The Kidman Resources Ltd (ASX: KDR) share price has had an impressive start to the week.
The lithium miner’s shares are up 10.5% to $1.02 at lunch following the release of an announcement relating to its Mt Holland Lithium Project in Western Australia.
What did Kidman Resources announce?
Kidman Resources has completed the pre-feasibility study on its refinery and also an updated scoping study on the proposed Mt Holland lithium mine and concentrator.
According to the release, the studies confirm that the integrated project being developed by Kidman and joint venture partner Sociedad Quimica y Minera de Chile has a compelling business case with attractive economics.
The study indicates that the Mt Holland Lithium Project will produce a spodumene concentrate from the mine and concentrator which will be transported to the refinery and processed to produce an average of approximately 45,254 tonnes per annum of battery-grade lithium hydroxide.
The study found that the project had outstanding economics. It has a post-tax net present value of US$2.3 billion at Roskill pricing or US$3.5 billion at spot pricing, with robust margins, rapid payback (3 years) and a strong IRR of 27.7%.
The forecast life of project revenue was US$33.5 billion (Kidman’s share is US$16.8 billion) and project EBITDA of US$22 billion (Kidman’s share US$11 billion) over an estimated project life of 47 years.
Management believes the project will make Covalent Lithium, its joint venture business, a leading provider of refined battery-grade LiOH, primarily for supply to electric vehicle manufacturers.
One key customer of Covalent Lithium will be Tesla Inc. after the auto giant signed a binding offtake agreement for the supply of lithium hydroxide for an initial three years back in May.
Should you invest?
I think that these studies demonstrate that Kidman Resources does have significant potential if lithium prices remain favourable over the long term.
However, it is worth noting that there is a cloud hanging over the company right now. Just over a month ago its shares crashed lower over fears that it could lose tenements at Mt Holland.
This was after the Perth mining warden recommended the WA minister for Mines and Petroleum refuse the applications for exemption from minimum expenditure obligations for tenements held by its subsidiaries at the Mt Holland Project.
As this issue has yet to be resolved, I would suggest investors stay clear of Kidman Resources and focus on opportunities elsewhere for now. Resources shares such as Rio Tinto Limited (ASX: RIO) or BHP Billiton Limited (ASX: BHP) could be better options right now in my opinion.
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Returns as of 6th October 2020
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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