Nemaska Lithium Inc NMKEF

RE:RE:RE:RE:HIGHLIGHTS 2018-05-10 FROM NATIONAL BANK

[Laliberte2020]

dopeboy777 wrote: are you able to copy/paste the text here?

<br /> <br />May 10, 2018   The NBF Daily Bulletin Diversified Metals and Mining Nemaska Lithium Inc. 

NMX (T) $1.30 

Books closed on bond offering Only one piece of the puzzle remains 

Stock Rating: Sector Perform (Unchanged) Target: $1.90  (Unchanged) Risk Rating: Speculative  (Unchanged) Est. Total Return 46%  Stock Data: 52-week High-Low (Canada) $2.44-$0.95 Bloomberg/Reuters: Canada NMX CN (Year-End June 30) F2017a F2018e F2019e Revenue (mln) -$     -$     $     EBITDA (mln) (9.5)$    (9.7)$    (12.2) $  EBITDA margin (%) 0% 0% 0% adj Net Income (10.0)$  (9.8)$    (12.3) $  adj Net Margin (%) - - Adj. EPS (0.03)$  (0.03)$  (0.03) $  Adj. P/E (0.0x) (0.0x) (0.0x) EV/ Adj. EBITDA nmf nmf

Financial Data: Market Capitalization (mln) 520 $     Total Cash1 (mln) 41.8 $    Total Debt (incl CD)1 (mln) $     Tangible Book Value/ Share 0.38 $    Debt/Capital 0.0% Sh/O Basic2 (mln) 400.4    FD Outstanding2 (mln) 407.0    Source: Thomson Financial and NBF estimates 1 Quarter ended December 31, 2017, 2 NBF Estimate 

HIGHLIGHTS Closed the books on a US$350 mln  bond at 11.25% The terms on the Nordic-style bond have been finalized, with a maturity of five years (unless repurchased or redeemed) and an interest rate of 11.25% pa. The bonds are senior secured callable, guaranteed by the Whabouchi and Shawinigan properties.  The bonds have a 24-month amortization schedule in respect of 50% of the principal, commencing 36 months after settlement (May 30, 2018). The bonds should be listed on the Nordic Alternative Bond Market (ABM). Still require additional financing of C$350 mln NMX previously announced financing needs of US$775-825 mln to fund construction, commissioning and working capital. With its C$99 mln in equity from Softbank, US$150 mln streaming deal and US$350 mln bond offering, we believe it could target about another C$350 mln (with some cushion), part of which could be funded by investment entities of the QC government. An updated view on valuation to consider moving parts We have updated our target, to account for greater equity dilution at a lower share price. We have also increased the cost of debt to 11.25% from 10%. Although these factors pressure our target, it is more sensitive to lithium price assumptions. We increased our lithium carbonate price deck by US$500 /t (to US$9,000 /t), to be more in line with the market view, but remain well below prevailing prices (see next page).    Maintaining target at $1.90/sh, Sector Perform With a successful debt financing, we revised our estimates. Our target is based on an equity discount rate of 10% on our DCF and is equal to 4.5x EV/EBITDA on 2021E. Our model assumes further equity dilution at an average price of <$1.20 /sh. We believe that NMX has a globally significant resource and leading processing technology, with some financing and execution risk.  

Industry Rating: Overweight (NBF Economics & Strategy Group) 

 

Company Profile: Nemaska Lithium is an emerging supplier of lithium salts (Li2CO3 and Li-OH), with a high-grade spodumene resource in Quebec and a low-cost refining process that takes advantage of attractively priced power in the province. NMX is commissioning a 500 tpy pilot plant and plans to ramp production up to 33,000 tpy of lithium salts by the end of 2020E. The market for lithium is largely being driven by the growing demand for Li-ion batteries to supply EVs. 

