Canaccord Upgrades CLQ Valuation

ERIC ZAUNSCHERB, Canaccord Genuity (05/21/2010)
"We have upgraded our Canada Lithium valuation approach to discounted cash flow analysis from enterprise value per-lb. metrics.

Although there is no change to Canada Lithium’s target and rating, we believe the more sophisticated discounted cash flow approach has greater validity and flexibility, giving us enhanced confidence in our call.

Earlier this year, Canada Lithium released a prefeasibility study for the wholly-owned Quebec Lithium project. The study envisages a 2,950 t/d open-pit operation feeding a process plant yielding approximately 19,300 t/a battery-grade lithium carbonate. We have incorporated adjusted operational parameters from the study and our own pricing outlook for lithium carbonate to generate a C$241 million project NPV (10%), increased from C$190 million previously. We add corporate adjustments including working capital of C$20 million and C$78 million in project equity raised at an average of C$0.70/share to generate a corporate NAV of C$343 million or C$1.25 per adjusted fully-diluted share, as compared to C$1.42 per adjusted fully-diluted share previously. We apply a 0.8x target corporate P/NAV multiple to generate our C$1.00 price target. We believe the 102% projected return continues to justify our SPECULATIVE BUY rating. Canada Lithium is trading at 0.2x project NAV and 0.4x corporate NAV. We recommend investors buy for exposure to the lithium supply market in anticipation of expanding e-car adoption."

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