Ongoing SP Discussion, page-194

All

As promised, below is my analysis on an investment in INF. Some of you may have more knowledge than me on this but I have really tried to focus on the following:

• Capital Structure (There are a few concerns with the options potentially hanging on the SP in the future, but overall not too bad)
• The Business (or potential business)
• Risks

Not investment advice. All IMO.

Wolf

Infinity Lithium (ASX: INF)

Corporate:

	No of Shares on issue	402,914,556
1	Market Cap	~$46m (based on $0.115 share price )
2	Cash on Hand1	~$19m
3	Enterprise Value	~$27m
4	Options on issue2	Unlisted Options 10,000,000 (Expiring 30 November 2022 exercisable @ $0.09) 500,000 (Expiring 30 November 2022 exercisable @ $0.20) 22,762,137 (Expiring 30 November 2022 exercisable @ $0.12) 72,102,581 (Various expiry dates and prices)
5	Management Share Appreciation Rights3	17,200,000
6	Directors & Management4	Great blend of corporate, finance and lithium specific experience
7	Top 20	~36% of share register
8	Shareholding of Management3	Chairman is a top 20 shareholder, rest of board not significant and not well aligned

1. Estimated on hand as of 30 September 2021
   1. Raised ~$15m in February 2021 @ $0.19 – currently trading well below this
2. Options
   1. Long expiry dates with SP at a premium to option exercise prices
   2. Might be some hang on the SP in the future with option holders converting and selling at a profit
   3. Some of the options I just can’t drill down into the detailed info
3. Share Appreciation Rights will better align management with shareholders as overall the director holdings are quite low (except Chairman and MD)
4. Remuneration not including share based payments is ~$700k p.a. which I think is fair and reasonable

Business/Projects:

Infinity Lithium is the 75% owner of the San JoseIndustrial Lithium Project located in Spain – European Union’s (EU) second largest hard rock lithium resource

• Aiming to develop into a fully integrated project
  • Extraction of raw material
  • Lithium chemical processing on site
  • Spain as a whole is moving away from fossil fuels and other dirty carbon producing operations
  • Spain is the 2^nd largest auto manufacturer in the EU
• Other Project Credentials
  • Easy access to major highway
  • Nearby to Madrid
  • Chemical plant very close to project site
  • Proven production process and low cost
  • Nearby gas pipeline
• ESG credentials
  • EU targeting net zero by 2050, some countries and companies targeting much earlier
  • Sustainable battery regulations
  • EU wants to secure local battery metals supply – ensuring security and guarantee of supply chain
• Major risks
  • Spanish government has cancelled INF’s permit on the San Jose Lithium Project
  • Having no tenure or licence to operate let alone conduct test work on the site is a major setback
  • According to the Company the revoking of “granted” to “cancelled” status is a result of an administrative error by the Spanish regional department
  • It is understandable why the share price has fallen off a cliff with this level of risk
• Major derisking events so far:
  • Scoping Study completed
  • Pre-feasibility study completed
    • Pre Tax NPV US$860m – gigantic discount to INF’s current market cap
    • CapEx US$268m
    • 2.5 year payback period
    • Generating US$6bn in gross revenue over life
    • Lithium pricing based on ~US$15k/t (August 2019) – price has rallied above that in 2021
  • MOU Offtake Agreement with LG Energy Solution
    • Signed June 2021
    • Targeting Binding Offtake within 12 months
    • 10,000 tpa which would account for the majority of INF’s annual production (15,000 tpa) in first 10 years
  • Support with investment and various other support from EIT InnoEnergy – group tasked by the EU to lead the industrial stream of the European Battery Alliance
    • €800k to fund phase 1 of pilot plant
    • Further support for €2.4m for phase 2 of pilot plant
    • Further assistance to connect €300m in debt and equity into the construction phase of the project
  • Company has sufficient cash on hand and an enterprise value of $27m – again, huge discount to NPV

Broad Timeline:

	Oct 2021	Nov – Dec 2021	Q1 2022	Q2 2022	Q3 2022	Q4 2022
1	First lab scale production expected in early Q4 2021 (fully funded by EIT) – data to go into the Definitive Feasibility Study	Progressing permitting issues	Definitive feasibility Study to be finalised Rectify permitting issues	Binding offtake agreement with LG Energy Solution	Bankable feasibility study?	Project funding?

My View:

• Very Speculative buy @ $0.09 - $0.11
• Company is further progressed than many lithium companies
• Setback with the permitting issue, with share price/valuation reflecting the obvious risk
  • Seems hard to believe the Spanish Government would not look to grant the permit asap
  • There may be something else at play here, which we have no idea about
• Given the substantial progress, derisking items and the cash on hand, if you can handle a bit of risk and turbulence then it will pay off big time if the licence is granted to INF
• Could dip your toes in the water with a small investment @ $0.09 - $0.11, then increase your investment if the permitting/licence issue gets resolved
• Given the discount from NPV to current share price, this could very easily move to $0.40 per share with a positive permitting result + DFS

Major Risks:

• Permitting issues with the San Jose Project, currently they have no tenure
• Without a granted application the company is effectively worthless (except for the $20m in cash)