Cormark - Target Price - 4.00$ Drilling will help upgrade the resource and define additional tonnage at Spark. Frontier
is planning to disclose an updated resource before the upcoming PFS (expected in Q1/23)
which will build on the current Spark resource of 32.5 MMt grading 1.38% Li2O.
Following the news in mid-October that Frontier will outline a phased development approach
in the upcoming PFS (note HERE), we have put some numbers around a potential Phase
1 mine plan. We believe Management will look to outline a production scenario of 40,000
tpa of 7.2% spodumene concentrate (versus 23,000 tpa in the 2021 PEA), and we believe
initial capex of $200 MM is achievable for a 40,000 tpa floatation circuit. If we use $2,000/t
pricing for 6.0% spodumene concentrate (current pricing is above $8,000/t per Pibara's last
BMX auction) and assume a 2x premium for a technical-grade 7.2% concentrate, a rough
mine plan produces an NPV8% above C$450 MM for Phase I only and points to a stock
price around current levels. This highlights the attractiveness of the project before even
considering the Spark deposit and its potential to ultimately produce lithium chemicals.
Lastly, we are taking this opportunity to update our C$ assumption to 0.73 (from 0.79) to be
more in line with spot pricing. The resultant increase in our NAV is more than offset by a
reduction in the assumed equity issuance price for the initial capex to C$2.00 (from C$3.00)
and the dilution from the recent equity issuance. The result is a reduction in our NAV and
target price to C$4.00 (from C$4.50).
Investment Conclusion:
The stock is now trading at 0.50x our fully funded NAV of C$4.00 (at $17,500/t LiOH) or 0.10x
our C$21.00 NAV using spot pricing of $60,250/t LiOH. We believe the current valuation is
attractive for a premium hard-rock development story in Ontario.