Palisade Research - Mon, May 14, 2018

LSC Lithium Corp - The Most Attractive Play On Lithium Right Now

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If you can look past the share price - LSC Lithium (TSXV:LSC, OTCMKTS:LSSCF, FRA:8LS, Mkt Cap: C$109M) has had an incredible year.

I know it's hard to separate the two - but if you exclude Mr. Market's bipolar nature, LSC has actually come a long way.

As value investors - this creates opportunity.

It takes a lot to ignore the noise and short term fluctuations of the share price and only focus on the company's fundamentals and what it's worth.

But with the outlook for lithium looking better than ever - LSC Lithium is looking very attractive at today's prices.

And with the recent financial mess going on in Argentina - you can take advantage of everyone-s near-sighted fears.

Let's take a closer look. . .

The company released two 43-101 compliant resources for their Pozuelos and Rio Grande projects - making it a leading lithium developer.

Pozuelos' maiden resource included a measured and indicated (M&I) resource of 1.3 million tonnes of lithium carbonate equivalent (LCE) and another 313,000 tonnes LCE inferred.

Rio Grande's maiden resource was even better with an inferred resource of 2.2 million tonnes LCE in just the top 100 meters.

The total resource of 3.8 million tonnes LCE was enough to put LSC at the head of the pack for lithium exploration companies - and they're not stopping yet.

LSC Lithium still has exciting catalysts upcoming for the remainder for 2018. . .

Next up - Pastos Grandes & Salinas Grandes

The Pastos Grandes project - where LSC just completed their third drill hole - is indicating further lateral extension and open-ended mineralization to depth.

Pastos Grandes is only 15 kilometers away from the Pozuelos project, but more interestingly, the salar's shared with Millennial Lithium Corp. (TSXV:ML), a C$200 million lithium developer with a resource of only 3 million tonnes LCE.

This is where thing start getting interesting. . .

Millennial Lithium has a market cap 60% greater than LSC Lithium - yet less resources.

This alone shows the attractive valuation that LSC has compared to their peers, and this isn't even accounting for the potential Pastos Grandes has.

The upside at Pastos Grandes is significant, with mineralization still open below 480 meters.

The official resource is slated to be finalized and released in late quarter 2 or 3 this year - and we predict Pastos Grandes will grow LSC's total lithium portfolio by at least another 2 million tonnes LCE.

LSC Lithium is also moving forward with engineering at the Pozuelos and Pastos Grandes projects. . .

By incorporating both projects into one, LSC will monopolize the infrastructure in the area. This means it will be the dominant player and most likely the central hub - forcing other companies to build around them.

A pre-feasibility study (PFS) for Pozuelos and Pastos Grandes is expected by the end of the 2018 - followed by:

  • A full-feasibility study in 2019. . .

  • Beginning mine construction in 2020. . .

  • And ramping-up to full lithium production by 2021. . .

As for their Salinas Grandes project, LSC is currently looking to consolidate the area around the project - their joint-venture recently announced high-grade surface samples, with concentrations ranging from 281 mg/L lithium (Li) to an incredible 1,353 mg/L Li, averaging 591 mg/L Li.

The program extends LSC's mineralized footprint, but most importantly, establishes the high-grade nature of the Salinas Grandes project, which can be expected to continue further northeast.

A resource for Salinas Grandes is also expected later this year.

As mentioned earlier, Rio Grande's 2.2 million tonne LCE resource's limited to just the top 100 meters of the salar.

A previously completed CS-AMT subsurface conductivity survey indicates the potential for lithium-bearing formations to extend to depths more than 500 meter below surface.

Further, since lithium grades tend to improve between 50 meters to 100 meters below surface, there is a good chance of higher grade lithium at lower depths.

Thus, the next phase of drilling will test depths of over 500 meters, and also to upgrade the resource from inferred to M&I.

We believe Rio Grande has the potential to grow from 2.2 million tonnes LCE to over 8 million tonnes.

That is huge upside.

Right now LSC Lithium is already extremely cheap for what they currently have - imagine once they continue growing. . .

LSC Lithium vs. Competition

After they release Pastos Grandes and Salinas Grandes resource's - and Rio Grande is updated - we expect LSC Lithium to have more than 11.6 million tonnes LCE - a 200% increase from current resources.

Excluding any future potential from their exciting projects - and only counting what LSC has with their current resource - the company trades at a significant discount to their peers.

We highlighted this in our original write-up, but here's an updated chart. . .

bar chart compares enterprise value divided by tonnes of Li equivalent for five explorers and developers in the Lithium Triangle

LSC's resource is currently valued at an incredible C$29/tonne LCE, while their closest peers, Millennial Lithium (TSXV:ML) and Neo Lithium (TSXV:NLC), trade at C$50/tonne and C$54/tonne.

LSC trades at almost a 50% discount compared to these two companies - and 27% cheaper than compared to the average.

Now, if we use our projected 2018 resource numbers, LSC's metric drops to C$9.50/tonne.

To put this in perspective - if LSC was to trade just at what Millennial Lithium does, it stands to gain 370%.

While LSC's portfolio is in varying stages of development, Pozuelos and Pastos Grandes will be at pre-feasibility level this year alone.

LSC Lithium has been due for a re-rating for months - it still remains under the radar. As we noted earlier, Mr. Market just doesn't seem to care about this company's outstanding fundamentals and attractive valuation compared to peers.

But this won't go on forever. . .

No other lithium company provides the deep value that LSC Lithium does - and management is quite aware. The company has already engaged Haitong International Securities Group and the Bank of Montreal of review strategic alternatives in Asia, or in banker-talk - to find a buyer.

LSC Lithium is an undervalued and exciting long-term company in the lithium sector.

They have the upside potential, and trades at steep discount relative to peers.

The cheap valuation makes this an asymmetric opportunity - low downside with huge reward. publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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