Stock Performance 

Daily NMX.TO 2017-05-11 - 2018-05-29 (TOR) Line, NMX.TO, 2018-05-09, 1.30, N/A, N/A Price CAD

1

1.2

1.4

1.6

1.8

2 2.2

1.30

Vol, NMX.TO, 2018-05-09, 258,763.00

Volume 0 258,763.00

 16 01 16 04 17 01 16 01 18 02 16 01 16 01 18 16 01 16 16 02 16 01 16 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Source: Reuters

 

Rupert M. Merer, P.Eng CFA - [phone] [e-mail]  Associates: 

 Steven Hong – [phone] [e-mail] Adnan Waheed – [phone] [e-mail] 

 

 

 

 

 

 

 

Increasing our estimates for dilution required, but NMX is much more sensitive to lithium prices With the debt financing in place, NMX should now look to raise equity as the final piece of its construction financing puzzle. We believe that the company will look to have more than the US$775-825 mln that was estimated for construction costs, contingencies and working capital needs. With its US$350 mln bond and US$150 mln streaming deal, we are forecasting an additional equity need of C$426 mln (was C$345 mln). The company has a deal with Softbank for C$99 mln of this equity (at $1.12 /sh) and could see another $50 mln to $100 mln from entities of the Quebec government. However, it may need to turn to public markets for the rest. We are estimating total dilution of 364 mln shares at an average price of $1.17 /sh (including Softbank at $1.12 /sh). This is up from the 270 mln shares we estimated previously, resulting in a 14% increase to our pro-forma share count post financing.  As part of our valuation reset, we are also considering a higher price for lithium carbonate and lithium hydroxide (up US$500 /t). This updated view is more consistent (but still a discount) to the industry and market view and a discount to current prices (see next section). 

Current Previous %

Lithium Carbonate Price (2021E US$/MT) 9,000 $      $      8,500 5.9% Lithium Hydroxide Price (2021E US$/MT) 10,500 $    10,000 $    5.0%

Additional Equity raise ($mln), including Softbank 426 $          $          345 23.5% Average equity price ($/sh) 1.17 $         $         1.28 -8.6% Total shares issued (mln) 364                        270 35.1% Proforma shares issued post raise 770                        677 13.7%

Source: Company reports, NBF estimates & analysis

Summary of Estimate Changes

 

Target price more sensitive to lithium prices Lithium prices remain strong today at more than US$17,000 /t for lithium carbonate and lithium hydroxide. The industry view is that prices will remain well above US$10,000 /t for high quality, battery grade materials. Our estimates have been based on lower prices historically, with a view that we should remain conservative in the event that lithium supplies increase and lead to lower prices. With persistently high prices and with continued momentum in the Li-Ion battery market, we are increasing our long-term price forecast modestly to US$9,000 /t for lithium carbonate. In our view, this price would provide an adequate return on capital to incentivize new lithium carbonate supplies.    

Page 2

 

 

 

 

Source: Argus, IM, Benchmark with NBF estimates and analysis

Lithium Carbonate & Lithium Hydroxide Pricing Assumptions

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Global Average (US$/tonne)

Li2CO3 Forecast LiOH Forecast Li2CO3 Actual LiOH Actual

 

7,500 8,000 8,500 9,000 10,000 11,000 12,000 7% 2.51 2.62 2.73 2.85 3.07 3.30 3.52 8% 2.13 2.22 2.31 2.40 2.59 2.77 2.95 9% 1.86 1.94 2.01 2.09 2.24 2.40 2.55 10% 1.66 1.72 1.79 1.86 1.99 2.12 2.25 11% 1.50 1.56 1.62 1.67 1.79 1.90 2.01 12% 1.38 1.43 1.48 1.53 1.63 1.73 1.83 13% 1.28 1.32 1.37 1.41 1.50 1.59 1.67 14% 1.20 1.24 1.27 1.31 1.39 1.47 1.55 [1] Assumption: Price of Lithium Hydroxide = Price of Lithium Carbonate + US$1,500 Source: NBF Estimates & Analysis

