Atlantic Lithium shares: investing update for Q1 2023

Atlantic Lithium stock is being dragged down by Blue Orca’s anchor. Putting the short-seller in its place could see shares spike rapidly.

As a long-time investor and loyal supporter of Atlantic Lithium (LON: ALL), I was annoyed — but not surprised — by the short-selling attack this month. Combined with the depressed lithium price, the allegations were sufficient to send ALL’s share price careering from 37.7p to just 22.6p, before recovering to 27.35p today.

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Assuming that the allegations are baseless — and ALL strenuously denies all charges — there is still time to buy up shares on the dip.

Source: Google

Atlantic Lithium shares: in a nutshell

For the uninitiated, Atlantic Lithium owns rights to a 560 square kilometre tenure across Ghana and a 774 square kilometre tenure across the Ivory Coast. But the Crown Jewel is undeniably its Ghanian Ewoyaa Project, a large lithium pegmatite site which in all likelihood will become West Africa’s first lithium-producing mine.

Ewoyaa is fully funded up to production by billion-dollar US-based Piedmont Lithium to the tune of $102 million. As a strategic investor, Piedmont owns 9.39% of ALL’s shares, and there has been some speculation that it might acquire the remaining shares at some point, which could make strategic sense for both companies.

Encouragingly, some of the most common threats have been de-risked. Preliminary results are promising, the project is well capitalised, and the company’s management is actively involved in getting as much information to investors as possible.

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At the start of February, Ewoyaa’s Mineral Resource Estimate (MRE) was increased to 35.3Mt at 1.25% Li2O, with measured and indicated resources now 79% of total resource. This is further evidence that when production is up and running, ALL will be the owner of a world-class lithium reserve — and despite the current lithium price falls, the longer-term supply gap means serious profits could be in the offing.

Short-seller attack

On 8 March, Blue Orca launched a short-seller attack, leading to both the sharp share price drop and a short trading suspension on AIM.

Blue Orca’s primary allegation — and which it continues to allege — is that ‘Atlantic paid and promised tens of millions of dollars in potential royalties to a company secretly owned by the son of a leading politician known as General Mosquito, who previously served in Ghana’s Parliament as Chair of the Mines and Energy Committee.’

This ‘textbook evidence of corruption’ will apparently be a problem, as ‘based on precedents in Ghana and around Africa, including a recent decision by Ghana’s highest court, (Blue Orca) do not believe that authorities in Ghana (including the Parliament) will ratify Atlantic’s mining licenses tainted by corruption.’

There are other details, but this is the key focus: and if Blue Orca is correct, then ALL shares would become essentially worthless.

But unsurprisingly, the FTSE AIM company has refuted its claims in full.

On 9 March — one day later, let’s hope nobody had any important plans — Atlantic issued a passionate defence, stating that Orca’s views were both ‘false and misleading.’ Further it noted that it holds ‘valid Prospecting Licences with operating permits for all of its current activities, in accordance with the Ghanaian government and the Minerals Commission’s requirements, and outrightly refutes the allegations of impropriety made by the Report.’

Further, ALL noted that it believes the ‘Minerals Commission will grant the Mining Licence for the Ewoyaa Lithium Project and Ghana’s Parliament will ratify the Company’s Mining Licence in due course.’

It also intoned that it ‘has a zero-tolerance policy on bribery and corruption and, in all of its activities, operates in accordance with the most stringent levels of corporate governance internationally.’

Addressing Blue Orca directly, Atlantic warned that all allegations are ungrounded, and that it plans to seek legal advice to address the claims made. Further, the company warned investors that the report was ‘clearly intended to benefit Blue Orca Capital, which, in the Report itself, has disclosed that it is short selling and stands to profit.’

Until these claims are completely eradicated from Atlantic Lithium’s reputation, its share price is going to remain depressed. Of course, for those who believe on balance that the short-seller attack is a fabrication, there is a solid opportunity to buy the dip.

Encouragingly, Executive Chairman Neil Herbert and Finance Director Amanda Harsas bought a combined £671,231 of shares on 20 March — at an average price of 27.34p each.

It’s unlikely that they would voluntarily choose to throw money away.

Interim Results

On 15 March, ALL released strong unaudited interim results covering H2 2022.

Financially, the company held a strong cash position of AU$19.1 million at the start of the year, while exploration expenditure on the balance sheet was AU12.7 million net of Piedmont contributions. It’s reasonable to assume that the company has slightly less cash at hand than this as Q1 has progressed.

Operationally in the half, it completed the pre-feasibility study into Ewoyaa, demonstrating ‘the significant profitability potential of this stand-out project.’ The company expects life-of-mine revenue to exceed US$4.84 billion, with a post-tax NPV of US$1.33 billion and an outstanding internal rate of return of 224% over 12.5 years of mine life.

The company now expects to build a 2Mtpa DMS plant with capacity to produce 255,000tpa of lithium spodumene concentrate.

Atlantic was also admitted to the ASX in September, a step with far more importance than most London-focused investors understand. Australia is the home of Pilbara Minerals, Core Lithium, Mineral Resources, and dozens of others lithium success stories — I have covered these ASX stocks extensively, and investors down under are always looking for the next Pilbara.

Herbert considers that ‘Ewoyaa is a low capex, low opex project with a simple processing flowsheet, soon to be producing highly sought-after, coarse grain spodumene concentrate. There are few spodumene projects that boast the existing infrastructure, minimal footprint and short timeline to production that Ewoyaa offers.’

While 50% of the offtake is destined for Piedmont, the other half can be sold on the open market — and given the still elevated price of lithium and its general supply problems, there will be no shortage of suitors. Indeed, there’s a good chance that if Piedmont doesn’t make an all-out bid for the company, it will offer an excellent price in exchange for exclusivity rights over the longer term.

Auger Drilling and where next?

Atlantic Lithium has now commenced drilling at Ewoyaa, and plans to drill circa 20,000m over the next five months both within the project area and the wider portfolio, with 6,500m of follow-up drilling at new targets to be done dependent on results.

Interim CEO Lennard Kolff notes that with ‘a significant MRE infill and extensional programme planned, we are confident of further resource upgrades. Importantly, these will not impact the planned delivery date of the DFS, which will be based on the current MRE.’

The definitive feasibility study should be released by the end of Q2, and the CEO thinks that ‘with the Pre-Feasibility Study delivered, the Mining Licence application submitted, the FEED engineering contract awarded and the funding agreement with our partner Piedmont Lithium in place, the Company is pushing ahead to achieve production and benefit from the ongoing lithium demand expected over the coming years.’

If all goes to plan, the Atlantic Lithium share price should re-rate soon.

Of course, until production starts only volatility can be reliably predicted.

This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.

Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

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