European Metals lithium project feasibility study disappoints

The PFS envisaged a 21-year operation from the 100%-owned Cinovec project, with an average 20,800 tonnes per year of lithium carbonate at qualities good enough to be used in lithium batteries.

The net overall operational cost was put at $3,483 per tonne of lithium carbonate (Li2CO3) and capital expenditure at $393m.

EMH said the post-tax net present value had been calculated at $540m, with a internal rate of return of 21% post tax, assuming lithium carbonate prices at $10,000/t and tin at $22,500/t.

Managing director Keith Coughlan said the PFS highlighted the potential for Cinovec to be "the world's lowest cost hard rock producer of lithium carbonate due to its unique geological and metallurgical characteristics", pointing out that Cinovec's location in central Europe was close to the many of the continent's vehicle manufacturers.

"These results, coupled with the macro outlook for the lithium industry, particularly in Europe, highlight the attractiveness of the project. As a result, we will move directly into a definitive feasibility study to accelerate the project towards development."

But some analysts said the study was a let-down and investors clearly felt the same, with the share price dropping as low as 0.83p on Wednesday afternoon from its previous close of 1.25p.

"Oh dear," said Yuen Low at Shore Capital, adding that an IRR of 21% would be pretty decent for large projects with capex and NPVs in the multiple billions of dollars range.

"For something the size of Cinovec, using historically high prices, we would have preferred to see at least 25%, and preferably significantly better.

"The marginal nature of the project is emphasised by its sensitivity to the lithium price assumption: a mere 10% reduction in the lithium price would see NPV fall to c.US$300m; a 20% reduction, to just over US$200m.

Given that AIM-listed EMH is still planning to complete a bankable feasibility study (BFS), let alone raise construction funding, build the project and go into production, he judged the current market cap of almost £100m was "rather fully" valuing the company at its present stage of development.

Broker SP Angel said a forthcoming definitive feasibility study should firm up the project parameters. "We look forward to future developments."