ROTH Capital partner research NMX: Emerging Lithium Development Story;
Initiating with Buy
We are initiating coverage of Nemaska Lithium (NMX-T) with a Buy rating
and CAD$2.40 price target. We believe NMX is one of a select few lithium
development companies with the potential to reach production in the next
few years as lithium demand continues to grow. Additionally, we believe the
company's proprietary production process could make it a low cost provider of
lithium and thus more sustainable than current high cost producers.
n Phase 1 plant under construction. Currently, Nemaska is constructing a
Phase 1 plant at its recently acquired Shawinigan facility. The Phase 1 plant
will provide the company with a bulk sample analysis and representative
samples to provide to potential customers, in our view. Additionally, the plant
will be used for toll processing over the next two years. We note that the
company could eventually use the facility for increased production or as a
toll mill facility beyond its current two year agreement, but we view this as
potential upside to our estimates at this time.
n Commercial plant could start up by fiscal Q1 2019. In addition to the
Phase 1 plant, Nemaska is working to arrange off take agreements for the
majority of its potential lithium production from a commercial plant at the
Shawinigan facility. We believe the company will sign off-take agreements
for 75% of its potential future annual production by the end of 2016 and begin
the process of financing the commercial plant during early 2017. Based on
this timeline, we believe the commercial plant could start up during fiscal
Q1 2019.
n Lithium demand growth outpacing supply potential. We believe the
recent rise in lithium prices is indicative of a supply shortage. Lithium
demand has seen significant growth in recent years as energy storage
has become a growing end market. However, with three permitted lithium
projects worldwide and some existing operations planning production
expansion we believe prices could level off in the next few years. We provide
additional pricing assumptions in our "Lithium Market Overview" section of
this report.