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Advantage Lithium Delivers Strong Natural Resource Estimate; Stock Rated Over $2/Share

Summary

Advantage has increased the resource estimate from 500K T LCE to 3 million T LCE; highlights of the updated report.

Based on a recent acquisition of an Argentine brine asset, the implied value of Advantage exceeds $2/share.

Eight Capital has increased the target to $2.50/share, Cantor Fitzgerald has a "Buy" rating and  target of $2.00/share, National Bank of Canada has a "outperform" and target of $1.90/share.

For the past 9 months, I have been reporting on updates and developments on Advantage Lithium (OTCQX:AVLIF,) which is actively developing their flagship Olaroz-Cauchari project in Northwestern Argentina. Since late Q3 2017, the company has been delivering regular updates to the market on its Phase 2 drill program. In the second half of May, the company delivered on its promise of an updated resource estimate.

Since then, I have been flooded with inquiries on my position so I will skip directly to the impact of the announced resource estimate. For additional background information on the project, site visit, and strategic relationships and investment activity in the basin, please view my other reports on Advantage Lithium, Orocobre (OTCPK:OROCF) and Lithium Americas (LAC).

On May 23rd, the company reported a resource estimate at the higher end of its target, in the 3 million T LCE range. As I have outlined below and in previous articles, this size resource estimate places an implied value of over $2/share on Advantage Lithium. It is in my opinion that shares in the company will continue to move forward over the balance of 2018, with the potential to exceed $2.00/ share. At current trading levels between $1–1.20/ share, this allows investors to accumulate a position in the company that permits exposure to significant amount of upside.

On May 7th, I recommended that investors purchase shares in Advantage Lithium at $.90/share (all figures in Canadian dollars) ahead of the resource update, representing an increase of over 25% in only less than a few weeks of trading. In the middle of May, the stock experienced an unwarranted decrease and created a strong buying opportunity. In fact, the company’s management team seems to have agreed with my position, as both David Sidoo and Nick DeMare purchased stock in the open market below $.90/share.

Here are the key takeaways from the updated resource estimate:

  • 6-fold increase from 500,000T LCE to 3 million T LCE.
  • The company has completed a 43-101 compliant resource, a significant milestone for junior exploration firms.
  • Phase 2 drilling is now completed, including an expansion to the Southeast zone and previously unexplored Northwest zone.
  • Phase 3 drilling will continue to expand the basin at depth as none of the boreholes have reached the basin floor, creating the potential for the resource to be further expanded.
  • The brine chemistry continues to reflect that of Orocobre’s Olaroz project, with a magnesium to lithium ratio averaging 2.5.

Lithium X acquired by Chinese investment firm

One of the most significant 2017 transactions in the energy metals business was the acquisition of Lithium X (OTCPK:LIXXF) by Chinese investment group Nextview for $265 million or $2.61/ share. The transaction was announced in December 2017 and closed in Q1 2018. Nextview, a large Chinese resource- focused organization, has teamed up with Tibet Summit to establish a $1.5 billion investment fund to acquire overseas mining assets with a focus on new energy resource sectors. Lithium X was an early- stage junior lithium exploration company focused on its flagship project, Sal de los Angelese project in the Argentina region of the Lithium Triangle.

The acquisition price represented approximately 1% of the lithium carbonate market price in Q4 2017, or $130/T. The price of LCE brine could be implied against that of other lithium exploration companies such as Advantage.

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