American Lithium (TSX-V: LI) - Largest Discount to NAV in Peer Group

American Lithium Corp. is developing world-class lithium projects in the Americas and also has one of the largest underdeveloped uranium projects globally. The company has a near-term focus on mining-friendly jurisdictions and has an advantage when it comes to geographic and geological diversity in the development of world-class, scalable projects. American Lithium is a developer of advanced lithium projects in the Americas focused on Nevada and also some really high-grade, high-quality projects in Peru.

Matt Gordon caught up with Simon Clarke CEO, and Director, American Lithium. Mr. Clarke brings over 25 years of experience in building companies and implementing successful capital markets and growth strategies focused on mining, energy, and energy technology. Most recently, Mr. Clarke was the Founder, CEO, and Director of M2 Cobalt Corp. (cobalt/copper exploration in East Africa), which was acquired by Jervois Global in June 2019. Jervois is a world leader in the development and mining of cobalt and nickel projects and is operating cobalt and nickel refineries, benefitting from a market capitalization exceeding CDN$1Bn. The transaction involved Mr. Clarke remaining with Jervois for 12 months as a Director and Senior Executive. Mr. Clarke was also a Co-founder, Executive, and Director of Osum Oil Sands Corp. a company valued in excess of US$1Bn at its peak market capitalization. Osum grew its production to approximately 20,000 bopd (barrels of oil per day) before being acquired by Waterous Energy Fund for around CDN$400M in 2021. Mr. Clarke benefits from extensive experience and knowledge of the battery metals space spanning more than a decade. This includes his past senior executive roles with M2 Cobalt and Jervois Mining, as well as advisory roles in the vanadium exploration/development sector. Mr. Clarke holds an LLB and Diploma in Legal Practice from Aberdeen University, Scotland.

Company Overview

American Lithium Corp. (formerly known as Menika Mining Ltd.) is a mining and exploration company focused on the development of its world-class lithium projects located in the Americas. The company is listed on the Toronto Stock Exchange (TSX-V: LI), the OTC Markets (OTCQX: LIACF), and the Frankfurt Stock Exchange. (FSE: 5LA1). The company was founded in 1974 and is headquartered in Vancouver, Canada. Lillooet Mining Ltd., Exploraciones Macusani S.A.C, and Minergia S.A.C are the company's subsidiaries.

American Lithium’s representatives recently attended the 121 Mining Conference in London. At the conference, the company received a lot of strategic interest from the lithium markets. A lot of family office representatives were present at the conference, looking to get positioned in the lithium sector. Main institutions, family offices, and other investors are now recognizing that lithium is one of the most desired sectors going forward.

At the conference, investors have also shown a strong focus on uranium. Most investors are interested in both lithium and uranium. The investors are cognizant that there are going to be major developments at the Macusani project in the coming months, which has driven some of the recent meetings.

A New Uranium Company

American Lithium has been interested in spinning out its uranium asset in a separate vehicle. In order to achieve this, the company will need to time the market and carry out extensive preparatory work including tax structuring, general structuring, and physically moving concessions. Notably, the company currently has 168 concessions in Peru. Different fees are associated with concessions based on whether it's metal or non-metal based. The company has repositioned itself and is gearing up for the coming months. The company recognizes that timing the market is increasingly challenging. In recent times, the interest in uranium has grown on a consistent basis.

According to the company, the uranium assets haven’t been fully factored into its valuation. Interestingly, the company’s average NAV (Net Asset Value) is around $2.3Bn while its market cap is about £410M. This makes American Lithium the most discounted stock of any company in its peer group, which is due to the large retail investor base it originally had.

American Lithium anticipates that spinning out the uranium asset will simplify its message to the market. The company believes that its uranium asset’s value isn’t reflected in the market cap. It has 2 lithium assets in its portfolio, which are a major point of focus. The Macusani Uranium Project has a 125Mlbs resource which is expected to get significantly bigger with time. The asset has a lot of major milestones along with one of the best OpEx (Operational Expenditures) outside of Kazakhstan. Spinning out the asset in a separate vehicle will help the market realize the asset’s true value.

The shareholders will be interested in an opportunity to participate in the upside of the new company. As a result, the company is leaning towards appointing an independent board for the new company. It is also interested in having cross-operational teams because the company’s teams in Peru have an in-depth understanding of the asset. This will help the company retain the technical knowledge that the team already has while bringing in strong, independent board members and management.

The new company is expected to be spinned-out at a reasonable valuation. This is important because if the evaluation is too high, it can trigger tax consequences. American Lithium’s shareholders will get pro-rated entitlement as a result of this development. Once the new company reaches an attractive valuation and starts trading in its own market, the company expects to start trading more off the NPV and PEA (Preliminary Economic Assessment). At this point, the company will start drilling and restarting the PEA along with other work.

Most people will recognize that the uranium asset will create substantial value. According to the company, most analysts have valued the asset at a $300M valuation in a $2.3M NAV. In the last PEA, the company had a $600M NAV. Notably, most uranium developers trade-in at around 0.5 times the project NAV.

Notably, there’s a dispute with the company’s 32 concessions that impact 30% of the overall resource. The Macusani Uranium Project is based in Peru and is currently under development. As a result, there are a number of discount factors associated. According to the company, most people recognize that the project has strong fundamentals. It has a big resource with very low asset costs. In fact, the project’s operational costs are $17/lb, which put it in the league of some of the best projects globally.