Sensitivity of NMX's target price to discount rate & lithium carbonate price

Lithium Carbonate Price (US$/MT, infl adj from '22E ) [1] 

Discount Rate

 

 

 

 

 

Page 3

 

 

 

 

(all figures in Cdn$ unless otherwise noted) Ticker NMX Market Price 1.30 $        Shares Outstanding (FD mln)* 400          Market Cap ($mln) 520 $         Enterprise Value ($mln)* 486 $         52-week High 2.44 $        52-week Low 0.95 $        Stock Rating Sector Perform Risk Rating Speculative 12-Mth Target Price 1.90 $        12-Mth Total Return 46%

Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Jun-18 Jun-19 Jun-20 Income Statement 2017 Q118 Q218 Q318E Q418E 2018E 2019E 2020E Total Revenue ($mln) 184.5        Growth yoy (%) Sales/Share (FD) 0.24        Lithium Carbonate Average Price (US$/MT) 17,061$    13,417 $   Lithium Hydroxide Average Price (US$/MT) 18,622$    14,917 $   Lithium Carbonate Production (MT/yr) -                   -         -         -         -           -           Lithium Hydroxide Production (MT/yr)                    -         -         -         -           -           Gross Margin ($mln)                      -         -        (0.0)        (0.0)        (0.0)         ( 0.0)       121.7 Gross Margin (%) 66% SG&A ($mln) 9.5                     2.1         2.2         2.7         2.8         9 .9         12.3        12.4 EBITDA ($mln) (9.5)                    (2.0)          (2.2)          (2.7)          (2.8)          (9.7)        (12.2)        109.4 EBITDA - TTM ($mln) (9.5)              (10.0)        (9.7)        (9.7)        (12.2)       109.4 Adj. EBITDA (7.2)                    (1.7)          (1.9)          (2.4)          (2.5)          (8.5)        (11.1)        110.5 EBITDA Margin (%) 59% EBIT ($mln) (9.5)                    (2.1)          (2.2)          (2.7)          (2.8)          (9.9)        (12.3)        109.3 Net Interest Expense ($mln)           0.0           0.0           0.0           -           -           0.0           -         23.4 Net Income ($mln) (10.0)                  (2.4)          (3.0) (2.7)             (2.8)               (10.5)        (12.3)         53.3 Adj. Net Income ($mln) (10.0)                 (2.5)        (2.2)        (2.7)        (2.8)        (9.8)        (12.3)        53.3 A d j .

 N e t

 M a r g i n

 ( % ) - - - - - - - 2 9 % EPS (diluted) (0.032)             ( 0.006)      ( 0.008)       (0.007) (0.007)       (0.028)              (0.032)       0 .140 Adj. EPS (diluted) (0.032)             ( 0.006)      ( 0.008)       (0.007) (0.007)       (0.028)              (0.032)       0 .140 Balance Sheet ($mln) Cash & S.T. investments ($mln)         66.6         41.8         34.2           8.4 474.1        474.1                294.2        218.3 Book Value ($mln) 154.4                152.2        163.2        160.8 583.7        583.7                572.6        626.9 Book Value / sh 0.41                  0.40         0.41         0.39         0.76         0.76         0.74         0.81 Debt (incl CD - $mln)           -           -           -           -           -           -         83.2        416.0 Net Debt ($mln) (66.6)                (41.8)        (34.2)          (8.4) (474.1)       (474.1)              (211.0)       1 97.7 Working Capital ($mln) 60.1                  33.2         28.2           5.8 472.5        472.5                289.6        249.5 Net Debt/EBITDA 55.5                  18.9           1.8 Cash Flow ($mln) Cash and st investments start of period 19.6 66.6 41.8 34.2 8.4 66.6 474.1 294.2 Operating Activities (8.5) 0.1 (3.1) (5.8) (3.5) (12.3) (8.1) 51.3 Investing Activities (77.0) (25.6) (23.8) (20.0) (50.0) (119.4) (350.0) (460.0) Financing Activities 132.5 0.7 19.3 0.0 519.3 539.3 178.2 332.8 Change in Cash 47.0 (24.8) (7.6) (25.8) 465.7 407.5 (179.9) (75.9) Cash and st investments end of period 66.6 41.8 34.2 8.4 474.1 474.1 294.2 218.3 Valuation Metrics EV ($mln) 453.9                478.7        486.3        512.1         46.4         46.4        309.5        718.2 EV/Sales nmf nmf nmf 3.89         Price/Sales nmf nmf nmf 2.82         Price/Book Value 3.17                  1.71         1.75         1.60 Adj. EV/EBITDA nmf nmf (27.8)                  6 .5 W.avg shares outstanding (basic mln) 315.8                377.1        381.6        400.4 581.7        435.2                763.1        763.1 W.avg shares outstanding (fd mln) 315.8                377.1        381.6        403.7 588.4        437.7                769.8        769.8 Shares outstanding - end (basic mln) 377.0               377.0      400.4      400.4 763.1      763.1             7 63.1       763.1 Shares outstanding - end (fd mln) 377.0                377.4        400.4        407.0 769.8        769.8                769.8        769.8 Source: Company data and Reuters with NBF estimates and analysis

