Plunging microcap stock American Lithium triples project's value

• American Lithium (TSXV:LI), a stock on a downward spiral, has released an NI 43-101 technical report supporting the preliminary economic assessment for its Falchani lithium project in Peru, which features a tripling of the project’s net present value to US$5.11 billion
• The project is estimated to produce annual after-tax cash flow of US$644 million over a 43-year life of mine
• American Lithium is developing large-scale lithium projects in mining-friendly jurisdictions throughout the Americas
• American Lithium stock (TSXV:LI) has fallen by 75.20 per cent year-over-year, but has gained 150 per cent since 2019

American Lithium (TSXV:LI), a stock on a downward spiral, has released an NI 43-101 technical report supporting the preliminary economic assessment (PEA) for its Falchani lithium project in Peru, which features a tripling of the project’s net present value to US$5.11 billion.

The updated PEA, released last month, shows Falchani has a substantial chance at becoming a large, low-cost, long-life supplier of high-purity lithium carbonate, with the added potential to simultaneously produce sulfate of potash and cesium sulfate by-products.

Falchani PEA highlights for lithium carbonare equivalent (LCE) production

• Pre-tax net present value (NPV)8% of US$8.41 billion at US$22,500/t LCE
• After-tax NPV8% of US$5.11 billion at US$22,500/t LCE, more than triple the 2019 PEA after-tax NPV8% of US$1.5 billion at US$12,000/t LCE
• Pre-tax internal rate of return (IRR) of 40.7 per cent
• After-tax IRR of 32 per cent
• Pre-tax initial capital payback period of 2.5 years, with an after-tax payback of 3 years
• Average life-of-mine annual pre-tax cash flow of US$1,019 million, with annual after-tax cash flow of US$644 million
• Initial capex of approximately US$681 million
• Total capex over the life of mine of US$2,565 million, with sustaining capital estimated at US$236 million
• Operating costs of $5,092/t LCE
• PEA mine and processing plan production of 2.64 Mt LCE over 43 years
• Steady-state average production of 23,145 tpa LCE in phase 1, 45,084 tpa in phase 2 and 72,624 tpa in phase 3
• The addition of sulfate of potash and cesium sulfate production adds more than US$500 million to NPV and over US$100 million in annual after-tax cash flow

Management commentary

“We are very pleased to have filed this updated PEA on Falchani, which shows very robust economics for this large-scale, high purity, hard-rock project,” Simon Clarke, American Lithium’s chief executive officer, said in a statement. “This is a major milestone in the process to complete pre-feasibility and move the project into mine permitting. The filing of the semi-detailed environmental impact assessment late last year also positions the project to be fast-tracked. Falchani has demonstrated the potential for long-life, high annual production, with one of the lowest operating cost profiles globally for developers.”

Why a new PEA and technical report are relevant to investors

While a PEA and accompanying technical report include inferred resources, which are too undeveloped to be considered for profitable extraction, they do offer base-case economical considerations that paint a picture of how a project would perform compared with the present day.

With LCE trading at a little more than US$16,000 in November 2023, after already suffering through a more than 75 per cent drop year-over-year because of a global surplus and reduced electric vehicle subsidies in China, the world’s largest producer of LCE, American Lithium is just under 30 per cent short of its base-case price of US$22,500 per tonne.

Considering that Goldman Sachs is estimating that LCE prices will fall to US$13,377 per tonne this year, readers interested in the stock should pay close attention to how lithium reacts to slowing global inflation and growing electric vehicle demand.

A tepid environment for lithium demand, whether because of regulatory hurdles, geopolitical tensions, or excessively optimistic market expectations, could result in significant delays in Falchani’s progress toward prefeasibility and feasibility studies, which deal in mineral reserves and entail a higher threshold of factual information to generate estimates.

Like Falchani, American Lithium’s other two projects – the TLC lithium project (US$3.26 billion NPV) in Nevada and Macusani uranium project (US$603 million NPV) in Peru – exhibit robust expansion potential and strong community support.

American Lithium is developing large-scale lithium projects in mining-friendly jurisdictions throughout the Americas.

American Lithium (TSXV:LI) is up by 2.15 per cent trading at C$0.95 per share. The stock has fallen by 75.20 per cent year-over-year, but has gained 150 per cent since 2019.

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