FYI | Nov 05 2019
Pitt Street Research holds high expectations for lithium play Prospect Resources
By Pitt Street Research
Presence of high-grade lithium deposits
Prospect Resources Limited ((PSC)) is a Perth-based mining company that is currently focused on the Arcadia lithium project.
PSC own an 87% stake in the project, located on the outskirts of Harare, Zimbabwe. The mine is in development phase with commissioning expected in 2022 after the project becomes fully funded.
It is one of the largest hard-rock lithium mines in the world with a higher-than-average lithium grade. Demand for lithium is expected to be robust on the back of increasing uptake of electric vehicles as well as growing applications in the glass and ceramics industry.
The Arcadia project has considerable advantages as a lithium source, most notably its favourable mineralogy and support from the Zimbabwean government.
A steady growth in lithium prices, further progress on the Arcadia development plan and clarity on project funding will help drive favourable sentiment and re-rate the stock into our valuation range.
Valuation range of $0.44–0.93 per share
We value PSC at $0.44 per share base case and $0.93 per share optimistic case using a DCF approach with conservative assumptions on lithium prices and cost of capital.
Currently, investors appear to be cautious on PSC’s liquidity and country risk, but we expect the situation to reverse once the project funding is in place.
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