Nemaska Lithium Inc.

Selected Results (All figures in Cdn$ unless otherwise noted)

2018-05-10

Page 4

 

 

 

 

DISCLOSURES:   Ratings And What They Mean:   PRIMARY STOCK RATING: NBF has a three-tiered rating system that is relative to the coverage universe of the particular analyst. Here is a brief description of each: Outperform – The stock is expected to outperform the analyst’s coverage universe over the next 12 months;    Sector Perform – The stock is projected to perform in line with the sector over the next 12 months; Underperform – The stock is expected to underperform the sector over the next 12 months.    SECONDARY STOCK RATING: Under Review − Our analyst has withdrawn the rating because of insufficient information and is awaiting more information and/or clarification; Tender − Our analyst is recommending that investors tender to a specific offering for the company’s stock; Restricted − Because of ongoing investment banking transactions or because of other circumstances, NBF policy and/or laws or regulations preclude our analyst from rating a company’s stock.   INDUSTRY RATING: NBF has an Industry Weighting system that reflects the view of our Economics & Strategy Group, using its sector rotation strategy. The three-tiered system rates industries as Overweight, Market Weight and Underweight, depending on the sector’s projected performance against broader market averages over the next 12 months.    RISK RATING: NBF utilizes a four-tiered risk rating system, Below Average, Average, Above Average and Speculative. The system attempts to evaluate risk against the overall market. In addition to sector-specific criteria, analysts also utilize quantitative and qualitative criteria in choosing a rating. The criteria include predictability of financial results, share price volatility, credit ratings, share liquidity and balance sheet quality. 

General – National Bank Financial (NBF) is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on Canadian stock exchanges. The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein.  

Research Analysts – The Research Analyst(s) who prepare these reports certify that their respective report accurately reflects his or her personal opinion and that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views as to the securities or companies. NBF compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of NBF including, Institutional Equity Sales and Trading, Retail Sales, the correspondent clearing business, and Corporate and Investment Banking. Since the revenues from these businesses vary, the funds for research compensation vary. No one business line has a greater influence than any other for Research Analyst compensation. 

Canadian Residents – In respect of the distribution of this report in Canada, NBF accepts responsibility for its contents. To make further inquiry related to this report, Canadian residents should contact their NBF professional representative. To effect any transaction, Canadian residents should contact their NBF Investment advisor.    

