Global Lithium Resources Ltd (ASX: GL1) this week announced a major funding deal with a Chinese company, which has the analyst team at Shaw and Partners taking notice.
Shaw and Partners this week reiterated its buy rating on the ASX lithium stock, albeit with a high-risk rating, and also reiterated its share price target, which we'll get to shortly.
Firstly, let's have a look at what the company announced.
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Major Chinese deal
Global Lithium Resources said in its statement to the ASX that it had struck a "transformational" funding deal with Chinese company Jiangsu Lopal Tech. Group Co., which is a battery materials producer listed on the Shanghai and Hong Kong stock exchanges.
Lopal has agreed to make a $7.32 million equity investment in the company, as well as providing an offtake prepayment of US$75 million, "which will accelerate the development of the 100% owned Manna Lithium Project in Western Australia''.
Global Lithium Resources also agreed to sell its interest in the Marble Bar Lithium Project to Lopal for $14.85 million.
Global Lithium Resources Managing Director Dr Dianmin Chen said the arrangements with Lopal represented "a pivotal advancement in the Manna Lithium Project toward a final investment decision on its development".
He added:
The arrangements with Lopal provide a robust initial contribution to fund Manna's future development, securing critical long-term customer relationships and validating the demand for Manna's substantial and high-quality lithium resource.
Under the agreement, Lopal will take 40% of the Manna Lithium Project's annual production, which is expected to be about 70,000 tonnes of spodumene per annum.
Combined with an existing offtake agreement with Canmax Technologies Co., 70% of the project's production is now accounted for.
The investments are not subject to approval by the Foreign Investment Review Board, the company said.
Shares looking cheap
Shaw and Partners said in its note to clients that the deal was a positive for the company.
We continue to forecast EV demand catalysed by the Iran War as a decisive factor underpinning a shift in the lithium market from surplus to deficit by the end of this year. Despite rising prices, lithium supply growth will remain constrained, and this is very positive for both the lithium price and lithium equities. Global Lithium remains one of our preferred lithium developers in a market that is getting tighter by the day. We reiterate our Buy recommendation and discounted cash flow-based $1.50 price target.
Shaw and Partners noted the company would have $137 million in cash following the conclusion of the new agreement.
Global Lithium Resources shares were changing hands for 57.5 cents on Friday, well below Shaw's $1.50 target price.
The company is valued at $149.9 million.