American Lithium has carried out extensive work on its assets and in 2023, it is looking to pull the trigger. It is a junior company with 3 big projects. Spinning out uranium into a separate vehicle will enable the company to focus on the 2 development-stage lithium assets.

The Lithium Market

Goldman Sachs recently put out a report that counters most of what the industry players are thinking. American Lithium anticipates that every other investment bank and every other industry analyst have a fair amount of consternation with regard to the report. This was apparent at the LA Benchmark Conference. At the conference, there were predictions that in order to get the world to net-zero emissions by 2050, there would need to be a 300 tera-watt-hours installed base of lithium-ion batteries. The world is currently at a 600 giga-watt-hour capacity. The world would need to ramp up the installed base of lithium-ion batteries to 20 terra-watt-hours each year by the end of the decade to meet the 2050 target.

For 2023, most analysts forecast that there needs to be a 1Mt lithium carbonate equivalent. In 2022, the lithium carbonate equivalent is at 400,000t or 500,000t. In order to scale up the capacity, projects need to be brought into production quickly.

At the conference, it was realized that all big auto manufacturers and OEMs (Original Equipment Manufacturers) are interested in going upstream through demand deferral as opposed to demand destruction. Since all the automakers are betting on electric vehicles, it isn’t possible to go back from that. If electric vehicles don’t meet the manufacturing targets, the demand will continue to exist. It is already apparent that there’s a wave of demand coming along with some supply, which is going to take longer and cost more.

There’s an ongoing discussion in the US for short-circuit permitting on projects. According to the company, had it not been for covid and some recent government changes, the Falchani project would have been well past the Feasibility stage. The project has had lots of drill control and extensive metallurgical work done. The company has a healthy balance sheet which enables it to advance the project as quickly as it can. The project could potentially be taken from a pilot stage directly into a Bankable Feasibility Study, however, the permitting process in the US serves as a major hindrance.

Getting a mining project permitted in the US is a linear process. In comparison, jurisdictions such as Australia and parts of Canada have very strong mining codes to protect the environment, but at the same time, the process is significantly quicker and more efficient. While the short-circuit permitting will speed up the process, several more steps need to be taken in order to reduce the time required to acquire a mining permit in the US.

The company anticipates that while a higher stock price is definitely helpful, a drop in prices takes the spotlight off, which enables it to focus more on the business. American Lithium is a stronger company today than it was 12 months ago, despite its valuation being one-third compared to last year. The lower stock prices serve as an opportunity for people that are looking to buy. The company anticipates that there’s a lot of cash in the market and people are sitting on the sidelines, looking to buy in at some point. Given the current operating circumstances, the company is focusing on driving the projects forward.

Mining in Peru

For American Lithium, running operations in Peru has been difficult. While the government has been supportive of the mining operations at face value, the company is still awaiting the drill permits that it was looking to acquire last year. In the meantime, the company’s team has carried out an excellent job moving forward where possible. American Lithium launched an EIA (Environmental Impact Assessment) on the project, which puts the project into Feasibility and also enables the company to carry out some drilling at the Falchani project.

The company is awaiting the main permit for carrying out exploration-type drilling. In the meantime, it is focused on conducting infill and extension drilling in and around the Falchani project. The drilling is supporting the EIA while also giving the company a better understanding of the deposit.

American Lithium has been working with ANSTO (Australian Nuclear Science and Technology Organization), which it considers the best lab in the world. The lab has experience working with lithium for over two decades. While the US-based labs are decent, no one has the full range and knowledge on hard rock, brines, and clay stones as ANSTO does. The lab encountered delays and issues due to covid. It took the lab until the middle of 2022 to ramp up operations. At the TLC project, ANSTO has conducted extensive work on the met side, which has helped American Lithium gain a better understanding of the mineralization. The company has demonstrated that it can add an SPO circuit at the Falchani asset. It is currently working on the integration of the circuit with caesium. The company’s operations are moving forward on the met side while it continues to drill. The company intends to build the resource and reclassify it. So far, the company has had really good progress on that front.

In Peru, the company has engaged 6 communities around the plateau that have been quite helpful. These communities have put pressure on the Peruvian government to help move the project forward. The company recognizes that the government is dealing with a center-right parliament and is clinging to power on a day-by-day basis.

Targets 2022 and Beyond

American Lithium is focused on getting its projects permitted and built as quickly as possible. The projects will not only take the domestic US market, but also the countries that have been historically allied to Peru including Europe, Korea, and Japan talking about the assets. It will also help build a knowledge base for building lithium-ion infrastructure.

Earlier this week, American Lithium’s CEO was quoted on CNBC saying that the Chinese have done an excellent job with lithium. They are ahead of everyone else and have an in-depth understanding of the lithium business. There’s a lack of a comparable knowledge base in the US or Europe. Collective efforts are needed to pull together the assets in order to meet the growing demand. The company anticipates that the domestic supply in the US alone won’t fill the demand. The assets in Peru can be a huge piece of the overall supply chain.

American Lithium has been working with ANSTO as the lab has 20 years of experience on all hard rock, brines, and clay stones that have been developed. When it comes to putting a flowsheet together and determining a processing strategy, there isn’t a better lab than ANSTO. While there have been some delays, the company is very close to a PEA for the TLC project.

The ongoing work has taken longer than expected due to the delays, but stepping out of the spotlight on the share price has enabled the company to focus on mineralization. Clay stones are a complicated form of mineralization with a lot of good attributes. The company believes that the PEA will show a robust approach to material extraction and make good money in doing so.

To find out more, go to the American Lithium website