U.S. Residents – With respect to the distribution of this report in the United States, National Bank of Canada Financial Inc. (NBCFI) is regulated by the Financial Industry Regulatory Authority (FINRA) and a member of the Securities Investor Protection Corporation (SIPC). This report has been prepared in whole or in part by, research analysts employed by non-US affiliates of NBCFI that are not registered as broker/dealers in the US. These non-US research analysts are not registered as associated persons of NBCFI and are not licensed or qualified as research analysts with FINRA or any other US regulatory authority and, accordingly, may not be subject (among other things) to FINRA restrictions regarding communications by a research analyst with the subject company, public appearances by research analysts and trading securities held a research analyst account.  All of the views expressed in this research report accurately reflect the research analysts’ personal views regarding any and all of the subject securities or issuers. No part of the analysts’ compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. The analyst responsible for the production of this report certifies that the views expressed herein reflect his or her accurate personal and technical judgment at the moment of publication. Because the views of analysts may differ, members of the National Bank Financial Group may have or may in the future issue reports that are inconsistent with this report, or that reach conclusions different from those in this report. To make further inquiry related to this report, United States residents should contact their NBCFI registered representative. 

UK Residents – In respect of the distribution of this report to UK residents, National Bank Financial Inc. has approved the contents (including, where necessary, for the purposes of Section 21(1) of the Financial Services and Markets Act 2000). National Bank Financial Inc. and/or its parent and/or any companies within or affiliates of the National Bank of Canada group and/or any of their directors, officers and employees may have or may have had interests or long or short positions in, and may at any time make purchases and/or sales as principal or agent, or may act or may have acted as market maker in the relevant investments or related investments discussed in this report, or may act or have acted as investment and/or commercial banker with respect thereto. The value of investments can go down as well as up. Past performance will not necessarily be repeated in the future. The investments contained in this report are not available to retail customers. This report does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for the securities described herein nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. This information is only for distribution to Eligible Counterparties and Professional Clients in the United Kingdom within the meaning of the rules of the Financial Conduct Authority. National Bank Financial Inc. is authorised and regulated by the Financial Conduct Authority and has its registered office at 71 Fenchurch Street, London, EC3M 4HD.. National Bank Financial Inc. is not authorised by the Prudential Regulation Authority and the Financial Conduct Authority to accept deposits in the United Kingdom. 

HK Residents – With respect to the distribution of this report in Hong Kong by NBC Financial Markets Asia Limited (“NBCFMA”)which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 (dealing in securities) and Type 3 (leveraged foreign exchange trading) regulated activities, the contents of this report are solely for informational purposes. It has not been approved by, reviewed by, verified by or filed with any regulator in Hong Kong. Nothing herein is a recommendation, advice, offer or solicitation to buy or sell a product or service, nor an official confirmation of any transaction. None of the products issuers, NBCFMA or its affiliates or other persons or entities named herein are obliged to notify you of changes to any information and none of the foregoing assume any loss suffered by you in reliance of such information.  The content of this report may contain information about investment products which are not authorized by SFC for offering to the public in Hong Kong and such information will only be available to, those persons who are Professional Investors (as defined in the Securities and Futures Ordinance of Hong Kong (“SFO”)).  If you are in any doubt as to your status you should consult a financial adviser or contact us. This material is not meant to be marketing materials and is not intended for public distribution. Please note that neither this material nor the product referred to is authorized for sale by SFC. Please refer to product prospectus for full details.  There may be conflicts of interest relating to NBCFMA or its affiliates’ businesses. These activities and interests include potential multiple advisory, transactional and financial and other interests in securities and instruments that may be purchased or sold by NBCFMA or its affiliates, or in other investment vehicles which are managed by NBCFMA or its affiliates that may purchase or sell such securities and instruments.  No other entity within the National Bank of Canada group, including National Bank of Canada and National Bank Financial Inc, is licensed or registered with the SFC. Accordingly, such entities and their employees are not permitted and do not intend to: (i) carry on a business in any regulated activity in Hong Kong; (ii) hold themselves out as carrying on a business in any regulated activity in Hong Kong; or (iii) actively market their services to the Hong Kong public.  Copyright – This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of National Bank Financial. 

 NBF is a member of the Canadian Investor Protection Fund. 

 

Page