lawson, Senior Associate | 416.363.65476| [e-mail]

Rose Gets Closer to Blooming

Investment Thesis. Critical Elements Corp. (CRE) is one of a handful of junior lithium development companies with a line of siteto construction and production of new high-quality lithium supply to an emerging undersupplied market. The Rose lithium-tantalum deposit in Quebec is recognized as one of the highest quality hard rock lithium project still awaiting development. Located in Quebec, a province that has gone all in on the Green Economy, bodes well for eventually permitting and development. The phase 1 feasibility study reported robust economics hence we expect the company to have little issue financing the project and bringing Rose to commercial productionasearlyas2024.

Event

On August 11, CRE’s Rose project received a ringing endorsement from the Federal MinisterofEnvironmentandClimateChangebyissuingtheenvironmentalpermitforthe project to proceed. In a statement from the Minister Jonathan Wilkinson said that the Rose projectis unlikelytocauseadverseeffectstothe environmentwhenthemitigation measures are considered. He also stated that the Rose project will benefit nearby communities and help support the electrification of transportation by meeting the needs of a growing battery market. Sounds like a political statement, doesn’t it — now the pressure is on the Quebec to follow suit.

Highlights

Feasibility Economics & Commodity Pricing | The Phase 1 Feasibility Study completed in fall 2017 indicated a project with an after-tax NPV of $726M and an IRR of 35%. The Feasibility Study forecasts an average LCE price of ~US$12,000/t, which at the time was in line with industry pricing expectations. However, in the past year, Chinese LCE prices have increased from US$9,000/t to over US$15,000/t and spot 5.5% spodumene concentrate prices have increased to US$1,250 from a low of US$425/t in 2020.

Lithium Market | Much has transpired over the past four years, from peak pricing of US$25,000/t LCE in 2018 to a low of US$6,000 in 2020 to a current price of US$15,000/t and forecasts as high as US$20,000/t as soon as 2023. The surplus experienced in 2019–2020 has shrunk rapidly as China, as well most of the Western world,has used the COVID-19 crises to retool theireconomiestoa green agenda. Consolidation has also been rampant, particularly by the Chinese players. The market is also moving quicker than had been previously forecast toward lithium hydroxide owing to the new battery formulations. High-quality spodumene concentrate is considered the preferred input by industry converters.

Strategic Significance | The West has finally recognized that relying on China for many of the critical materials neededfor a green economy may be a costly mistake. Now, particularly in the U.S. and Europe, a domestic or at least a reliable source for such critical materials has become of strategic importance. Canada, especially Quebec, is well positioned to play a significant role in meeting these needs.

Valuation & Conclusion

We have updated our model to reflect an LCE of US$12,000/t (previously US$10,500/t). We have calculated an NPV for the Rose project of C$751M and a company NAV of $3.66/sh (was $2.83/sh). Using a 0.75x NAV multiple to value CRE, we are increasing our target price to $2.75 (from $2.10) and our recommendation to a Buy (from Speculative Buy).

    All figures in C$, unless otherwise noted.

Rating: Buy previously Speculative Buy

12-Month Target: $2.75 previously $2.10

Price

Ticker

FYE

Potential ROR (incl. dividend) Shares O/S

Market Cap

$1.31 CRE-T 31-Aug 110% 183.1 194.7 239.8 255.0 -5.6 234.3 $3.66 $0.06

PCI est.

33.0 12,000 132 70.0 420 170 850 32.0%

   Net Debt ($M)

Enterprise Value ($M)

NAV/sh

Working Capital/sh

*based on in-the-money dilutive securities

Project Overview

Mineable Resource (Mt) LCE Price (US$/t LCE) Tantalum Price (US$/kg) Operating Costs (C$/t) Initial Capital (C$M) Sustaining Capital (C$M) AT NPV8 (C$M)

AT IRR (%)

2017 FS

26.8 12,000 130 66.6 341 127 726 34.9%

Basic (M) FD (M)* Basic ($M) FD ($M)

                Source: FactSet, Company fili

[Boursicotte]

[tinker901]

Thank you,  This is a solid report

[Boursicotte]

And very soon !!!  

[Bullatnl]

I hope your right !! AGM tomorrow usually means disappointment and a down day but maybe just maybe not this year