American Lithium: Undervalued Gem In Lithium Mining Industry

Investment Thesis

American Lithium Corp. (NASDAQ:AMLI) is an international mining company with lithium and uranium projects in Peru and Nevada. Its Falchani property is the sixth-largest lithium deposit in the world and Peru’s largest hardrock deposit. The Tonopah Lithium Claims (TLC) project in Nevada is one of the five largest sedimentary lithium deposits in the world, and total resources have recently increased significantly.

American Lithium announced in December 2022 its intention to spin off its Macusani Uranium project into a separate entity in the first half of 2023. The spinoff will unlock substantial value, allowing the company to concentrate solely on lithium and its two related projects, TLC and Falchani.

In light of this, we are optimistic that American Lithium represents an excellent investment opportunity for investors seeking lithium market exposure. The company’s diverse portfolio and solid financials make it an attractive investment.

Company Overview

American Lithium Corp. is a Canadian development company focused on the advancement of two large-scale lithium projects: the Falchani exploration project in Puno, Peru – a unique volcanic-hosted lithium project – and the Tonopah Lithium Claims exploration project in Nye County, Nevada – a clay-hosted lithium deposit. The company’s project portfolio also includes the Macusani Uranium project, which it plans to spin out into a separate vehicle in the first half of 2023, while simultaneously advancing the project towards prefeasibility with an infill and step-out drill program.

American Lithium is listed on the TSX Venture Exchange (TSX.V) under the ticker LI, on the Frankfurt Stock Exchange under the symbol 5LA1, on the OTCQX under the ticker LIACF, and on the Nasdaq under the symbol AMLI.

As of August 31, 2022, the company had $6 million in cash on hand, $39 million in working capital, and no long-term debt, pointing to a strong financial backdrop.

History

From 2016 to May 2021, the company focused on advancing the TLC lithium project in Nevada, which it wholly owned. American Lithium acquired Plateau Energy Ltd in an all-share transaction on May 11, 2021, and subsequently added the Falchani and Macusani projects in Peru to its project portfolio. Currently, the company anticipates releasing an updated preliminary economic assessment (PEA) study for Falchani in the first half of 2023, potentially incorporating economic potash and cesium by-products as well as drilling campaign results. A preliminary economic assessment is anticipated for the TLC project in January 2023, which will include the 64% increased resource following the most recent exploration campaign at the site, and a prefeasibility study is also anticipated in 2023.

Recent Stock Price Performance

American Lithium has already jumped by 40% since the start of the year, boosted by the company’s approval to list its common shares on the Nasdaq from January 10. The company will benefit from a greater pool of liquidity, boosting its stock price.

American Lithium has outperformed all of its peers since the start of 2023.

But we think that American Lithium may enjoy more upside in 2023 after the company reveals its plans to spin out its Macusani Uranium Project as a standalone public company at the end of last year.

Macusani Uranium Project to Become a Standalone Public Entity

American Lithium said on Wednesday, December 7 that it aims to spin off its Macusani Project into a separate public business. The company hopes to finish the terms of the spinoff deal by the beginning of 2023. Following shareholder and regulatory approvals, the management intends to distribute all or the majority of the newly created public company’s common shares to current shareholders.

The Macusani uranium project is the fifth-largest uranium deposit in the world and the largest uranium project in Peru, with Indicated Resources of 51.9 million pounds U3O8 (248 parts per million) and Inferred Resources of 72.1 million pounds U3O8 (251 parts per million) – American Lithium currently controls all known and defined uranium resources in Peru.

A 2016 PEA predicts an average annual production of 6 million lbs U3O8 during a 10-year mine life (based on production from 55% of the current resource) at cash costs of US$17/lb and an all-in sustaining cost (AISC) of US$19/lb, placing the project in the second quartile of the cost curve.

This is significant in two ways. First, we think that the spin-off might unlock substantial value by allowing American Lithium to concentrate on lithium and its two lithium assets, TLC and Falchani. Second, it will lower the company’s capital expenditures (CAPEX). According to the majority of analysts, the Macusani project requires CAPEX of roughly US$400 million.

In the meanwhile, American Lithium continues to develop Macusani by sampling and undertaking radiometric prospecting. American Lithium aims to conduct further drilling at Macusani with the objective of enhancing the existing resource estimate and plans to deliver an updated preliminary economic assessment for Macusani by the middle of 2023.

Assuming a 10-year mine life for the projects, 6 million pounds per year of U3O8 production, a realized price of US$65/lb, op-ex of US$20/lb, a 38% tax rate, cap-ex of US$400mm, and a 10% discount rate, the Net Asset Value is $442mm, or $1.73 per share.

American Lithium’s implied valuation suggests that investors do not appreciate the full value of the Macusani project.

Despite its noticeable rebound since the start of 2023, American Lithium has underperformed lithium prices, despite the company’s large exposure to the white gold (lithium) prices through Falchani and TLC. Once the spinout of the Macusani uranium project is complete, the market could re-rate the company as investors would view American Lithium as a pure-play lithium developer, thereby deserving a higher valuation.

Other Important Developments

Tonopah Lithium Claims has updated its Mineral Resource Estimate (MRE), and Falchani Lithium Project will shortly revise its PEA.

American Lithium has upgraded its mineral resource estimate for its TLC project in Nevada. Using a cutoff grade of 500 Li ppm, the company has enhanced the TLC resource estimate by 50% to 10.69 million tonnes of LCE from 7.13 million tonnes LCE. As American Lithium prepared data for its first PEA, the revised mineral resource estimate was finalized. The management anticipates publishing the PEA in January 2023.

Additionally, the company continues to develop its Falchani Project. Drilling is currently being planned and authorized to support resource reclassification and in-fill drilling. American Lithium expects to revise the current Falchani PEA in the second quarter of 2033, which will include the economic value of byproducts such as potash and cesium.

Risks to Consider

Exploration risk: The ability of American Lithium to complete development work and deliver exploration success is prone to numerous risks and uncertainties, such as the completion of a viable feasibility study, the upgrading of mineral resources, and the acquisition of adequate financing to complete construction.

Commodity risk: The valuation of American Lithium is heavily dependent on the long-term lithium carbonate price outlook, which is influenced by macroeconomic factors such as interest rates, inflation, and fundamental factors (supply and demand).

Geopolitical risk: Some of the company’s assets are located in Peru. According to the Investment Attractiveness Index, Peru is within the top 50 jurisdictions surveyed. There is, however, no certainty that the country’s political situation will not deteriorate over time, thereby affecting future operations and profitability.

Conclusion

American Lithium Corp is a mining company with lithium and uranium projects in Peru and Nevada. The Falchani project in Peru is the sixth-largest sedimentary lithium deposit in the world, and the Tonopah Lithium Claims project in Nevada is among the five greatest sedimentary lithium deposits in the world. The company recently announced its intention to spin off the Macusani Uranium project in the first half of 2023. This move is expected to unlock significant value for the company because it will allow the business to focus essentially on its lithium projects.

Since the beginning of the year, the share price of American Lithium has rallied by more than 40% due to the company’s recent listing on the Nasdaq, and we believe there is more upside in the coming months. To sum up, we believe that American Lithium is a great investment opportunity for investors seeking exposure to the lithium market due to the company’s diverse portfolio and solid financials.