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European Lithium's resource expansion and project studies could provide momentum in 2018

Chairman Tony Sage says the key number in the prefeasibility study will be the net present value.
Picture of timetable for Wolfsberg project
European Lithium's established resource at Wolfsberg provides investor confidence

European Lithium Ltd (ASX:EUR) is approaching a crucial period as it gains an insight into the prospects of expanding and defining the Wolfsberg Lithium Project in Austria.

The imminent prefeasibility study (PFS) will also assist investors in wrapping some numbers around the project, a potential share price catalyst.

On this note, Tony Sage, non-executive chairman, provided some insight as to the metrics investors should be on the lookout for in the PFS.

Focus on net present value figure

Sage said: “The key number will be the net present value (NPV) as this will be weighed up against European Lithium’s market capitalisation.”

The company’s market capitalisation stands at about $120 million.

As a back of the envelope example, should the NPV come in at $150 million, clinically speaking this would justify a share price of 33 cents.

This compares with Monday’s closing price of 26.5 cents.

Location, location, location

While the intricacies of examining project metrics require some detailed analysis, there is one clear feature of the Wolfsberg project that needs no explanation.

Sage said: “To coin a realtor’s phrase, Wolfsberg’s overarching compelling investment attribute is location, location, location.

“Situated within 40 kilometres of the Samsung SDI Battery Systems plant in Graz, Austria, as well as being in close proximity to other battery manufacturers and five of the world’s largest motor vehicle manufacturers, it doesn’t get any better.

“Our proximity to end markets only makes our financial model more robust.”

Resource expansion from zone two drilling

Drilling is underway in zone two of the Wolfsberg lithium deposit which should provide management with a better understanding of the overall resource.

READ: European Lithium eyes increased resource in Austria as it restarts drilling

This is an important part of the project given that the current resource in zone one could be substantially increased by drilling down dip into zone two.

This part of the deposit is the southern limb of an anticline of which the northern limb (zone one) has been the focus of all exploration to date.

Economic evaluation and resource expansion

Additional resources are expected from zone two where mapping and drilling have proven the presence of lithium-bearing pegmatites.

Three preliminary drill holes were completed, of which two showed pegmatite intersections of up to 4 metres with grades in the vicinity of 2% lithium.

Deeper drilling completed in 2017 showed that there are significant high-grade veins close to surface in a previously unexplored area.

This is indeed the wildcard for European Lithium and an important aspect of the group’s prospects which arguably isn’t accounted for in its share price.

Consequently, it could be a company changing period as the PFS provides an economic evaluation of the proven zone one, and zone two paves the way for resource expansion.

Cap that off with a second half definitive feasibility study (DFS) that should be based on a resource nearly twice the size of the PFS, and 2018 is shaping up as a year of solid news flow

Established resource provides investment attraction

The fact that European Lithium has an established resource at Wolfsberg increased investor confidence in the stock, assisting it in a placement which was conducted in 2017.

READ: European Lithium raises $5 million in heavily oversubscribed placement

The current resource of about 11 million tonnes, including 6.3 million tonnes in the measured and indicated category represents a robust platform to build on in 2018.

The placement price of 22.5 cents for the heavily oversubscribed $5 million capital raising represented a 40% premium to the previous 15-day volume weighted average price.

Notably, the company’s shares are trading at a premium of about 15% to the placement price.

Exploration upside in zone one

There is also scope for the development of deeper zones in zone one, and some lower cost surface drilling could be conducted to examine prospects in this area.

The intention is to have increased measured and indicated resources that can support a higher production rate than currently considered for the PFS.

The key factor to take into account here is the potential conversion of the inferred component of the resource to measured and indicated.

Sage said: “The definitive feasibility study is on track for completion in the third quarter of 2018 and by that stage, we expect to have converted the inferred resource to the measured and indicated category.

“This would bring the measured and indicated resource up to 11 million tonnes, effectively increasing the mine life from about 13 years to 22 years.”

Board appointment provides financial expertise and regional experience

With a strong period of exploration activity and multiple share price drivers, there was no better time to strengthen its management team with Stefan Muller joining the board.

His appointment in October as an independent non-executive director has been strategically important for European Lithium.

Muller brings 25 years of experience in financial markets and investment banking, and he is the chief executive officer and founder of DGWA, a German-based investment consulting firm.

DGWA, along with Somers and Partners and Wimmer Financial, acted as corporate financial advisors to the recent placement.

Consequently, he knows the company well and has a thorough understanding of the regulatory environment and potential sources of capital in European markets.

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