Filing
Mar. 15, 2017
Price: $1.4 Shares: 46.3m. Cap: $65mm
Summary
1. History
The company was created around in the middle of the year 2016. It raised around $27m so far and purchased the interest of two abandoned lithium minings in Namibia. Previously those minings were producing lithiums and other materials. Because of the lithium price raise lately, the leftover lithium deposit in those mining became interesting again.
At end of 2017, it started to produce 2% lithium concentrate from its stockpile of around 700kt. It estimated to be able to create 150kt to 160kt of 2% lithium concentrate in the next 12 to 18 months. All the final product will be sold to Jinhui Lithium, a Chinese Lithium carbonate producer. At 2018, it is expected to generate around US$15m to US$20m in EBITDA from the lithium concentrate sale.
The company has a 3 phases plan which is 1) Produce concentrate from stockpile 2) Mining and produce of 250kt to 300kt concentrate per year. 3) Produce 25kt lithium carbonate per year. Phase 1 is already started. They are working on phase 2.
2. Business
(1) The main resources DLI holds is Lepidolite(contains Li2O), the second most common type of resource for Lithium. Around 10% of Lithium were produced from Lepidolite. The original ore mined which contains around 1% or less Li2O first is converted to lithium concentrate which contains 1.7% to 6% of Li2O. Most likely is 2% or 4%. Then the lithium concentrates will be processed and converted to 99.5% lithium carbonate(Li2CO3) which can be used to create lithium battery. Also 99% lithium carbonate is usually used in the industrial application like glasses and ceramic.
(2) Lithium price:
At 2017, 6% Galaxy resources sold 120kt spodumene lithium concentrate roughly was traded for US$900/mt. Generally, spodumene is higher in price than lepidolite. At Sept 2017, 4% lepidolite lithium concentrate was quoted for US$315/mt in price by Chinese media. On its Nov. 2017 technique report(P142), the 2% concentrates is estimated at US$195-$220/t including shipping fee. I estimate the price might be around US$150/t to US$180/t net for DLI.
The 99.5% Lithium carbonate in China currently is priced US$24,500/mt, down from the top price of US$26,000/mt. International, its price around US$16,000/mt. Don't know why there is the big gap.
(3)Margins:
Lithium concentrate: I estimate it might generate US$22m to US$27m in revenue from the stockpile concentrates sale to Jinhui. Based on EBITDA of US$15m to US$20m, the margin might be 60% to 70%.
As for phase 2, since there is extra mining cost, the margin should be much lower.
For phase 3, currently, the margin to produce Lithium carbonate is quite high. It could generate as much as 70% gross margin. If combined the with the concentrate margin. It could be even higher.
(4) CapX:
The phase 1 CapX seems quite low. Also, it shouldn't be very costly to construct phase 2. However, phase 3 might be very expensive to construct.
3. Industry, Competitors
(1) American Lithium Corp. (TSXV:LI)
(2) Advantage Lithium Corp. (TSXV:AAL)
(3) Wealth Minerals Ltd. (TSXV:WML)
(4) Galaxy Resources (ASX:GXY)
The company is an Australia spodumene mining. At 2017, it shipped 120kt of concentrate for around US$900/mt.
4. Management(2) Advantage Lithium Corp. (TSXV:AAL)
(3) Wealth Minerals Ltd. (TSXV:WML)
(4) Galaxy Resources (ASX:GXY)
The company is an Australia spodumene mining. At 2017, it shipped 120kt of concentrate for around US$900/mt.
5. Share information
As of Mar. 2018, there are 46.3m shares outstanding. Options 4.6m and warrants 8.7m.6. Major events
At Mar. 2018, it entered an offtake agreement with Jinhui Lithium to sell all of its lithium concentrates to them. Also, Jinhui has the options to subscribe 15% of DLI shares for CAD$13m. Which valued the company at $1.59/share.
7. Financial data.
8. Balance sheet and debt information.
At Mar. 2018, the cash balance is around $10m. No debt.
9. Valuation(1) The 150kt concentrate might generate US$25m revenue. Theoretically, phase 2 could generate around US$40m/year sales. Phase 3 could generate US$600m/year sales.
(2) Currently, it might be able to generate US$15m to US$20m EBITDA in 2018. Currently, the Cap is just 4 times of the EBITDA. Seems quite cheap. However, the stockpile is just for one year sale. It needs to proceed to phase 2 to be able to generate future EBITDA.
(1) The biggest risk is lithium price. There might be an oversupply in the future.
(2) Just phase 2 will not be enough for the company. It is very costly to construct phase 3. Also, it might have environmental issues.
Conclusion
It is quite a cheap price for a production mine. However, it is still in the early stage. Still quite risky.
Refs
Lithium price:
https://tradingeconomics.com/commodity/lithium
