Dundee Capital Markets Gives Nemaska Lithium a Buy Recommendation and Target Price of $1 a Share

In a recent report Dundee Capital Markets gave Nemaska Lithium Inc. (TSXV:NMX,OTCQX:NMKEF) a BUY recommendation, High Risk, and a target price of C$1.00/sh, based on a 0.7x multiple applied to their 10%DCF model to reflect financing and execution risk.
As quoted in the report:

Canada’s only significant public lithium developer recently funded its lithium hydroxide (LiOH) Phase 1 plant for the next three years, a major step towards technical and financial de-risking of the enlarged operation.
Quality deposit, unique process → competitive advantage. Nemaska’s permitted Whabouchi deposit, QC, is world-class. High grade, large, homogenous, and low in impurities (sodium and potassium), it should allow low-cost production of high-quality spodumene concentrate. A unique processing method allows production of LiOH directly without consuming massive amounts of reagents or generating significant waste, resulting in additional margin on a high purity, battery grade product. Management is confident in this project – from deposit to end product. It is no longer a matter of proof of concept. Several test programs at SGS already processed representative samples to get 100’s of kg of high purity LiOH and LCE. We believe that Whabouchi could be a critical supplier of LiOH for the fast growing Li-ion battery industry, which is hastening towards a severe shortage.
Lithium price momentum bucks global commodity trends. Perhaps the only metal to have actually increased in price over the last year (LiOH up 25% YoY to ~US$8,000/t), lithium has compelling fundamentals as supply already struggles to keep pace with demand. The situation is set to intensify with new mega-factories expected to increase Li-ion battery manufacturing capacity by 150% by 2020. LiOH is becoming the preferred choice for battery cathodes needed by high growth industries including energy storage (+30% CAGR), electric vehicles (20-30% CAGR), and consumer electronics (8-10% CAGR). Crucially, a steady LiOH supply to feed these mega-factories does not currently exist.
VALUATION
We initiate coverage on Nemaska Lithium with a BUY recommendation, High Risk, and a target price of C$1.00/sh, based on a 0.7x multiple applied to our 10%DCF. Our 10% NAV estimate is $678 MM or $1.32/sh, incorporating $588 MM or $1.15/sh of 10% DCF value to which we apply a 0.7x multiple to reflect financing a execution risk prior to both successful operation of the demonstration plant and Phase 2 financing. We then incorporate additional resource value, net cash and corporate costs totaling $0.18/sh. Our DCF model currently considers a 26-year mine life starting in CYH1/18. We assume US$450 MM Capex, production of 28,000 tpa LiOH at total cash costs of US$3,000 to US$3,200/t and realized prices of US$7,500/t LiOH; and 3,250 tpa LCE at total cash costs of US$3,500 to US$3,600/t and realized prices of US$6,000/t LCE. We incorporate 60% equity and 40% debt totalling $550 MM by CQ2/17.

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