E3 Lithium Ltd V.ETL

Roth Capital Partners -- increases target on ETMC to $6.75

[ndiamond]

	Joe Reagor, [e-mail] [phone] Sales [phone], Trading [phone]
COMPANY NOTE   |   EQUITY RESEARCH   |   April 13, 2022

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E3 Metals Corp.   |  ETMC.V - $2.67 - TSX   |  Buy

Company Update
Target Price Changed

Stock Data

52-Week Low - High	$1.53 - $3.49
Shares Out. (mil)	57.77
Mkt. Cap.(mil)	$154.23
3-Mo. Avg. Vol.	105,290
12-Mo.Price Target	C$6.75
Cash (mil)	C$17.8
Tot. Debt (mil)	C$0.3

Revenue (C$ millions)
Yr Dec	--2020--	--2021--	--2022E--
		Curr	Curr
1Q	0.0A	0.0A	0.0E
2Q	0.0A	0.0A	0.0E
3Q	0.0A	0.0A	0.0E
4Q	0.0A	0.0A	0.0E
YEAR	0.0A	0.0A	0.0E

EPS C$
Yr Dec	--2020--	--2021--		--2022E--
		Curr	Prev	Curr
1Q	(0.01)A	(0.03)A	(0.03)A	(0.02)E
2Q	(0.01)A	(0.02)A	(0.02)A	(0.02)E
3Q	(0.01)A	(0.02)A	(0.02)A	(0.02)E
4Q	(0.03)A	(0.03)A	(0.02)E	(0.02)E
YEAR	(0.07)A	(0.10)A	(0.09)E	(0.07)E

ETMC.V: Increasing Price Target on Higher Lithium Price Forecast

We are updating our valuation of ETMC.V to reflect our higher lithium price forecasts. Thus, we are increasing our price target from C$4.50 to C$6.75. Additionally, we anticipate significant positive news flow from E3 in 2022, which should derisk the company's assets. Therefore, we are reiterating our Buy rating.

2022 Catalysts likely to come from drilling and pilot advancement. Currently, E3 Metals is drilling initial test wells to confirm the grade of its resource base. We believe this drilling could in fact demonstrate higher than anticipated grades as we believe the current resource grade estimate may have been conservative. Additionally, we believe E3 is working to procure a pilot plant for a field test of its DLE technology. We estimate the construction of this pilot plant is likely to occur in the second half of 2022.

Increasing long-term lithium price assumption. In recent months, the spot price of lithium has increased significantly. There have been numerous reports of spot lithium transactions exceeding $70,000 per tonne of LCE as battery manufacturers scramble to secure supply. We believe that current pricing is indicative of a short-term supply shortage that is likely to subside by the end of the year. However, we also believe that higher long-term prices are needed to facilitate further production growth in years to come. As a result, we are increasing our long-term lithium carbonate and lithium hydroxide price forecast from $15,000 per tonne to $20,000 per tonne. We note this increase has a meaningful impact on our valuations of our covered lithium companies.

Increasing target to C$6.75. As a result of our revised long-term pricing forecast, we are increasing our price target for ETMC.V from C$4.50 to C$6.75. We note that in an effort to be conservative we reduced our NPV multiple from 25% to 20% to partially offset our higher pricing scenario. Additionally, we are reiterating our Buy rating as we expect significant positive news flow in 2022.

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VALUATION

We base our valuation of E3 Metals on a sum of the parts. We assign a value of C$442.2 million to its flagship Clearwater asset (20% of the PEA after-tax NPV at $20,000 per tonne of lithium). We then assign a value of 0.1% of the in-situ value of its Rocky and Exshaw projects based on an LCE price of $15,000 per tonne (we note this is $5,000 per tonne less than our long-term price forecast). This results in a value of C$90.7 million for the two projects. To this we add C$17.6 million in net cash as of year end 2021. Thus, we arrive at a total valuation of C$550.5 million. We divide this by an estimated future fully diluted share count of 80.2 million to reach a value of C$6.87 per share. We round this down to reach our C$6.75 price target, and we are reiterating our Buy rating.

Factors that could impede E3 from achieving our price target include, but are not limited to: unanticipated equity issuances, capital overruns, failure to produce battery-grade lithium hydroxide at pilot scale, delays in constructing its pilot facilities, underperformance of lithium prices, and other unforeseeable market events.