RE:DESJARDINS - RATING BUY : 3.75$The Desjardins Takeaway: Slightly positive
On October 31, 2023, the government of Canada announced the launch of the C$1.5b Critical Minerals Infrastructure Fund (CMIF) aimed at supporting the accelerated development of critical minerals production and related supply chains.
About the CMIF. It will aim to (1) support clean energy projects that drive environmental performance while enabling critical minerals development (ie generation, storage and transmission of non-emitting renewable or alternative energy, and grid connectivity); and (2) support road, rail and marine transportation projects that will enable the development or expansion of critical mineral resources.
Funding will be available over seven years through two streams: (1) pre-construction and project development will fund pre-construction operations required to advance projects toward a shovelready state (eg planning, studies, engagement with Indigenous groups); and (2) infrastructure deployment will fund activities for shovel-ready projects (eg readily deployable solutions, construction, rehabilitation or enhancement of infrastructure). Eligible recipients include provinces and territories, private businesses, not-for-profit organizations and Indigenous groups.
The maximum funding available per project under the first call for proposals (expected to launch by late fall 2023) will be C$50m for most applicants. The CMIF will fund up to 50% of total eligible expenditures, except in the case of Arctic, northern and Indigenous-led projects (up to 75%) and publicprivate partnerships (up to 33%). Most contributions will not require a repayment.
A positive step for the industry, with potential derisking implications for Frontier’s PAK project. We view the announcement positively for the Canadian EV supply chain as the CMIF should help accelerate Canada’s contribution to the lithium/critical minerals supply chain through governmentfunded development of strategic infrastructure projects.
Within our coverage, we believe that the CMIF could be a particularly exciting derisking opportunity for Frontier given the limited existing road transportation infrastructure around its 100%-owned PAK lithium project in northwest Ontario (see Exhibit 1). The Berens bridge and road (60% of the way to PAK) is a First Nationsled project believed to be nearing completion of its final two permits and is awaiting funding. Overall, we estimate that bridge and road projects to reach the PAK project would have a total cost of more than C$100m. We view the federal government’s CMIF as a strong option for a significant part of infrastructure funding and believe that any additional funds required could come from the provincial government, Frontier and/or strategic partners.
Valuation. FL trades at 0.18x P/NAV vs peers at 0.39x.
Frederic Tremblay, CFA • (514) 841-0283 • frederic.a.tremblay@desjardins.com Liam Bergevin, Associate • (514) 809-7586 • liam.a.bergevin@desjardins.com
Rating: Buy, Risk: Speculative, Target: C$3.75 FL C$0.82, TSX-V